October 11, 2012
Governor Andrew Cuomo’s decision to reform New York’s Medicaid pharmacy program using proven pharmacy benefit management (PBM) tools is projected to save the state $425 million in 2012, according to a new study from Special Needs Consulting Services (SNCS) released today by the Pharmaceutical Care Management Association (PCMA).
New York is one of many states exploring new ways to eliminate wasteful Medicaid spending without reducing patient access to quality care. To this end, in January 2011, Governor Cuomo created a Medicaid Redesign Team (MRT) with a goal of “ending the state’s Medicaid fee-for-service system and replacing it with a comprehensive, high-quality and integrated care management system that will lower costs and improve health outcomes.”
“Governor Cuomo has found a way to reduce millions in wasteful Medicaid pharmacy spending without reducing the number of enrollees or the quality of their benefits,” said PCMA President and CEO Mark Merritt. “This could be a bellwether for other states.”
Major findings from the new study include:
- New York Medicaid saves $425 million in 2012, four times greater than expected. SNCS projects that New York’s Medicaid program and taxpayers will save an estimated $425 million in 2012 by transitioning to a more efficient PBM approach. This is four times the $100 million in savings originally estimated by the New York Department of Health.
- The federal government saves more than $212 million. The federal government splits the savings with New York since it is responsible for roughly 50 percent of Medicaid costs.
- The vast majority of savings is from greater use of generics and lower-cost brands. New York Medicaid MCOs expect to achieve generic drug dispensing rates of up to 84%, compared to a 79% rate that would be expected under Medicaid FFS.
- Dispensing fees are no longer higher than those paid by Medicare and private insurers. Consistent with the commercial sector and Medicare Part D, pharmacy dispensing fees have been reduced from $3.50 under the FFS carve-out approach to an average of approximately $1.75 under the PBM approach.
- There is even greater savings potential since New York has yet to tap into the savings available through affordable pharmacy networks and targeted use of mail-service pharmacy.
Increased savings in Medicaid pharmacy are driven from four key areas:
- Greater use of generics and lower cost brand medications
- Stop paying drugstores more than Medicare and private insurers do
- Reducing fraud, waste, and abuse
- Potential savings with preferred pharmacy networks and mail-service pharmacy
The passage of the Affordable Care Act (ACA) in 2010 allowed states to collect statutory manufacturer rebates on prescriptions reimbursed by capitated Medicaid MCOs. Before this, many state Medicaid programs resisted integrating pharmacy benefits and PBM tools for fear of losing access to those rebates. Since 2010, many states have revisited the idea of integrating modernized pharmacy benefits.