On December 6, the Lewin Group released a study offering suggestions to improve cost efficiency in Medicaid pharmacy programs.  By optimizing program management, the report identifies up to $30 billion in potential savings over the next 10 years.  The study notes that Medicaid fee-for-service (FFS) pharmacy programs generally use fewer generic drugs and pay higher dispensing fees and ingredient costs than Medicaid managed care plans and private insurers.  The authors propose realizing savings through increased use of generics, reducing drug dispensing fees and ingredient costs, and limiting the number of prescriptions per beneficiary.  The study suggests that programs can maximize savings by transitioning Medicaid pharmacy programs from FFS models to approaches used by managed care organizations, the Medicare Prescription Drug (Part D) program, private insurers, and state employee benefit plans  

From the executive summary:

While discussions about Medicaid prescription drug costs have often focused $30 billion over the next decade. Medicaid has become an outlier as one of the nation’s few remaining pharmacy benefits programs that is mainly administered by public agencies using a fee-for-service (FFS) delivery model. In this model, which accounts for 73% of Medicaid pharmacy expenditures, dispensing fees, ingredient costs, and benefits management activities are determined by state officials. In most other programs, pharmacy reimbursements are determined through negotiations between pharmacy benefits managers (PBMs) and drug retailers.

Full Report: Potential Federal and State-by-State Savings if Medicaid Pharmacy Programs were Optimally Managed (PDF | 294 KB)

Lewin Group. (2010). Potential federal and state-by-state savings if Medicaid pharmacy programs were optimally managed. Menges, J., Kang, S., and Park, C.