Private Insurers: Give Us the Medicaid Drug Rebate, Too

HealthLeaders Media Staff, June 3, 2009

Private health insurance leaders are pushing Congress to allow insurers to benefit from the Medicaid Drug Rebate Program, which lets states pay less for drugs in their Medicaid program.

There are two reasons behind the insurers' plea: a desire to improve the bottom line and a need to improve care coordination.

The drug rebate was created in 1990 and requires drug manufacturers to enter into an agreement with HHS to offer the rebate to Medicaid state programs. In 1992, the rebate program was extended to include the Veterans Administration.

Approximately 550 pharmaceutical companies participate in this program, which is available in 49 states and the District of Columbia, according to CMS.

The current law, which would be changed if legislation on Capitol Hill is approved, forces states that partner with private insurers to make a tough decision. Do they save money and carve out pharmacy from their Medicaid managed care programs that are run by private insurers? Or, do they keep pharmacy within private health insurers' Medicaid programs and gain the benefit of better care coordination, while losing out on the rebate?

States that want to take advantage of the drug rebate have carved out pharmacy programs from their private insurer-run Medicaid managed care plans, but these plans don't integrate immediate pharmacy benefit information because pharmacy is carved out of the program in order to benefit from the drug rebates. Private insurers say this leaves out an important piece of care coordination.

For instance, in going with a private insurer as opposed to carving out the program, when a Medicaid beneficiary is placed on a particular medication, the private health plan can find out immediately and enroll the member in a disease management or wellness program. With pharmacy carved out of the program, there could be a lag or the health insurer might not have access to that information at all.

In the struggle to find savings that don't involve program cuts and layoffs, it's easy to understand why states are carving out pharmacy from Medicaid managed care. The tough economy makes it critical for health insurers to push for change in the Medicaid Drug Rebate Program because more states will surely look under every rock to find savings and sometimes at the detriment of providing an integrated program that benefits from receiving clinical, claims, and pharmacy data.

The Obama administration has targeted the Medicaid Drug Rebate Program as a potential area of savings and calling for a reduction of $8.8 billion over five years by mandating increased Medicaid drug rebates. With the rebate on the table, this is an opportunity for health insurers to promote why they too should receive drug rebates—and that is exactly what they are doing.

America's Health Insurance Plans President and CEO Karen Ignagni said Medicaid managed care plans should receive the same drug rebates because they are in effect working as state agents.

J. Mario Molina, MD, chairman and CEO of Molina Healthcare, which covers more than 1.3 million Medicaid lives in 11 states, said roughly half of Medicaid beneficiaries are covered under managed care plans, which shows the rebate's importance to insurers and states.

As the health insurance industry converges on San Diego for its annual AHIP conference this week, healthcare reform tops the agenda. The discussion has focused mostly on the public insurance option, but health insurers involved in Medicaid should also keep their eyes on Medicaid Drug Rebate Program legislation and work to integrate rebate changes into the larger healthcare reform package.

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