Association for Public Policy Analysis & Management

The extent of Medicaid prescription spending has prompted state policy makers to adopt a variety of cost-containment efforts including negotiated pricing and price transparency strategies. Spending on Medicaid prescription drugs dramatically increased to $43 billion in 2014 from $29.3 billion in 2005. In 2014, the increase in Medicaid prescription spending (24.3%) surpassed overall prescription drug spending (12.2%) and all other health expenditure (4.6%).

As for the negotiated pricing, some states have decided to carve prescription drugs into their managed care plans and to collect Managed Care Organization (MCO) rebates under the ACA, along with traditional single- and multi-state rebate programs. As of 2017, thirty states have single-state programs and twenty-eight states have multi-state programs. In addition, as of 2017, seventeen states including California, Florida, New York, and Texas decided to add pharmacy benefits into their managed care plans to collect supplemental MCO rebate while many states have opted out prescription benefits from the managed care benefit packages.

As for the price transparency strategy, some state governments have operated the All-Payer Claims Databases (APCDs) for state-wide comparable price information. APCDs are state initiatives to improve price transparency and contain health care spending. The databases collect payment data including Medicaid prescription and provide state policy makers with comparable price information, which can allow them for more bargaining power toward manufacturers. As of July 2017, sixteen states have operational APCDs, and the five states of Delaware, Florida, Hawaii, New York, and West Virginia have enacted legislation to establish the databases and have moved toward implementing them.

Impacts of these state strategies on state Medicaid prescription spending over time are unclear. To assess whether the cost of Medicaid prescriptions is associated with the negotiated pricing strategy, as indicated by state rebate programs, and with the price transparency strategy, as indicated by state operation of the APCDs, this research utilized fixed effects panel data analysis with robust standard errors, using data from fifty states in the period between 2007 and 2014 (n = 400). This study provides evidence that state Medicaid prescription spending was influenced by the negotiated pricing strategy, especially MCO rebates under the ACA. The evidence presented here suggests that state decisions for MCO rebates, carving prescription benefits into managed care benefits, was effective in containing levels of Medicaid prescription spending while other single-and multi-state rebate programs were not. In addition, the price transparency strategy was not effective.

This study provides evidence that Medicaid prescription spending was influenced by the negotiated pricing strategy, especially MCO rebates, but not by the price transparency strategy. However, state operation of APCDs for enhancing price transparency have potential to affect levels of Medicaid prescription spending. State policy makers may want to have interests in data analysis and utility along with establishing data collection systems.