State Attempts to Contain Medicaid Prescription Costs Need More Hard Data; Policy-Makers Need More Training

Analysis of Medicaid prescription drug reimbursement policies

From 1992 to 1995, researchers at Harvard Medical School collected a comprehensive cross-section of data on state Medicaid pharmaceutical programs and various models of cost-containment. They also investigated the impacts of five cost-containment methods.

Key Findings

  • Overall, the project found that:

    • State Medicaid policy-makers would benefit from training and more timely access to research results.
    • Cost-containment requires more focused and longitudinal analysis of recipient-level data.
  • Regarding specific cost-containment methods:

    • Eliminating Medicaid restrictive drug formularies under the Omnibus Budget Reconciliation Act of 1990 in exchange for qualifying for manufacturer's rebates improved access to a subset of the best-selling prescription drugs, but the majority of these products offered only questionable or no additional therapeutic benefit.
    • Expensive prior-approval procedures are not viable as an alternative to restrictive formularies.
    • State and federal drug benefit programs should avoid the use of arbitrary prescription drug reimbursement limits (caps) as cost-containment strategies because they raise total health care costs and harm chronically ill patients.
    • Co-payments tend to reduce both appropriate and inappropriate therapy.
    • Although computer-based drug utilization review has been mandated for nationwide use in the public sector and is popular in the private sector, there are no valid scientific data to support its claimed benefit of reduced costs.