Medicaid and CHIP Risk-Based Managed Care in 20 States. Experiences Over the Past Decade and Lessons for the Future.. Prescription Drugs.


Another common carve-out from risk-based managed care is prescription drugs. Until this year, states have carved out prescription drugs to fee-for-service to collect the manufacturers’ drug rebates. Pre–Affordable Care Act federal law stipulates that drug manufacturers that want their drugs covered by Medicaid must give rebates to federal and state governments. At the state level, these rebates were previously only allowed to be collected for drugs purchased on a fee-for-service basis; drugs covered by Medicaid managed care organizations were not eligible for rebates. The Affordable Care Act authorizes Medicaid Drug Rebate Equalization, which became effective in April 2010. This provision potentially extends drug rebates to MCOs. State officials in several states (e.g., Delaware, New Jersey, New York, Ohio, and Texas) indicated that consequently they are considering carving pharmacy back into their contracts with MCOs and adjusting capitation rates accordingly.

When pharmacy is carved out, it is frequently carved out to a pharmacy benefits manager (which may or may not take on risk) or to fee-for-service. In addition, certain specific types of drugs may be carved out from MCO contracts; examples include behavioral health drugs and HIV/AIDS drugs. Another reason to carve out pharmacy services is to have a single preferred drug list for the state’s Medicaid program. This simplifies the prescribing process for providers, who then only have to refer to a single list of preferred drugs.

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