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Study: Privatizing Medicaid Drug Delivery Could Reduce Spending

Fully privatizing Medicaid pharmacy benefits through managed care organizations could lower drug spending by 22%.
Published Online: Nov 13,2017
Laurie Toich, Assistant Editor
Fully privatizing pharmacy benefit programs may be able to save Medicaid programs a significant amount of money, according to a study conducted by the National Bureau of Economic Research.

Prior to the passage of the Affordable Care Act (ACA), states kept their public pharmacy benefits programs separate, despite a move towards private insurer coverage for medical services, FierceHealthcare reported. 

Under the ACA, states were allowed to receive drug rebates for managed care organization (MCO) enrollees. This resulted in many states adding pharmacy benefits to medical-only MCO plans or shift from public coverage of drug and medical benefits to coverage through an MCO, according to the article.

The researchers examined the variation in state responses to determine how privatizing Medicaid pharmacy benefits would affect drug costs.

The authors discovered that fully privatizing Medicaid pharmacy benefits lead to a reduction in drug spending by 22.4%, according to the article.

This finding was likely the result of the MCO’s ability to negotiate rebates and ensure that patients are directed towards lower-cost therapies, including generics, according to the authors.

“MCOs negotiate lower point-of-sale prices with pharmacies, accounting for approximately one-third of the savings,” the authors wrote. “MCOs also shift utilization to generic drugs, explaining between one-third and two-thirds of the reduction, depending on assumptions.”

Additionally, the authors found that the savings were greater in states in which the MCOs were able to develop their own formularies, according to the study.

Notably, the findings suggest that MCOs may not be sacrificing patient access to attain the savings. The authors discovered that privatization did not reduce the number of prescriptions received by Medicaid patients.

“This suggests, if not conclusively, that MCOs are not shortchanging the use of drugs with large health benefits,” the authors wrote. “Taken together, our findings suggest that the carving-in of drug benefits has reduced drug spending without harming enrollee health.”

The authors concluded that fully privatizing Medicaid would likely result in significant savings without impacting patient health or access to prescription drugs.

“State and federal officials have proposed a range of policies to combat rising drug prices. Some policies – including price controls and caps on consumer expenditure – are likely to have serious unintended consequences,” the authors wrote. “By contrast, the policy change we study could save billions of dollars without reducing overall drug utilization; the sheer ability of MCOs to control access leads to major reductions in price per prescription.”