Drug Costs

Context On Medicaid Outpatient Prescription Drug Costs

February 20, 2019 8:42 am

The Kaiser Family Foundation (KFF) recently issued a report that examines Medicaid spending and utilization trends for outpatient prescription drugs. All of the data in the KFF report are based on spending before rebates from pharmaceutical companies are taken into account.


The report found that Medicaid rebates totaled $32 billion in 2016. (As this blog post explained, because of pharmacy benefit managers, states are increasingly worried that the discounts for Medicaid aren’t benefiting patients or taxpayers.) According to KFF, federal statutory rebates and supplemental rebates negotiated by states “account for a sizeable share of prescription drug spending, lowering aggregate drug spending by about 55 percent in 2017.”

Without taking these rebates into account, the report notes that Medicaid spending on outpatient prescription drugs rose to $63.6 billion in 2017—in part, because of ongoing expansion of Medicaid due to the Affordable Care Act. Another reason was because new treatments came onto the market to treat Hepatitis C. Medicaid outpatient prescriptions grew from 621.7 million in 2014 to 752.9 million in 2017, a 21 percent increase.


According to our own calculations, that means the average price per Medicaid outpatient prescription increased by less than $11 over three years, from $73.80 in 2014 to $84.50 in 2017.


Once again: all of these figures are calculated before taking into account the more than $32 billion in rebates Medicaid receives. KFF didn’t look at price increases with rebates taken into account, but as we explain on our website, since 2008, the total amount of money Americans spent on prescription drugs increased only 1 percentage point annually. Once rebates and other discounts were accounted for, per-capita spending fell by 2.2 percent.


The KFF study also did not take into account overall health-care savings generated by new treatments.


The report found antiretrovirals used to treat HIV, AIDS and Hepatitis C generally account for 14 percent of Medicaid outpatient drug spending. KFF discusses the expense of these drugs, but does not discuss the cost to develop them, or the fact that, since 1995 when new HIV/AIDS treatments came onto the market, death rates for patients with HIV/AIDS have fallen 85 percent. Hospitalization for HIV/AIDS declined 23 percent between 2003 and 2007. Additionally, due to new treatments for Hepatitis C the cure rate for the disease is now 90 percent. Here is how a 2018 article described advancements in Hepatitis C treatment: “A whole new class of medications, direct-acting antivirals (DAAs), have defeated hepatitis C and completely replaced the only available treatment, inept pegylated interferon-alfa plus ribavirin therapy with miracle cures. It’s like the glory days of the vaccines that wiped out polio, measles and chicken pox.”


As policymakers and thought leaders discuss drug prices, they must take drug manufacturer rebates and cure-driven health savings into account.