Medicaid Reform

Many states have shifted their Medicaid population into managed care in recent years, often because state policymakers have been sold on the often-misleading approach that turning over the management of their Medicaid prescription drug benefit program to a contracted entity will result in notable savings.

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The problem: Medicaid drug costs are increasing, but pharmacy reimbursements are decreasing. Something isn't adding up.

As pharmacy reimbursement rates are ratcheted down, pharmacy providers are frequently reimbursed at rates that leave them "underwater" on the medications they dispense. Eventually, this leads to drastic negative effects on pharmacy providers as well as the vulnerable Medicaid beneficiaries who they serve. Meanwhile, Medicaid budgets are soaring.

The cause: PBMs are pocketing millions of dollars by using opaque business practices, such as spread pricing.

States have found that an excessive amount of taxpayer dollars remain with pharmacy benefit managers (PBMs).


PennsylvaniaPennsylvania: Between 2013 and 2017, the amount that taxpayers paid to PBMs for Medicaid enrollees more than doubled from $1.41 billion to $2.86 billion.


OhioOhio: 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.


KentuckyKentucky: A report by the Kentucky Cabinet for Health and Family Services indicates PBMs were paid $858 million, of which they kept $123.5 million, or 13 percent, last year. This was up from 9.4 percent in 2017.


LouisianaLouisiana: PBMs retained $42 million that was incorrectly listed as “medical costs.”



New YorkNew York: PBMs in the Medicaid managed care program used spread pricing to pocket a 32% markup on generic prescriptions.



West VirginiaWest Virginia: Carving pharmacy benefits out of Medicaid managed care led to actual savings of $54.4 million to the state Medicaid program and an additional $122 million paid to West Virginia pharmacies in the form of fixed dispensing fees in one year.


TexasTexas: A state-commissioned study has shown that carving pharmacy benefits out of the Medicaid managed care program could save the state up to $90.3 million a year.