Michigan's Medicaid Reform

November 14, 2013

Michigan is moving to cover Medicaid enrollees in privately-administered managed care plans.  The state should also continue to move enrollees to managed drug plans.  Virtually all state Medicaid programs distribute some drugs on a fee-for-service (FFS) basis separately from any health plan.  Nearly half of the states carve out and administer drug benefits separately, distributing all Medicaid drugs this way.  Nationally, one-third of Medicaid drugs are distributed FFS, a proportion similar to Michigan, says Devon M. Herrick, a senior fellow with the National Center for Policy Analysis.

A recent analysis by the Menges Group, a consultancy, identified ways in which privately managed Medicaid drug programs are more efficient than state-administered Medicaid drug benefits.  Rather than negotiating with pharmacy networks, state FFS Medicaid programs often arbitrarily pay much higher dispensing fees than they would in a competitive market. Utilization of generic drugs is often lower in state FFS Medicaid and the number of prescriptions per member is higher.  Moreover, FFS Medicare programs face political opposition to negotiating exclusive pharmacy network contracts that deliver lower drug prices to taxpayers.

  • Just over two-thirds (71 percent) of drug prescriptions in Michigan's FFS Medicaid are filled with generic drugs, whereas the national average for managed Medicaid drug benefits is about 80 percent.
  • Michigan's FFS Medicaid pays pharmacies $2.75 to dispense a prescription, whereas the average for private Medicare Part D plans is nearly one-third less -- about $2.00.
  • The number of prescriptions per Medicaid enrollee is generally higher among enrollees in FFS Medicaid compared to managed care.
  • According to Menges, integrating drug and health benefits in a statewide managed care program could save Michigan Medicaid $1.9 billion over 10 years in federal and state spending.

As Michigan moves more Medicaid enrollees into managed care, it should also integrate drug benefits into enrollees' health plans. In addition, legislators should avoid the temptation to enact protectionist regulations designed to limit competition among pharmacies participating in the Medicaid program.

Source: Devon M. Herrick, "Reforming Michigan's Medicaid Drug Program," National Center for Policy Analysis, November 14, 2013.

 

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