Approaches to the Medicaid Prescription Drug Benefit
States that employ Medicaid managed care organizations (MCOs) to pay for prescription drugs outperform states that rely on the fee-for-service (FFS) setting to control drug costs. Despite larger rebates in FFS, MCOs’ effective strategies to encourage use of less expensive drugs contribute to lower net costs per prescription.
Capitation contracting with Medicaid MCOs is the nation’s primary approach to delivering Medicaid coverage. Within the pharmacy benefit, over 70% of Medicaid prescriptions nationwide were paid by MCOs in the past several years. Medicaid MCOs more effectively steer prescription volume to low-cost, generic drugs.
In FFS, states encourage use of brand medications with the largest manufacturer rebates. Yet, states can still achieve the greatest savings through MCOs’ management of the drug benefit. While this report focuses on cost-effectiveness, it is just one factor states may consider when deciding how to manage the Medicaid drug benefit. Clinical outcomes, quality, and provider and beneficiary experience are also important considerations, but are outside the scope of this study.
Related Public Policy Research
Medicaid Prescription Drug Management: Quality Scores Compared Across Different Approaches
Data show that states that employ managed care organizations (MCOs) to manage the Medicaid prescription drug benefit collectively exhibit higher scores on pharmacy-related clinical quality measures than states that rely on the fee-for-service (FFS) setting to administer the benefit.
PBM and Community Pharmacy Partnerships Can Improve Medicaid Outcomes
Individuals’ visits to community pharmacies outnumber visits to other healthcare provider types by nearly 2:1. Value-based care arrangements between pharmacy benefit managers (PBMs) and independent community pharmacies, where enhanced services are performed, can improve outcomes for individuals at higher risk for poor health outcomes.
Understanding the Role of Pharmacy Benefit Managers in Healthcare
PBMs are companies that administer the prescription drug benefit for health plans and employers. PBMs add value in three primary ways: improving health outcomes using evidence-based clinical programs, effectively managing pharmacy networks, and using financial management strategies to reduce prescription drug spending and costs.