Drop FFS, Save $30 billion on Medicaid

January 6, 2011

State Medicaid programs could save $30 billion over the next decade by replacing fee for service pharmacy programs with managed care programs like those used in Medicare Part D, according to a new report on Medicaid pharmacy spending sponsored by the Pharmaceutical Care Management Association.

State Medicaid programs could save $30 billion over the next decade by replacing fee for service (FFS) pharmacy programs with managed care programs like those used in Medicare Part D. That is the finding of a new report on Medicaid pharmacy spending sponsored by the Pharmaceutical Care Management Association (PCMA). The projected savings are a combination of reduced dispensing fees, reduced drug cost reimbursement, increased generic use, and decreased drug utilization.

“We, like every other health-related group, have been looking for ways to save money in Medicaid without cutting benefits or harming patients,” PCMA president and CEO Mark Merritt told Drug Topics. “Medicaid is not a traditional PBM space, but it is a space legislators are going to be looking into.”

The report, prepared by healthcare and human resources consultants The Lewin Group, noted that FFS pharmacy benefits account for 73% of all Medicaid pharmacy benefits. Dispensing fees, ingredient costs, and benefit management are directed largely by state officials. Medicare Part D, Medicaid managed care organizations, and state employee plans typically use PBMs to set dispensing fees and drug reimbursement levels.

“Medicaid is the last large unmanaged pharmacy benefit in the country,” Merritt said. “Medicaid dispensing fees are double the fees paid under Medicare. There is something wrong with that picture. The system is inefficient.”

Merrit said PCMA is not trying to blame pharmacy providers for Medicaid spending. He said the PBM association wants to open a dialogue with other pharmacy groups and policy makers to help direct Medicaid cuts rather than allow state legislatures to slash programs without regard to the impact on patients.

Community pharmacy is less sanguine about the study. The National Community Pharmacists Association noted that the most effective tool to reduce pharmacy spending is to boost generic utilization, a move that would sharply reduce the brand name rebates that provide significant PBM revenues.

“Increasing generic dispensing rates is the most effective method of reducing the cost of the pharmacy benefit to plans and patients,” said NCPA spokesman John Norton. “All plans including State Medicaid FFS Plans, will realize significant savings by implementing a "Generics First" plan design.”