Federal Policy Options to Contain Medicaid Drug Costs

Kathleen D. Gifford and Sandy Kramer
Health Management Associates

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Spending on prescription drugs is a major cost driver in the health care system generally and a particular burden for state Medicaid programs that provide vital health care coverage for many of the nation's most medically vulnerable individuals. Medicaid accounts for nearly one in five dollars spent on prescription drugs in the United States, and nearly half of those expenditures are for low-income seniors who are dually eligible for Medicare and Medicaid ("dual eligibles"). In recent years, almost all states have worked to implement pharmacy cost containment measures that preserve access to the vital drug therapies upon which Medicaid beneficiaries rely. The federal government has been generally supportive of state efforts, but has initiated few of its own. More could be done at the federal level to assist states and promote efficiencies across the country. This paper discusses federal options that would assist states to (a) purchase prescription drugs more effectively at the retail level, (b) maximize manufacturer rebates, (c) reduce the ongoing cost burden on states of the new Medicare drug benefit, and (d) promote the delivery of evidence-based, cost-effective pharmaceutical care.