Two Approaches to Controlling Drug Costs

The Medicaid Drug Rebate Program has been around for 20 years.  It requires drug manufacturers to rebate to the states about 15 percent of the amount the state pays for brand name prescription drugs, or 11 percent for generics….

Has the Medicaid drug rebate system controlled prescription drug spending?  [A]bsolutely not.  In a 2009 study in the journal Risk Management and Insurance Review entitled “Do State Cost Control Policies Reduce Medicaid Prescription Drug Spending,” the authors assert: “Spending on prescription drugs has been the fastest growing expense category in Medicaid in recent years, with expenses growing on average over 16 percent per year between 2000 and 2004.”  The Congressional Research Service reported in 2008, “The average annual growth in drug spending under Medicaid over the 15-year period from 1990 to 2005 was about 13.1 percent per year.”

The idea [behind the Medicare Part D program] was to let private sector companies representing millions of seniors negotiate with drug manufacturers for lower prices, and that’s exactly what happened.  The CBO recently estimated that Part D spending will be about 46 percent lower over 10 years than its original projections.

According to the Centers for Medicare and Medicaid Services, the average monthly Part D premium, which covers about 25 percent of the cost of the program, for standard coverage has increased from $23 a month in 2006 to $30 in 2011.  In effect, about $1 more a month each year.  No other health insurance coverage has grown so little.

Full Merrill Matthews piece worth reading.

Comments (3)

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  1. Ken says:

    Good post. On an important issue.

  2. Tom H. says:

    I think Merrill Matthews hit this one out of the park. Right on.

  3. Buster says:

    The Medicaid discount drug program has numerous unintended consequences. The number of firms that qualify for the discounts will approach 20,000 under the Affordable Care Act – triple the number about 10 years ago. This has resulted in shortages of injectable generic drugs. Generic drug companies cannot closeout a drug for less than the government pays or it has to extend the new price to government payers.