Upgrading Medicaid Drug Benefits Could Save Kentucky $461 Million
A new report estimates that upgrading management of drug benefits in Kentucky Medicaid program could save $461 million without cutting either benefits or enrollees. Kentucky and other state Medicaid programs make too little use of the tools Medicare, unions, and employers rely on to curb wasteful pharmacy spending.
Components of potential savings for Kentucky include:
- Increasing the use of generic drugs: State-administered Medicaid programs that do not already manage formularies are less effective at encouraging the use of generic medications. In Kentucky, the average generic dispensing rate in the Medicaid fee-for-service (FFS) setting is 75%, compared to an average generic dispensing rate exceeding 80% in managed Medicaid settings.
- Negotiating market-based pharmacy dispensing fees: At up to $5 per prescription, the average dispensing fee that the Kentucky 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.
- Using limited pharmacy networks: In most state Medicaid programs, every drugstore in the state is entitled to participate. State Medicaid programs could achieve greater savings by using a competitive process and negotiating better discounts from select drugstores that wish to participate in a limited pharmacy network.
- Encouraging the use of more affordable, preferred brands: The Kentucky Medicaid FFS program generally does not aggressively encourage the use of more affordable, preferred brands through active formulary management.
- Reducing drug diversion, polypharmacy, fraud, and waste: Medicaid plans that are more actively managed detect patterns of fraud through use of tools like step therapy, audits, and pharmacy lock-in programs to help detect and avoid inappropriate utilization.