Medicaid Drug Programs Could Save $30B by Dropping FFS, Study Claims

Lewin identified four areas where pharmacy benefit management could improve:

• Generic Drug Dispensing: Medicaid FFS is less effective at encouraging the use of generic drugs. The generic dispensing rate in Medicaid FFS averages 68%, compared to an average 80% 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 pills, capsules, etc. is also higher, on average, in Medicaid FFS programs than in Medicare Part D or the commercial sector.
• Drug Utilization: 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.

If all state Medicaid programs used a market-based approach with norms for Medicaid MCOs, Medicare Part D, and commercial payers, Lewin estimates that:

• Combined federal and state savings to the Medicaid program would total $30.3 billion over the next decade.
• Medicaid FFS prescription costs could be reduced by 14.8%.
• Per member per month costs for Medicaid FFS pharmacy benefits could be reduced by $12 in 2011 under optimal management.