Report to the President: Prescription Drug Coverage, Spending, Utilization, and Prices.. Medicaid

04/01/2000

While coverage for outpatient prescription drugs is optional under Medicaid, all states provide this benefit for families and children enrolled in the program. In addition, certain low-income Medicare beneficiaries may qualify for Medicaid and receive full Medicaid benefits, including prescription drug coverage. Medicaid eligibility can be achieved in several ways. Medicare beneficiaries may qualify for Supplemental Security Income (SSI) or related cash assistance if they are elderly or disabled and meet an income limit that is well below the federal poverty level (FPL), $11,250 for a couple in 2000. In most states, receipt of SSI means automatic enrollment in Medicaid. Beneficiaries may qualify for a state’s “medically needy” Medicaid program by meeting a state-established income test, often by “spending down”—incurring medical bills sufficient to reduce their income and assets to the required level. Those in need of long-term care may meet special eligibility limits for home- and community-based service programs.

Low-income Medicare beneficiaries who fall outside these categories may qualify for Medicaid assistance that does not include prescription drug coverage.28 “Qualified Medicare Beneficiaries” (QMBs), with incomes below 100 percent of FPL, receive Medicaid assistance for Medicare cost-sharing and Medicare’s Part B premium. A state may choose to extend full Medicaid benefits to this group with federal matching funds by raising their income eligibility to 100 percent of FPL, but most have not. “Specified Low-income Medicare Beneficiaries” (SLMBs), with incomes between 100 percent and 135 percent of FPL, receive Medicaid assistance for Part B premiums only. In 1996, an estimated 90 percent of Medicare beneficiaries receiving Medicaid had drug coverage.29 This may include some cases where QMBs or SLMBs received drug coverage through state-only programs.

Medicaid programs may impose only “nominal” copayments for prescription drugs, and no copayments for certain services, such as those furnished to children. All but 17 states impose some copayments, typically $1 to $2 for prescription drugs. Although most states enroll families and children in managed care, very few have enrolled aged or disabled beneficiaries. Additionally, many states that use managed care have excluded prescription drugs from the contracts and provide the benefits directly on a fee-for-service basis.30 Thus most Medicare beneficiaries who receive their drug coverage through Medicaid receive drugs on a fee-for-service basis.

The Omnibus Budget Reconciliation Act of 1990 (OBRA 90) governs the provision of pharmaceutical benefits under Medicaid. Under the law, pharmaceutical manufacturers are required to enter into rebate agreements with the Department of Health and Human Services (HHS) in order for these companies to sell their products to state Medicaid programs (see Chapter 3 for further discussion of Medicaid rebates). The agreement establishes a basic rebate of the greater of Average Manufacturer Price (AMP) minus the manufacturer’s best price or 15.1% of the AMP for single source and innovator multiple source drugs. At the same time, OBRA 90 prohibits state Medicaid programs from using some of the same management techniques as PBMs. In particular, states may not use restrictive formularies, although they can develop programs for prior authorization and drug utilization review to manage the drug benefit. Some states control costs by capping the number of prescriptions that a beneficiary can fill within a month, restricting refills, or limiting the amount of medication that can be dispensed at one time. Arkansas, Nevada, Oklahoma, Texas, Wisconsin, and Wyoming, for example, limit Medicaid recipients to three prescriptions per month, with some exceptions. West Virginia restricts beneficiaries to ten prescriptions per year.31

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