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What Drives Spending and Utilization on Medicaid Drug Benefits in States?

Medicaid is one of the country’s biggest payers for prescription drugs, but because prescription drugs have accounted for a small share of total Medicaid spending, Medicaid’s pharmacy benefit policies have not been at the top of mainstream healthcare policy debate. However, with the approval of new specialty drugs, such as the Hepatitis C treatment Sovaldi, states are mindful that the price tag for the Medicaid drug program could increase significantly. While states have implemented many cost-saving policies targeting their Medicaid prescription drug benefits, there remains room for additional cost savings, better management, and improved health outcomes. To ensure appropriate policy for this central benefit and achieve these goals, it is important to understand which drugs are most frequently prescribed and which drive spending.

Using state drug utilization data, as well as an industry drug database, this issue brief examines trends in Medicaid drug prescriptions and drug spending before rebates from 2010 through 2012.1  As part of the Medicaid drug benefit, manufacturers provide rebates to the state and federal government. However, rebates are based on proprietary data and they are not available to the public at the drug level. As a result we are unable to include them, or use this data to calculate total Medicaid drug spending. After presenting this analysis, we place these findings in the context of policy discussions. Key findings of the analysis include:

  • Comprising 35% of prescriptions and 34% of spending before rebates in 2012, Central Nervous System Agents, a class of drugs that include pain killers, antidepressants, and antipsychotics, constitute the largest share of Medicaid drug utilization and spending. Within this drug class, pain killers and fever reducers represent a third of utilization.
  • Specialty drugs account for just two percent of drug utilization in 2012, but they comprise 28% of drug spending. This share increased from 2010 when they totaled 24% of drug spending before rebates. The specialty drug share of total drug spending varies at the state level.
  • Brand-name drugs account for a disproportionate amount of drug spending. In 2012, they accounted for 20% of Medicaid drug prescriptions but 76% of spending. In the past three years, the share of Medicaid drugs that are generic has risen slightly, possibly due to a number of blockbuster brand drugs losing their exclusivity and facing generic competition in the past several years.
Issue Brief

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Filling the need for trusted information on national health issues, the Kaiser Family Foundation is a nonprofit organization based in Menlo Park, California.