NCPA - National Center for Policy Analysis

Alabama's Medicaid Drug Program

May 27, 2015

One million Alabamans are enrolled in Medicaid, a joint federal-state program that provides medical care to nearly 70 million low-income individuals nationwide. Medicaid consumes over one-third of the General Fund, and costs state and federal taxpayers nearly $6 billion annually — about one-tenth of which participants spend on drugs and drug therapies.

Medicaid officials anticipate enrollment will increase as a result of the Patient Protection and Affordable Care Act, says NCPA senior fellow Devon Herrick. In addition, Medicaid spending on drug therapies will rise as the prevalence of costly specialty drugs increases. Thus, slowing the growth of Medicaid drug spending is a fiscal imperative for Alabama's state budget.

Drug benefits are an important component of Medicaid. Drug therapy is not only convenient, it is also the most efficient way to treat many health conditions. Moreover, drugs are a relative bargain compared to other medical expenditures. Americans spend twice as much on doctors and about three times as much on hospital care as on drug therapies.

However, the cost of drug therapies is rising. Specialty drugs are supplanting the tablets, capsules and elixirs Americans have come to expect from their doctors. And as this occurs, drug spending is expected to grow at an increasing rate.

The Menges Group, a consultancy that evaluates state Medicaid programs with an emphasis on special needs populations, identified a few of the ways state Medicaid drug programs waste money. For example:

  • Drug prices often differ unnecessarily from one pharmacy to the next.
  • State Medicaid programs arbitrarily pay much higher dispensing fees than would occur in a competitive market.
  • State Medicaid fee-for-service drug programs use low-cost, generic drugs less than efficiently-managed programs.
  • Moreover, the number of redundant and unnecessary prescriptions per Medicaid enrollee is often higher for state-managed fee for service drug programs.

Source: Devon Herrick, "Alabama's Medicaid Drug Program," Alabama Policy Institute, May 2015. 

 

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