Save $30B in Medicaid (over next decade)

The big assumption around savings is always that you’ll have to cut benefits. What if that wasn’t true? Why wouldn’t the government be making those changes?

A new report by The Lewin Group explores this. 73% of Medicaid spending is based on fee-for-service plans that are administered by state officials. Not a big surprise to those of us that believe in the private market over big government, but they leave a lot of money on the table compared to Medicare and managed Medicaid.

The savings come from four areas:

1. Generic Drug Dispensing: Medicaid FFS is less effective at encouraging the dispensing of generic drugs in place of brands. The generic dispensing rate in Medicaid FFS averages 68%, compared to an average 80% generic dispensing rate in Medicaid MCOs. While some of this difference is attributable to demographic differences between the Medicaid FFS and MCO populations, much of the generic dispensing difference persists when looking within each demographic subgroup.
2. Dispensing Fees: At $4.81 per prescription, the national average dispensing fee that Medicaid FFS programs pay to retail pharmacies is more than double the average dispensing fees paid by Medicare Part D payers, Medicaid managed care organizations (MCOs), or health plans in the commercial sector.
3. Ingredient Costs: The rate at which retail pharmacies are reimbursed for the actual medication ingredients (pills, capsules, etc) is also higher, on average, in Medicaid FFS programs than in Medicare Part D or the commercial sector.
4. Drug Utilization: The number of prescriptions dispensed per person is typically higher for similar demographic subgroups in Medicaid FFS programs than in Medicaid MCOs for similar demographic subgroups due to less effective controls on polypharmacy, fraud, waste, abuse, and other factors in the FFS setting.

Their study estimates that converting all the FFS Medicaid to a Managed Medicaid model that relies on the typical PBM process would save almost 15% (or about $30B over the next decade).

The report also includes lots of comparative data (state by state) which shows the discrepancies across the US in terms of cost of FFS Medicaid.