Medicaid’s Drug Problem: $329 million a year

I have blogged before about the problems that we have here in Massachusetts with our exploding Medicaid costs (here, here, here)– roughly 40% of the budget this year. Alex Brill at American Enterprise Institute (AEI) updated a working paper titled Overspending on Multi-Source Drugs in Medicaid that brings attention to one of those cost drivers –the elevated use of multi-source drugs in Medicaid. Multi-source drugs are prescription drugs that are available in both brand and generic form.

While the title may not draw in many readers outside of the health policy community, it highlights a very important issue that does (and will continue) to impact state budgets for years to come. The recently enacted Affordable Care Act (ACA or Obamacare) will add at least 25 million Americans into the Medicaid program over the next 3 years. Additionally, we are quickly approaching a “patent cliff” for brand name drugs this year and next. Many popular brand drugs will lose their patent protection, and if public policy does not change with the times, the overspending on brand name drugs in Medicaid will only grow. These changes are sure to exacerbate the estimated $329 million waste problem that Brill says exists today. Brill lays out the case:

Brill estimates that for 20 popular multi-source drugs “Medicaid overspent by 22 percent ($1.5 billion versus $1.17 billion) on these products.”

The Medicaid program in 2009 spent $20 billion on prescription medicines.

The “patent cliff,” for just 10 of the most popular drugs could result in “total annual overspending of $289 million–$433 million.”

Medicaid wasted an average of $95 per prescription.

Most of the overspending (85 percent) was concentrated in eight identified chemical compounds. Total waste for these drugs was roughly $279 million.

How did Massachusetts do?

Massachusetts finds itself in the lower third of states for the waste per enrollee– which is worth noting. However, that number may be lower because of the roughly 20% of our citizens(1,402,500) in the program that help to spread the per enrollee waste costs out. A more optimistic spin is that our generic drug program is having success.

Yet –there is one curious number here. The last column waste/brand script=$142.73. Put simply, this is the difference in price Massachusetts is paying for the brand name drugs it allows when generics are available. This number is high when compared to all other states. Why?

After a conversation with the MassHealth office, I believe the high number may come from one drug in particular. There is a seizure drug that individual enrollees can petition for pre-authorization for—if their doctor makes the case it is better compared to the generic that is available. The cost of that drug? Around $147 per script.

In this time of constrained resources, and with the patent cliff quickly approaching, policymakers will need to take a closer look at the policies in place in order to improve on Massachusetts success in this area and prevent a spike.