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Medicaid pays significantly less for prescription drugs than other government healthcare programs, according to an analysis conducted by the Government Accountability Office.

Medicaid pays less for drugs than other federal programs, GAO says


By Paul Demko
Posted: July 1, 2014 - 12:15 pm ET
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Medicaid pays significantly less for prescription drugs than other government healthcare programs, according to an analysis (PDF) conducted by the Government Accountability Office.

The healthcare program for low-income individuals paid $0.62 per unit for prescription drugs during the third quarter of 2010, the most recent time period for which comprehensive data were available. By comparison, Medicare paid 32% more on average for prescription drugs and the Department of Defense paid 60% more for drug purchases.

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The price gap for Medicaid in subsidizing prescription drugs was most pronounced for brand-name drugs. The program paid on average $1.57 per unit. That compared with $2.11 for the Department of Defense and $2.65 for Medicare. For generic drugs, the average per unit cost was $0.28 for Medicaid, $0.29 for Medicare and $0.42 for the DOD.

The GAO attributed the lower costs in large part to steeper rebates from drug manufacturers. For Medicaid, the average post-purchase price adjustment was just more than 50%, while for the DOD it was 31% and for Medicare just 15%.

The GAO ascribed these differences to whether federal law requires manufacturers to provide rebates on drugs purchased through certain federal programs. "In contrast to the statutory authority allowing DOD and Medicaid to collect specific refunds and rebates, Medicare Part D plan sponsors rely on independent negotiations to obtain price concessions from drug manufacturers," the report noted. "As we have previously reported, plan sponsors have noted limitations on their ability to negotiate price concessions for some drugs due to formulary requirements set by CMS, lack of competitors for some drugs, or low utilization for some drugs that limit incentives for manufacturers to provide price concessions."

The study looked at 78 drugs – 45 brand name and 33 generic. Those drugs accounted for at least 25% of utilization and cost for both Medicare and the DOD. Medicaid paid the lowest prices for 25 brand-name and three generic drugs, while DOD paid the lowest net price for five brand-name and 22 generic drugs, and Medicare spent the least on three brand-name and 20 generic drugs.

For fiscal 2011, the period covered by the study, Medicare covered prescription drug costs for 33.2 million individuals at a cost of $55.2 billion. That was nearly two thirds of all prescription-drug costs for the federal government. Medicaid paid some prescription-drug costs for 71.5 million individuals, or more than 20% of the country's total population. The federal share of that cost was $8.6 billion, roughly 10% of federal drug expenditures. The DOD paid prescriptions for 9.7 million individuals at a cost of $7.5 billion, or 8.9 % of federal drug costs.

The study was requested by Sen. Tom Coburn (R-Okla.), a medical doctor who is retiring after this year. Coburn's office provided no immediate response to the results.

Follow Paul Demko on Twitter: @MHpdemko


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