A study by the Lewin Group, conducted for the Pharmaceutical Care Management Association, indicates Medicaid could save $30 billion over 10 years in pharmacy expenses by transitioning away from its current predominant fee-for-service payment model.
"Medicaid is one of the few pharmacy benefit programs that still relies heavily upon a fee-for-service approach. By operating more like Medicare and commercial market plans, Medicaid could increase the use of generics and save billions without cutting benefits," said Mark Merritt, president and CEO of the PCMA.
The study suggests the savings could be realized by Medicaid pharmacy programs if they incorpate the approaches of Medicare Part D, Medicaid managed care organizations and the commercial sector, including typical state employee health plans.
One of the reasons for high pharmacy costs is the way in which most states use pharmacy benefits administrators to mange their FFS plans. While the use of PBAs can make managing claims more efficient, Medicaid plans typically don't use them to negotiate payment terms with pharmacies. This is in direct contrast to Medicare Part D plans, Medicaid MCOs and state employee plans, which typically use PBMs to negotiate how much to pay for each prescription filled (dispensing fees) and ingredient costs (the reimbursement for the cost of the actual drugs).
"The experience of Medicaid MCOs indicates that Medicaid pharmacy benefits can be more actively managed without compromising quality or access to medications for the unique and vulnerable populations that Medicaid serves," the report noted. "Likewise, widely varying payment levels – and per-member-per-month costs – among state Medicaid fee-for-service programs serving similar populations suggest that substantial room exists to improve efficiency in most states."
Three-quarters of Medicaid pharmacy payments are based on the FFS model, where public administrators help determine how much to pay for dispensing fees and ingredient costs. The rest are administered more in line with how the commercial sector manages these benefits.
The survey noted that changing to more active management of the programs, so as to not rely solely on the negotiation of rebates from drug manufacturers, would result in savings in four areas:
- Generic Drug Dispensing: Medicaid FFS is less effective at encouraging the dispensing of generic drugs in place of brands. The generic dispensing rate in Medicaid FFS averages 68 percent, compared to an average 80 percent generic dispensing rate in Medicaid MCOs.
- Dispensing Fees: At $4.81 per prescription, the national average dispensing fee that Medicaid FFS programs pay to retail pharmacies per each prescription is more than double the average dispensing fees paid by Medicare Part D payers, Medicaid MCOs or health plans in the commercial sector.
- Ingredient Costs: The rate at which retail pharmacies are reimbursed for the actual medication ingredients (pills, capsules, etc.) is also higher, on average, in Medicaid FFS programs than in Medicare Part D or the commercial sector.
- Drug Use: The number of prescriptions dispensed per person is typically higher in Medicaid FFS programs than in Medicaid MCOs due to less effective controls on polypharmacy, fraud, waste, abuse and other factors in the FFS setting.