Reforming Arkansas’ Medicaid Drug Program

Arkansas has moved most of its Medicaid enrollees into privately administered managed care plans. Currently, half a million Arkansas beneficiaries are enrolled in managed care. This is equivalent to nearly 80 percent of the Medicaid population in Arkansas before the state expanded eligibility. However, the state has been very slow to move Medicaid enrollees to managed drug plans. Virtually all state Medicaid programs distribute some drugs on a fee-for-service (FFS) basis separately from enrollees’ health plans. A few states distribute almost all their Medicaid drugs this way;(i.e., Oklahoma + Wisconsin) Arkansas is one of them. This inefficient practice should change, says Devon M. Herrick, a senior fellow with the National Center for Policy Analysis.

A recent analysis by the Menges Group identified ways in which privately managed Medicaid drug plans are more efficient than state-administered drug benefit programs. Rather than negotiating with pharmacy networks, state fee-for-service Medicaid programs often arbitrarily pay much higher dispensing fees than they would in a competitive market. Utilization of generic drugs is often lower in fee-for-service Medicaid. Moreover, Medicaid programs face political opposition to negotiating exclusive pharmacy network contracts that deliver lower drug prices to taxpayers. As a result:

– Just over three-fourths (73 percent) of prescriptions in Arkansas’ fee-for-service Medicaid plan are filled with generic drugs; the national average for managed Medicaid drug benefits is about 80 percent.
– Arkansas’ Medicaid programs pays pharmacies $5.51 to dispense a prescription, whereas the average for private Medicare Part D plans is about one-half as much — about $2.00.
– The number of prescriptions per enrollee is generally higher among enrollees in Medicaid compared to managed care.

According to Menges, integrating drug and health benefits in a statewide managed care program over the next 10 years could save Arkansas Medicaid over $1 billion in federal and state spending.

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