How States Waste Medicaid Dollars

Today about 78 percent of the prescriptions Americans fill are generic drugs. The average cost of a generic drug prescription in the Medicaid program is $20.61, compared to the $195.54 average for name brand medications (including drugs for which there is no generic equivalent). Generic fill rates are a low as 47% in Tennessee and range all the way up to 79% in Hawaii.

State reimbursement rates to pharmacies for filling Medicaid prescriptions vary more than is warranted by market conditions, competition and business costs. Dispensing fees vary from $1.75 in New Hampshire to $10.64 in Alabama.  The average dispensing fee negotiated by private Medicare part D drug plans is about $2.00.

Over the course of a decade, increased utilization of generic drugs (when appropriate) would save $15 billion, while paying market rates for dispensing fees would save an additional $10 billion. All told, state Medicaid programs could save a total of $32.7 billion over a decade using these and other techniques.

Read more in my latest NCPA Policy Backgrounder here.

Comments (5)

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  1. Devon Herrick says:

    It makes sense for the drug benefits to be administered alongside health benefits. Drugs can sometimes substitute for more costly hospitalization. If both drugs and health benefits are administered by the same entity, there is less incentive to skimp on costly drug therapies and use a particular therapy that may be cheaper but have costly complications. At the same time, the entity managing drug benefits has an incentive to hold all costs down.

    For those Medicaid enrollees not in a private managed care plan, it is still important to manage the drug benefits through a drug plan.

  2. Bruce says:

    States waste Medicaid dollars? No kidding? I’m shocked? Just like Howard Raines was shocked in Casablanca.

  3. Joe Barnett says:

    That was Claude Rains, Bruce.

  4. Joe Barnett says:

    Previous NCPA Medicaid studies, of New York State and programs nationwide, suggest that billions of dollars are wasted by Medicaid programs on unnecessary spending and nonhealth spending (such as taxicab rides and nonemergency ambulances). You would think cash-strapped states (not to mention the feds) would be doing everything they can to reduce unnecessary spending.

  5. Gerald Weinand says:


    Who’s to say that states and the Fed are not trying to reduce unnecessary spending? Better – why aren’t providers and the middlemen involved not doing more? There’s a lot of money to be made facilitating drug purchases – in fact, there is an entire industry devoted to it: pharmaceutical benefit managers.