OIG on Medicaid Drug Pricing

There is little more complicated than drug pricing in Medicaid, with a variety of federal and state requirements.  An Office of Inspector General report examines whether states are taking full advantage of provisions in the reform law designed to aid in ensuring that Medicaid programs get the best possible drug prices.   (OIG Report)   The issue takes on heightened importance given the Medicaid expansion taking place in many states under the reform law.  Historically, the federal government has calculated a federal upper limit for Medicaid drug reimbursement for drugs with multiple sources, but the states have also had Maximum Allowable Cost programs, which usually had lower prices than the federal upper limit.  However, the reform law tasked HHS with resetting the method for calculating the federal upper limit, relating it more to average manufacturer price.  The previous methods often resulted in FULs that were well above market prices.  Looking at the 45 states with MAC programs, OIG found that most based the MAC on pharmacy acquisition costs, which were generally lower than the pre-reform law FULs, on average the FUL was almost two times greater than the corresponding MAC for a drug.  However, the new draft FULs are now often lower than the MAC amounts in the states, by an average of 22%, so OIG reasonably concludes that states should reconsider use of the FULs, which could result in additional savings of billions of dollars.  One difficulty, however , is that only about half the drugs on the typical state’s MAC list have a FUL, so CMS may need to expand the range of drugs for which it calculates that metric.