NCPA - National Center for Policy Analysis

Medicaid Reforms in Pennsylvania

November 14, 2013

In order to reduce rising health care costs, many states are forging ahead with plans to move Medicaid enrollees into managed care plans. Pennsylvania has been more aggressive than most states, enrolling more than 80 percent of Medicaid participants in managed care. Pennsylvania is also integrating Medicaid drug benefits with enrollees' health plans rather than carving out drug benefits and administering them separately on a fee-for-service basis, says Devon M. Herrick, a senior fellow with the National Center for Policy Analysis.

Pennsylvania should continue its move away from a less efficient fee-for-service drug program. The Lewin Group, a public policy consultancy, found that managed drug plans are more efficient than plans that administer drugs separately from health benefits.

  • Virtually all state Medicaid programs distribute some drugs on a fee-for-service basis, but Pennsylvania ranks among the few states that distribute only a small portion this way.
  • Pennsylvania distributes about one-fourth of Medicaid drugs on a fee-for-service basis.

However, stakeholders and pharmacy interests have called on the state to impose new layers of unnecessary regulations on drug plans and on firms that manage drug benefits.

  • Some regulation advocates want to dictate business models and contract negotiations between drug plans and their employers/clients. But these restrictions inhibit innovation and flexibility in plan design.
  • Many states allow any-willing-pharmacy to participate in Medicaid drug programs, preventing the development of exclusive networks. This prevents health plan sponsors from selectively negotiating and contracting with pharmacies. Also it's more difficult to detect billing fraud by unscrupulous pharmacy operators.
  • Some states are enacting laws that interfere with the ability of drug plans to reward enrollees who order by mail.

Medicaid will best serve Pennsylvania taxpayers by providing drugs to enrollees at the lowest possible cost. Indeed, better Medicaid prescription drug management could save Pennsylvania $2 billion over 10 years ($1.1 billion in lower federal spending and $896 million less in state spending).

Source: Devon M. Herrick, "Reforming Pennsylvania's Medicaid Drug Program," National Center for Policy Analysis, November 2013.


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