Medicaid Reform

Explore how states are reforming Medicaid managed care pharmacy benefits, including fee-for-service carve-outs, single PBM models, pass-through pricing, and reimbursement floors.

WHY STATES ARE ACTING

Taxpayers are spending more on Medicaid prescription drugs, yet less of that funding is reaching the community pharmacies that directly serve patients. When public investment rises but frontline care resources decline, accountability demands action.

State audits of Medicaid managed care pharmacy programs have uncovered:

• Spread pricing and opaque payment flows
• Differential reimbursement practices
• Limited transparency in rebates and administrative fees
• Steering and restrictive network practices

In response, states are advancing structural reforms to strengthen oversight, improve transparency, and protect patient access.

NCPA PRIORITY REFORMS

Carve Pharmacy Benefits Out To Fee-for-Service

What This Means

The state administers the pharmacy benefit directly through its Medicaid fee-for-service (FFS) program rather than delegating it to managed care plans. Seven states, including California, Missouri, New York, North Dakota, Tennessee, West Virginia and Wisconsin, have carved out pharmacy benefits from managed care.

Why States Pursue This Approach

• Increases direct state oversight
• Aligns reimbursement methodology statewide
• Enhances transparency in drug pricing and rebate administration
• Simplifies network participation standards

Require Managed Care To
Reimburse at Transparent FFS Rates

What This Means

States require managed care organizations (MCOs) or their contracted PBMs to reimburse pharmacies using the state’s transparent Medicaid fee-for-service methodology (often NADAC-based ingredient cost plus a professional dispensing fee). Twelve states, including Georgia, Iowa, Kansas, Kentucky, Louisiana, Massachusetts, Michigan, Minnesota, Mississippi, New Mexico, North Carolina and South Carolina, have established a Medicaid managed care reimbursement floor.

Why States Pursue This Approach

• Reduces spread pricing risk
• Aligns managed care and FFS reimbursement
• Improves predictability for pharmacies
• Strengthens oversight

Strengthen Managed Care
Oversight and Accountability

What This Means

States have adopted additional structural reforms to increase transparency and centralize oversight. One way this has been done is through a single PBM model. Under this model. the state contracts with one PBM to administer Medicaid pharmacy benefits statewide. Seven states, including Kentucky, Louisiana, Minnesota, Mississippi, Nevada, Ohio and Virginia, have transitioned to a single PBM model.

Why States Pursue This Approach

• Enhance accountability for taxpayer-funded spending
• Improve oversight of reimbursement and pricing practices
• Reduce duplicative administrative costs

View PBM laws by state

STATE AUDITS AND INVESTIGATIONS

Multiple state audits and investigations have reviewed Medicaid managed care pharmacy practices and found that an excessive amount of taxpayer dollars remain with PBMs.

• Arkansas: A state-commissioned report found that PBMs in the Medicaid program reimbursed national chain pharmacies more (defined as greater than 5 percent difference) than regional chain and independent pharmacies for the same drug.
• Florida: A report found PBMs steer patients to PBM-affiliated pharmacies, and “when it comes to dispensing brand name drugs, MCO/PBM-affiliated pharmacies are making 18x to 109x more profit over the cost of the drugs than the typical community pharmacy.”
• Illinois: An audit found $200 million of spread pricing in 2021-2022, revealing no monitoring of contracts, including reimbursement rates or rebates, and non-compliance with many statutory requirements.
• Kentucky: In response to a state report that found state PBMs keep $123.5 million in spread annually, the attorney general has launched an investigation into allegations that the PBMs have overcharged the state and discriminated against independent pharmacies.
• Louisiana: PBMs retained $42 million that was incorrectly listed as “medical costs.”
• Maryland: A state Medicaid report found PBMs pocket $72 million annually in spread pricing alone.
• Michigan: Drug price manipulation allowed PBMs to overcharge Michigan Medicaid by at least $64 million.
• New York: An audit found the state unnecessarily paid $605 million to Medicaid MCOs and their PBMs over a four-year period, because “MCOs typically work with their PBMs to conduct their own clinical reviews to identify drugs that provide the greatest value to them and therefore should be placed on the drug formulary."
• Ohio: The state auditor found that, of the $2.5 billion that’s spent annually through PBMs on Medicaid prescription drugs, PBMs pocketed $224.8 million through the spread alone during a one-year period.
• Oregon: A 2023 audit found insufficient transparency and compliance with highly inconsistent reimbursement, including twice as much reimbursement to PBM-owned pharmacies than to independent pharmacies for selected drugs.
• Pennsylvania: In just 4 years, the amount that taxpayers paid to PBMs for Medicaid enrollees more than doubled from $1.41 billion in 2013 to $2.86 billion in 2017.
• Virginia: A state-commissioned report on Medicaid found PBMs pocket $29 million in spread pricing alone.

Frequently Asked Questions About Medicaid Managed Care Pharmacy Reform