Free Money in Medicaid? A Lesson from Mississippi and Massachusetts

Governor Haley Barbour of Mississippi and Governor Deval Patrick of Massachusetts recently testified before Congress on Medicaid and state healthcare reform. Governor Barbour detailed how, in just two years, Mississippi’s Medicaid program brought drug costs down from nearly $700 million to $279 million. He testified that Mississippi achieved these gains in part by limiting adult beneficiaries to two brand-drug prescriptions per month and the total number of prescriptions to five per month.

But there is more good news to tout in Mississippi’s management of their Medicaid pharmacy program that wasn’t discussed by Governor Barbour. According to my research in a study released today by AEI, Mississippi is among the most effective Medicaid programs in the country at ensuring that beneficiaries get the lowest-cost versions of multi-source drugs. Such steps do not require limiting access to prescription drugs, just ensuring the lowest cost version is utilized.

While Governor Patrick’s testimony did not address pharmacy benefits, Massachusetts is another extremely successful state in this regard. An aggressive policy promoting utilization of lower-cost generics has resulted in a highly efficient Medicaid pharmacy program.

Overspending on Multi-Source Drugs in Medicaid” tracks state utilization of brand and generic versions of 20 top multi-source products in Medicaid in 2009. The report estimates that Medicaid spent over $300 million extra that year by paying for brand drugs when lower-cost generics with the identical active ingredient were available. In terms of waste per Medicaid enrollee, the worst offenders were Vermont ($31/enrollee), Iowa ($31/enrollee), Maine ($18/enrollee), New Hampshire ($17/enrollee), and Georgia ($15/enrollee).

In Mississippi, overspending on brand versions of multi-source drugs is estimated at just less than $1 per enrollee. In Massachusetts, overspending averages only $1.23 per enrollee. If every state were as efficient as these two states, total spending could have been reduced by hundreds of millions of dollars.

Image by Gage Skidmore.

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