Reforming Wisconsin's Medicaid Drug Program
February 19, 2014
Wisconsin has moved about two-thirds of its Medicaid enrollees into privately administered managed care plans, known as BadgerCare. However, the state has been very slow to move Medicaid enrollees into managed drug plans. Virtually all state Medicaid programs distribute some drugs on a fee-for-service (FFS) basis separately from enrollees' health plans. A few states distribute almost all their Medicaid drugs this way; Wisconsin is one of them. This inefficient practice should change, 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 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. These programs rarely utilize generic drugs. Moreover, FFS Medicaid faces political opposition to exclusive pharmacy network contracts.
- Just over three-fourths (77 percent) of prescriptions in Wisconsin's fee-for-service Medicaid plan are filled with generic drugs; the national average for managed Medicaid drug benefits is about 80 percent.
- Wisconsin's Medicaid programs pays pharmacies $3.94 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 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 over the next 10 years could save Wisconsin Medicaid over $2 billion in federal and state spending. Specifically:
- Nearly one-sixth (16 percent) of the savings would come from paying market-based, competitive dispensing fees.
- About half (49 percent) would come from use of generic drugs where appropriate.
- More than one-fourth (27 percent) would come from negotiating steep discounts with exclusive networks.
Medicaid will best serve Wisconsin taxpayers by providing drugs to enrollees at the lowest possible cost. Wisconsin has moved many of its Medicaid enrollees into managed care plans. The state 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, Wisconsin legislators will undoubtedly come under political pressure to protect local providers from the competition that could save taxpayers money.
Source: Devon M. Herrick, "Reforming Wisconsin's Medicaid Drug Program," National Center for Policy Analysis, February 19, 2014.
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