PCMA finds Ohio's Medicaid program can save $135 million over the next decade

Ohio's Medicaid program could cost taxpayers an additional $1.6 billion next year, a 49 percent jump in the state's share of costs for the health care program covering more than 2 million poor and disabled Ohioans, according to new information released by the Governor's Office of Health Transformation.  This new information comes on the heels of a recent report issued by the Pharmaceutical Care Management Association (PCMA) that found the state of Ohio's Medicaid program could save $135 million over the next decade by managing pharmacy benefits more like Medicare and commercial-sector employer plans.

"The easiest way for the state of Ohio to reduce costs in Medicaid without cutting benefits is to stop overpaying pharmacies and start using cutting edge marketplace tools to negotiate lower rates and increase the use of generics," said PCMA President and CEO Mark Merritt.  "By operating more like Medicare and commercial market plans, the Ohio Medicaid program could reduce pharmacy costs, increase the use of generics, and save $135 million over ten years without cutting benefits."

Recent polling finds that voters want to reduce Medicaid spending by more efficient pharmacy management rather than cutting benefits for patients or payments to doctors and hospitals.  Voters also want Medicaid to stop paying higher pharmacy costs than other programs while also using fewer generics.

Most states use a fee-for-service approach in which public officials arbitrarily determine how much pharmacies are paid.  As a result, Medicaid often pays pharmacies higher dispensing fees and ingredient cost reimbursements.  On the other hand, Medicare and commercial plans allow pharmacy payments to be privately negotiated between plans and pharmacies in a process that is insulated from political pressure from drugstores and others interested in keeping rates high.

Key Findings from The Lewin Group study:

While Medicaid policymakers often focus on drug manufacturer rebates, the Lewin study finds that better management of the 39% of Medicaid pharmacy costs in Ohio that now flow through its FFS program could generate savings in four other key areas:

• Generic Drug Dispensing: In the Ohio Medicaid FFS program, just 71% of prescriptions were dispensed using generics during early 2010, significantly less than the average 80% generic dispensing rate typical of Medicaid managed care plans.
• Dispensing Fees: At $3.70 per prescription, the average dispensing fee that the Ohio Medicaid FFS program pays to retail pharmacies is significantly higher than average dispensing fees of approximately $2 paid by Medicare Part D, Medicaid managed care organizations (MCOs), and other health plans.
• Ingredient Costs: The rate at which retail pharmacies are reimbursed for the actual medication ingredients (pills, capsules, etc.) is higher, on average, in Medicaid FFS 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 managed care plans due to less effective controls on polypharmacy, fraud, waste, abuse, and other factors in the FFS setting.

Estimated State Medicaid Savings

If the Ohio Medicaid program used a market-based approach such that generic dispensing, dispensing fees, ingredient costs, and drug utilization were brought in-line with norms for other programs, Lewin estimates:

• Ohio Medicaid FFS prescription costs could be reduced by 10%.
• Per member per month (PMPM) costs for Medicaid FFS pharmacy benefits in Ohio could be reduced by $13 in 2011.
• Ohio could save $135 million during the 2011-2020 period in state funds, with total Medicaid savings of $395 million in Ohio during the same period when Federal and State savings are combined.

Key Findings from the Ayres, McHenry, & Associates, Inc. national survey include:

• By an 80 to 15 percent margin, voters don't want Medicaid to pay drugstores more for prescription drugs than private plans pay.
• Voters support reducing spending on Medicaid, provided benefits are not cut for patients in the program. Voters support reducing spending on Medicaid by a 63 to 25 percent margin "if it did not require cutting benefits for patients in the program." A plurality of voters opposes reducing spending on Medicaid (49 to 36 percent) "if it meant reducing benefits for patients in the program or allowing fewer people to participate in the program."
• Voters find approaches to cutting Medicaid costs acceptable when they involve reducing costs for prescription drugs, but find cutting payments to physicians and hospitals unacceptable. Voters find "requir[ing] Medicaid patients to use generic drugs unless their doctor objects" acceptable by an 85 to 12 percent margin, find "mak[ing] local drugstores compete with each other in order to be included in a Medicaid network, like they do for Medicare Part D and private sector plans" acceptable by a 74 to 16 percent margin, and find "mak[ing] sure that different pharmacies do not issue duplicate prescriptions to the same patient" acceptable by a 74 to 20 percent margin.
• Voters find cutting payments to physicians and hospitals who see Medicaid patients unacceptable by 64 to 29 percent and 61 to 31 percent margins, respectively.
• One likely reason for voters' flexibility regarding Medicaid pharmacy is that the vast majority of voters have at least three pharmacies in their area. Eighty-five percent of voters have at least three pharmacies in their area, including 61 percent who have more than five pharmacies in their area.