January 6, 2011

(Washington, DC) — Medicaid spending growth almost doubled over the past year according to new data released by the Centers for Medicare and Medicaid Services (CMS) and reported on in Health Affairs. This comes on the heels of a report issued by the Pharmaceutical Care Management Association (PCMA) that showed that state Medicaid programs typically pay higher pharmacy costs than other programs.

Most states use a fee-for-service approach in which public officials arbitrarily determine how much pharmacies are paid. As a result, Medicaid often pays pharmacies higher dispensing fees and ingredient cost reimbursements. On the other hand, Medicare and commercial plans allow pharmacy payments to be privately negotiated between plans and pharmacies in a process that is insulated from political pressure by the drugstore lobby and others interested in keeping rates high.

“Medicaid continues to stand out as the problem child of wasteful spending. The easiest way for Governors and Congress to reduce billions in Medicaid waste without cutting benefits – or slashing hospital or physician payments – is to stop overpaying pharmacies and start using cutting edge marketplace tools to negotiate lower rates and increase the use of generics,” said PCMA President and CEO Mark Merritt. “Pharmacy benefit managers (PBMs) do this every day for more than 200 million Americans in Medicare and the commercial market, but have little exposure in Medicaid. Sadly, states often prefer the ‘I scratch your back, you scratch mine’ approach to paying drugstores in Medicaid.”

According to The Lewin Group, Medicaid pharmacy could save more than $30 billion over the next decade by transitioning from the current approach used by state Medicaid fee-for-service (FFS) programs to the more efficient approaches used by Medicare Part D plans, Medicaid managed care organizations (MCOs), and the commercial sector, including typical state employee plans. Recent polling finds voters would rather reduce Medicaid spending by better managing pharmacy benefits rather than cutting benefits for patients or payments to doctors and hospitals.

Read the press release.