Medicaid Prescription Drug Spending in the 1990s: A Decade of Change

By Baugh, David K.; Pine, Penelope, L. et al. | Health Care Financing Review, Spring 2004 | Go to article overview

Medicaid Prescription Drug Spending in the 1990s: A Decade of Change


Baugh, David K., Pine, Penelope, L., Blackwell, Steve, Ciborowski, Gary, Health Care Financing Review


INTRODUCTION

For many years, there has been continued interest by Federal legislators and policymakers concerning health care for the four major Medicaid eligibility groups: aged, disabled (including blind), children, and adults. In the late 1980s, Congress expanded Medicaid coverage to several of these poverty-related groups. Eligibility expansions for older poverty-related children continued through the 1990s. The BBA of 1997 established the SCHIP to provide health insurance coverage for additional groups of children and adults with incomes above the income limits for Medicaid. The Ticket to Work and Work Incentives Improvement Act of 1999 expanded Medicare and Medicaid for some disabled beneficiaries who return to work. There also has been continued concern about the adequacy of Medicare coverage for disabled and aged enrollees. This concern has led to the enactment of legislation for a Federal Medicare prescription drug benefit and a protracted debate about the cost and financing of such a benefit. These interests must be viewed in the context of continued increases in health care spending for Medicaid recipients at a time when fiscal constraint for State budgets has become paramount.

Medicaid payments have now become a significant proportion of every State's budget. In FY 2000, Medicaid was the largest program to provide health care to poor and near poor Americans, covering over 44 million individuals. In that year, Medicaid spent nearly $206 billion, including $21 billion on outpatient drugs--$16.6 billion under FFS programs and an estimated $4.4 billion in prepaid plans (Bruen, 2002). Bruen used CMS-64 data, net of rebates from drug manufacturers, for 50 States, Washington, DC, and other jurisdictions. He also reported that drug spending represented about 10 percent of total Medicaid spending and 14 percent of total national spending on outpatient drugs. Also, most States experienced greater than 50 percent growth in prescription drug spending from 1997-2000. In a recent survey, 36 States identified prescription drugs as the top Medicaid cost driver in 2001 (Smith and Ellis, 2001). Even though Medicaid coverage of outpatient prescription drugs is optional, all States provide prescription drug coverage for categorically needy beneficiaries. An additional 35 States provide some coverage of prescription drugs for medically needy beneficiaries.

In 2000, Medicaid provided health insurance to more than 44 million beneficiaries--16 percent of the U.S. population; $195.5 billion in Medicaid payments--15 percent of total national health care spending; and nearly 821 billion in Medicaid drug payments--17 percent of total national health care spending for drugs (Levit, 2003; U.S. Bureau of the Census, 2003; Klemm, 2003).

Regarding fiscal constraint, the weak economy that has persisted since the September 11, 2001 attacks has created a severe budget crisis for most States (George Washington University, 2003). Many States are considering major cuts to optional Medicaid eligibility and coverage provisions (Kaiser Commission on Medicaid and the Uninsured, 2002a; Toner and Pear, 2003; Desonia, 2002; and Holahan, Weiner, and Lutzky, 2002). Also, most States are using mechanisms and/or limits to contain prescription drug cost increases (Bruen, 2002). These features include copayment, prior authorization, generic substitution, fail-first provisions, multi-tiered formularies, preferred drug lists, and number of prescription limits.

In a previous article, we indicated that Medicaid prescription drug spending increases were a major factor in overall Medicaid spending increases from 1990--1997 (Baugh, Pine, and Blackwell, 1999). This article provides an update to our previous findings by analyzing Medicaid prescription drug spending for the entire decade of the 1990s (1990-2000). Because virtually all Medicaid aged enrollees and nearly one-half of Medicaid disabled enrollees are enrolled in Medicare, the analysis provides important information on Medicaid prescription drug spending for these groups. …

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