Medicaid Offering Bigger Drug Discounts Than Medicare

By: - August 17, 2011 12:00 am

Governors have complained repeatedly in recent months that spiraling Medicaid costs are crushing their budgets. But there’s good news on at least one line item in the $370 billion program — prescription drug discounts are getting more generous.
According to a new report from the Inspector General of the U.S. Health and Human Services Department, discounts under the federal-state Medicaid program have been growing since 2006, adding up to a 45 percent rebate for most brand name drugs by 2009. Meanwhile, Medicare — the health insurance program for the elderly that is run entirely by the federal government — saw only a 15 percent reduction in drug costs

The primary reason for the difference is that Medicaid’s rebate program is mandatory for drug companies and requires additional discounts when drug prices rise faster than inflation, which has been the case for the last several years. In contrast, Medicare’s drug discount program has no statutory backing.  Instead, private companies that administer the so-called “Part D” optional drug benefit plan negotiate directly with drug makers

Last year, federal law increased the minimum rate for Medicaid drug rebates to 23 percent. The Inspector General’s report said that rate would go even higher under provisions in the Affordable Care Act. The study compared prices paid by Medicaid and Medicare for the 100 most widely used brand-name drugs and 100 generic drugs. 
Overall, Medicaid rebate amounts for brand-name drugs were three times higher than Medicare rebates. Rebates for generic drugs were negligible under both programs. 

About 50 million low-income people get drug coverage through Medicaid, compared to 30 million seniors and adults with disabilities who receive drug benefits through Medicare. Despite the larger number of people covered, Medicaid’s drug expenditures were one fourth of Medicare’s for the selected drugs in the study — $6.4 billion vs. $24 billion.

In federal deficit reduction initiatives, two congressional Democrats, Representative Henry Waxman of California and Senator Jay Rockefeller of West Virginia, have introduced bills that would require drug makers to pay the higher Medicaid rebates for drugs provided to Medicare beneficiaries who are also eligible for Medicaid, The New York Times reports . The change could save $49 billion over 10 years, according to President Obama’s deficit-reduction commission.

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Christine Vestal

Christine Vestal covers mental health and drug addiction for Stateline. Previously, she covered health care for McGraw-Hill and the Financial Times.