NCPA - National Center for Policy Analysis

States Scramble to Drive Down Medicaid Drug Costs

August 15, 2013

A little-known provision of the 2010 health care law has states and their governors scrambling to take advantage of potential savings in how states distribute medication to Medicaid patients. The Affordable Care Act (ACA) allows states to receive drug rebates even if they move their Medicaid prescription benefit to managed-care organizations. The federal government has also asked states to fix the wide disparities in dispensing costs for drugs distributed through Medicaid, says USA Today.

That has created a rush by states and businesses to capitalize on the changes as evidence shows they are having an effect.

  • For the first time, New York has reduced Medicaid spending.
  • Alabama, which had one of the highest dispensing rates for Medicaid drugs, has created a commission to determine the best way to distribute medication.

The increase in spending for Medicaid has bedeviled states for decades. Spending for medication was no different, and states have tried various approaches to reducing costs.

Although some approaches have succeeded in reducing costs, they have also created a patchwork in which states such as Alabama pay $11 per prescription to dispense Medicaid drugs but with low ingredient fees, while other states pay $2 in dispensing fees and higher costs for ingredients. Neither approach is transparent.

  • The battle for change now pits pharmaceutical manufacturers, pharmacy benefit managers and both physical and mail-order pharmacies against one another.
  • They are lobbying state legislators around the country to encourage the use of certain medications, incentives and rebates.
  • At the same time, drug costs have increased and people are using more medications as they develop chronic diseases such as heart disease or diabetes.

The ACA allowed states to expand their Medicaid programs to cover more people. Some of the nation's most populous states, such as California and New York, have expanded, while others, such as Texas, have not. Expansion can provide a windfall to any drug provider in Medicaid.

Source: Kelly Kennedy, "States Scramble to Drive Down Medicaid Drug Costs," USA Today News, August 11, 2013.


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