Medicaid Programs Hampered by Drug Costs, With Little Recourse


The rising cost of prescription drugs will increasingly tax state budgets as Medicaid programs have little control over how much they spend on medications, Medicaid directors and researchers told me recently.

Many states are expected to struggle in controlling drug costs, largely because Medicaid programs must pay for all federally approved drugs.

Spending on Medicaid has grown dramatically in recent years due to the expansion of 32 Medicaid programs under the Affordable Care Act. That growth is expected to slow in coming years as new enrollment dwindles, but prescription drug costs will likely continue to be a major cost driver for state Medicaid budgets.

Enrollment in Medicaid programs nationwide grew more than 13 percent on average in fiscal year 2015, according to a survey of Medicaid directors by the Kaiser Family Foundation. In fiscal year 2016, Medicaid enrollment grew on average 3.9 percent and Medicaid spending grew 5.9 percent.

“They don't have a lot of influence over pricing,” Vern Smith, who worked on the survey for Kaiser and serves as a senior fellow at the Washington-based consulting firm Health Management Associates, told me. “States can't pick and choose what drugs to cover, so they'll likely try to find savings wherever they can.”

Even those states that didn't expand Medicaid are contending with growing drug costs, according to the Kaiser report. Nearly every Medicaid director flagged the high cost of specialty drugs as a major driver of Medicaid spending.

Many Medicaid directors have complained about the high cost of Sovaldi, a drug approved to treat chronic hepatitis C. A 12-week regiment of the drug is reported to cost $84,000.

Most states are refining their pharmacy programs, hoping to take better advantage of rebate programs and managed care organizations to pay less for drugs, he said.

Some are refining how they determine which drugs are medically necessary—the approval process for Medicaid beneficiaries to get prescriptions, Smith said. By being more diligent with approvals, he said, Medicaid programs can reduce the costs of unnecessary prescriptions.

However, rising drug prices could simply be a reality that Medicaid programs must contend with by reducing other costs or focusing on the long-term benefits of these drugs, John McCarthy, vice president of the National Association of Medicaid Directors and director of Ohio's Medicaid program, told me. He pointed to Sovaldi as an example of an expensive drug that nevertheless reduces the long-term costs associated with treating someone with hepatitis C.

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