Medicaid should stop paying more than Medicare for pharmacy benefits

To help reduce state Medicaid spending, the New York State Health Department yesterday proposed that the program's prescription drug benefits be managed more like those in Medicare and commercial plans. The Department's "Proposal to Redesign Medicaid" says this move would save state taxpayers $350 million though 2015. Currently, New York's Medicaid program uses fewer generic drugs and pays pharmacists twice what they are paid by Medicare and private insurers, according to the Pharmaceutical Care Management Association (PCMA).

"Medicaid shouldn't pay more for Medicaid drug benefits than private insurers and Medicare do. Unfortunately, that's exactly what's been happening in New York," said PCMA President and CEO Mark Merritt. "By simply modernizing Medicaid drug benefits and bringing costs more in line with other programs, New York will save $350 million without cutting patient benefits."

According to a recent study, New York's Medicaid program could save $2.3 billion over the next decade by managing pharmacy benefits more like Medicare, Medicaid managed care plans, and commercial-sector employer plans. Recent polling finds voters prefer this option to cutting benefits for patients or payments to doctors and hospitals.

One big problem is that many state Medicaid programs use an old-school, fee-for-service approach in which state officials arbitrarily decide how much to pay pharmacies – a process which exposes officials to intense lobbying to set inflated rates. Most non-Medicaid drug benefits programs – like those offered by Medicare, employers and unions – have rejected that approach and use independent, third party pharmacy benefit experts to negotiate competitive rates with pharmacies. These programs also use cutting-edge, market-proven strategies to increase the use of generics.