Medicaid Reform

Many states have shifted their Medicaid population into managed care in recent years, often because state policymakers have been sold on the often-misleading approach that turning over the management of their Medicaid prescription drug benefit program to a contracted entity will result in notable savings.

NCPA Medicaid managed care reform two-pager

Additional Resources

The problem: Medicaid drug costs are increasing, but pharmacy reimbursements are decreasing. Something isn't adding up.

As pharmacy reimbursement rates are ratcheted down, pharmacy providers are frequently reimbursed at rates that leave them "underwater" on the medications they dispense. Eventually, this leads to drastic negative effects on pharmacy providers as well as the vulnerable Medicaid beneficiaries who they serve. Meanwhile, Medicaid budgets are soaring.

The cause: PBMs are pocketing millions of dollars by using opaque business practices, such as spread pricing.

States have found that an excessive amount of taxpayer dollars remain with pharmacy benefit managers (PBMs).

Illinois: An audit found $200 million of spread pricing in 2021-2022, revealing non-compliance with many statutory requirements and little departmental oversight of contracts, including of reimbursement rates and rebates.

Kentucky: Creating a single PBM to administer the pharmacy benefit saved the state $282.7 million in 2021-2022, despite that PBMs and MCOs claimed it would cost the state $380 million.

New York: By carving out the Medicaid pharmacy benefit from managed care in 2023, the state budgeted savings of $400 million in its first year and $2 billion over two years.

Ohio: The Department of Medicaid published a report evaluating the single PBM reform program, finding a total savings of $140 million during the first two years (2022-2024), even after the average professional dispensing fee shifted from $0.73 to around $9 per the state’s fee-for-service methodology.

West Virginia: Carving pharmacy benefits out of Medicaid managed care led to actual savings of $54.4 million in one year to the state Medicaid program even when starting a cost-based reimbursement model of NADAC plus a professional dispensing fee.

United States: The Congressional Budget Office estimates that moving to transparent pharmacy reimbursement and eliminating spread pricing in Medicaid managed care will save the federal government $2 billion over 10 years.

United States: A managed care company overcharged more than 20 state Medicaid programs and has been forced into settlements totaling more than $1 billion and counting.