Comparison of Medicaid Pharmacy Costs and Usage between the Fee-for-Service and Capitated Setting
January 2003
Center for Health Care Strategies
Both state Medicaid fee-for-service programs and Medicaid managed care organizations (MCOs) are experiencing double-digit growth rates in their pharmaceutical budgets. As states grapple with both short-term and longer-term Medicaid budget issues, pharmacy spending is receiving substantial attention. The Omnibus Budget Reconciliation Act of 1990 gave states access to a generous rebate program, but limited states' ability to control drug expenditures in ways that other commercial payers can. Medicaid MCOs do not have access to the federal rebate, but may have more leeway in cost containment methodologies. No previous study, however, had quantified and described the differences in drug spending and utilization patterns between Medicaid FFS programs and Medicaid MCOs. This report, Comparison of Medicaid Pharmacy Costs and Usage between the Fee-for-Service and Capitated Setting, prepared by The Lewin Group and the Association for Health Center Affiliated Health Plans and funded by the Center for Health Care Strategies, brings data findings to bear on the many policy making efforts underway in the Medicaid pharmacy arena. The study's intent is to help both state Medicaid agencies and health plans assess how they are faring and what opportunities for cost savings might exist.