Mississippi Medicaid Could Save $65 Million Over Ten Years by Managing Medicaid Pharmacy More Like Medicare and Commercial Sector Programs

WASHINGTON, Jan. 19, 2011 /PRNewswire-USNewswire/ -- A new study by The Lewin Group finds that the Mississippi Medicaid program could save $65 million over the next decade by managing pharmacy benefits more like state employee plans, Medicare, Medicaid managed care plans, and commercial-sector employer plans. Voters would also prefer to reduce Medicaid spending by better managing pharmacy benefits rather than cutting benefits for patients or payments to doctors and hospitals, according to a new poll from Ayres, McHenry & Associates, Inc.

Unlike Medicaid fee-for-service (FFS) programs, most health plans use third-parties to improve generic utilization and negotiate pharmacy payments directly with chain drugstores and the drug wholesalers that represent independent pharmacies.

Most state Medicaid programs use a different approach in which public officials play a role in determining how much to pay drugstores for each prescription filled (dispensing fees) and ingredient costs (the reimbursement for the cost of the actual drugs).

"Medicaid is one of the few pharmacy benefit programs that still relies heavily upon a fee-for-service approach. By operating more like Medicare and commercial market plans, the Mississippi Medicaid program could reduce pharmacy costs, increase the use of generics, and save $65 million over ten years without cutting benefits," said Pharmaceutical Care Management Association (PCMA) President and CEO Mark Merritt. "Voters don't want Medicaid to pay pharmacies more and use fewer generics than other programs."

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 entirety of Medicaid pharmacy costs in Mississippi that now flow through its FFS program could generate savings in four other key areas:

• Generic Drug Dispensing: In the Mississippi 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 $4.37 per prescription, the average dispensing fee that the Mississippi 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.

Contrary to conventional wisdom, Lewin finds that state Medicaid FFS programs across the country that pay high dispensing fees often also pay high ingredient costs and typically do no better at getting generic drugs dispensed. At the same time, the experience of Medicaid managed care plans indicates that market-based negotiations can be used to determine pharmacy reimbursements without compromising quality or access to medications for the unique and vulnerable populations that Medicaid serves.

Estimated State Medicaid Savings

If the Mississippi 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:

• Mississippi Medicaid FFS prescription costs could be reduced by 11%.
• Per member per month (PMPM) costs for Medicaid FFS pharmacy benefits in Mississippi could be reduced by $7 in 2011.
• Mississippi could save $65 million during the 2011-2020 period in state funds, with total Medicaid savings of $331 million in Mississippi during the same period when Federal and State savings are combined.

Methodologically, the Lewin study estimates savings across all states by applying a uniform set of assumptions to each state's baseline costs and usage patterns. These estimates do not assume any additional cost sharing burden being imposed on Medicaid patients, but do take into account recent changes in Medicaid price benchmarks as well as the impact that increased generic dispensing and reduced drug utilization would have on manufacturer rebates. In short, the study projects that Mississippi and other states could realize large-scale savings by managing their Medicaid FFS pharmacy expenditures consistent with market-based approaches used in other programs.

Key Findings of 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.

PCMA represents the nation's pharmacy benefit managers (PBMs), which improve affordability and

quality of care through the use of electronic prescribing (e-prescribing), generic alternatives, mail-service pharmacies, and other innovative tools for 200-plus million Americans.

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SOURCE Pharmaceutical Care Management Association