Like most payers, Medicaid programs struggle with the cost of drugs. A report from Magellan Health gives some trends and data on prescription medication use in the Medicaid sector. (Magellan Report) The report covers 2018 and is based on Magellan’s customers’ experience. As always when looking at medication spending trends, it is important to try to disentangle the effects of utilization and prices, and to focus on net spending after rebates and discounts. The federal government mandates very significant discounts for the Medicaid programs and states may have their own additional rebate arrangements. It is useful to look at the last three years. In 2016, total net trend was a 1.9% increase, but while traditional drug, branded and generic, spending declined, that on specialty drugs rose 20.5%. In 2017, the total rise was actually a decline of 4.4%, with traditional spending going down 9.7% while specialty rose 4.6%. And in 2018, the total increase in spending was .8%, traditional declined 2.6% and specialty rose 6.1%. The gross or pre-discount cost in 2017 was $108.88 per claim while the net or after discount cost was $45.66, which shows the size of Medicaid rebates. In 2018 the numbers were $113.32 gross cost per claim and $46.03 net. Out of the .8% rise in net spending in 2018, traditional drug price contributed a seventy-one cent decline, while traditional utilization was responsible for a 5.2% decline, which is a little surprising. On the specialty side, there was a $77 increase in prices but a 5.5% decline in utilization. To give you a better sense of just how impactful specialty drugs are, they represent only 1.5% of all claims, but account for 43% of net spending. Magellan is projecting that net Medicaid spending will continue to increase more rapidly in the next three years, but still be very modest at around 2% a year, all driven by specialty drug pricing. The top therapeutic categories for Medicaid spending are HIV, anti-psychotics and hemophilia. Some of the approaches, in addition to the usual discounts and rebates, that states are trying in their efforts to control spending include outcomes-based contracting and subscription approaches.