NCPA - National Center for Policy Analysis

Reforming Oklahoma's Medicaid Drug Program

February 19, 2014

Oklahoma has moved most of its Medicaid enrollees into privately-administered managed care plans, under a program known as SoonerCare. The state should also move Medicaid 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. However, less than half of the states distribute almost all their Medicaid drugs this way; Oklahoma is one of them, says Devon M. Herrick, a senior fellow with the National Center for Policy Analysis.

A recent analysis by the Menges Group identified ways in which privately managed Medicaid drug plans are more efficient than state-administered Medicaid drug benefit programs. Rather than negotiating with pharmacy networks, state fee-for-service Medicaid programs often arbitrarily pay much higher dispensing fees than they would in a competitive market. Utilization of generic drugs is often lower in fee-for-service Medicaid.

Medicaid programs face political opposition to negotiating exclusive pharmacy network contracts that deliver lower drug prices to taxpayers. As a result:

  • Just over three-fourths (77 percent) of drug prescriptions in Oklahoma's Medicaid plan are filled with generic drugs, whereas the national average for managed Medicaid drug benefits is about 80 percent.
  • Oklahoma Medicaid pays pharmacies $4.02 to dispense a prescription, whereas the average for private Medicare Part D plans is about one-half as much -- about $2.00.
  • The number of prescriptions per Medicaid enrollee is generally higher among enrollees in Medicaid compared to managed care.

According to Menges, integrating drug and health benefits in a statewide managed care program could save Oklahoma Medicaid $1.5 billion over 10 years in federal and state spending. Specifically:

  • Some 17 percent of the savings would come from paying market-based, competitive dispensing fees.
  • More than one-third (38 percent) would come from use of generic drugs where appropriate.
  • More than one-third (36 percent) would come from negotiating steep discounts with exclusive (limited) networks.

Medicaid will best serve Oklahoma taxpayers by providing drugs to enrollees at the lowest possible cost. After Oklahoma moves its 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. The state will likely find that drug plan managers will lower costs -- if they allow drug plans to use the tools to do so. However, Oklahoma legislators will undoubtedly come under political pressure to protect local providers from the competition that could save taxpayers money.

Source: Devon M. Herrick, "Reforming Oklahoma's Medicaid Drug Program," National Center for Policy Analysis, February 19, 2014.


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