Medicaid Drugs

By Poisal, John A. | Health Care Financing Review, Spring 2004 | Go to article overview

Medicaid Drugs

Poisal, John A., Health Care Financing Review

The following commentary unites a collection of articles primarily concerned with prescription drug issues in Medicaid. It also features highlights from a piece outlining Australia's pharmaceutical delivery system. Specifically, in this issue, you will find comprehensive analyses of drug expenditure trends, issues regarding access to pharmaceuticals in Medicaid, and an evaluation of ongoing generic drug cost-containment programs.


Rising pharmaceutical prices have been the subject of intense research and debate over the last several years as drug therapies play an ever-increasing role in our treatment of illness and disease. A significant proportion of expenditures incurred by Medicaid, the insurer of over 40 million medically and categorically needy persons, is devoted to paying for prescription drugs. Recently passed legislation, namely the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (MMA), will likely have a considerable impact on Medicaid expenditures, as Medicare will become the primary drug insurer for approximately 6 million beneficiaries eligible for both the Medicare and Medicaid Programs (known as dually eligible beneficiaries). The trends and analyses contained within include information on dually eligible beneficiaries, as well as all classes of Medicaid beneficiaries.


Medicaid, the Nation's largest program that provides health care to the poor and near-poor, was created in 1965. It is jointly funded by the Federal Government, along with State governments, and is intended to assist people who meet certain eligibility criteria. Each State has its own guidelines that determine what medical services it covers, however, there are certain services that must be covered in order for States to receive Federal funds. One service that is not required of States is coverage for outpatient prescription drugs, yet every State has elected to provide such coverage for at least some of their beneficiaries.

Thinly-stretched State budgets, along with spiraling drug costs, have compelled States to implement certain cost-control mechanisms as they strive to balance the provision of quality health care with the need for fiscal restraint. Among the list of cost-control measures currently employed by many States are monthly utilization limits, automatic generic substitution, creation of maximum allowable cost (MAC) programs, and prior authorization requirements (National Pharmaceutical Council, 2002). Spending trends and the impacts some of these provisions have on State budgets and on Medicaid beneficiaries are scrutinized in this issue of the Health Care Financing Review.

Trends in Costs

The contribution from Baugh, Pine, Blackwell, and Ciborowski is an examination of Medicaid prescription drug costs throughout the decade of the 1990s. During that 10-year period, the authors report overall Medicaid spending increased considerably. Spending for drugs was no exception as it increased from $4.4 billion in 1990 to $20 billion in 2000. On a per recipient basis, spending soared from $256 in 1990 to $975 in 2000.

Among the disabled, Baugh et al. find that increases in drug spending averaged better than 20 percent for the period studied. In fact, this group had the highest Medicaid drug payments of any of the other eligibility groups including the aged, children, and adults. In 2000, drug spending for the disabled topped $11.6 billion, which represented 58 percent of Medicaid's drug payments. That is up from 42 percent in 1990.

They also report that the number of Medicaid recipients increased by just under 2 percent per year throughout the 1990s. The largest group of medication recipients was children (8.3 million), more than double the number of adults receiving Medicaid drugs (4 million).

Cost Containment

With Medicaid drug bills ascending at double-digit rates, cost control policies take on added importance. …

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