Drug spending is one of the fastest growing components of the Medicaid program. Restraining the growth of Medicaid spending is a fiscal imperative for state budgets. This problem is particularly acute due to the expected increase in Medicaid enrollment as a result of the Patient Protection and Affordable Care Act, says Devon Herrick, a senior fellow with the National Center for Policy Analysis.

There are several effective strategies that states can use to better manage and lower Medicaid drug costs. Two of the most important are encouraging generic drug use when appropriate and paying competitive market rates for drug dispensing.

Special interests lobby legislatures to restrict the ability of pharmacy benefit managers to negotiate better deals. This diminishes the ability of Medicaid drug plans to operate efficiently. Consider:

– Across the country, the average Medicaid dispensing fee is $4.81 per prescription. – The average cost of a generic drug prescription in the Medicaid program is $20, compared to about $201 for name-brand medications (including drugs for which there are no generic equivalents).

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