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Medicaid's Reimbursements to
Pharmacies for Prescription Drugs
  December 2004  


Cover Graphic


Note

Numbers in the text and tables may not add up to totals because of rounding.





                
Preface

Between fiscal years 1997 and 2002, Medicaid's expenditures on prescription drugs in the fee-for-service part of the program increased from $10.2 billion to $23.4 billion. About one-quarter of those amounts went to wholesalers and pharmacies to compensate them for distributing and dispensing the drugs.

Prepared at the request of the House Committee on Energy and Commerce, this paper examines recent trends in that "markup"--or the difference between the total amount that state Medicaid agencies paid to pharmacies and the amount that pharmacies and wholesalers paid to purchase the drugs from manufacturers. In keeping with the Congressional Budget Office's (CBO's) mandate to provide objective, impartial analysis, the paper makes no recommendations.

Todd Anderson, Anna Cook, and Judy Wagner of CBO's Health and Human Resources Division wrote the paper under the supervision of Steve Lieberman, Bruce Vavrichek, and James Baumgardner. (Steve Lieberman and Judy Wagner have since left CBO.) Perry Beider made helpful suggestions on early drafts, and Samuel Kina provided research assistance. Richard Frank of Harvard University provided a valuable review. (The assistance of an external reviewer implies no responsibility for the final product, which rests solely with CBO.)

John Skeen edited the paper, and Leah Mazade proofread it. Judith Cromwell produced drafts of the manuscript. Maureen Costantino formatted the document for publication, Lenny Skutnik produced the printed copies, and Annette Kalicki formatted the electronic versions for CBO's Web site.

Douglas Holtz-Eakin
Director
December 2004




CONTENTS
 
Summary and Introduction
 
Measuring Markups
 
Factors Contributing to Rising Markups
      Markups on Generic and Brand-Name Drugs
      Markups by Type of Brand-Name or Generic Drug
      The Relative Contribution of Generic and Brand Name Drugs to Rising Markups
 
Medicaid's Reimbursement Policies That May Have Contributed to Increasing Markups
 
Recent Changes in States' Policies for Reimbursing Pharmacies
 
Data and Methods

Tables
   
1.  Summary of Medicaid's Average Reimbursements, Wholesalers' and Pharmacies' Acquisition Costs, and Markups for Prescription Drugs, 1997 and 2002
2.  Medicaid's Reimbursements, Wholesalers' and Pharmacies' Acquisition Costs, and Markups for Brand-Name and Generic Drugs, 1997 to 2002
3.  Distribution of Medicaid Prescriptions, by Drug Type, 1997, 2000, and 2002
4.  Medicaid's Reimbursements, Wholesalers' and Pharmacies' Acquisition Costs, and Markups, by Type of Brand-Name or Generic Drug, 1997, 2000, and 2002
5.  Distribution of Increasing Markups Among Types of Brand-Name and Generic Drugs, 1997 to 2002
6.  Average Markups in States With and Without a Maximum Allowable Cost List, 1997 to 2002
7.  Distribution of Average Markup Levels Among States, 1997, 2000, and 2002
   
Figures
   
1.  Markups per Prescription and Margins Under Medicaid, 1995 to 2002
2.  Average Annual Change in Reimbursements, Acquisition Costs, and Markups for Brand-Name Drugs Under Medicaid
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