Medicaid

Contents Introduction .............................................................................................................................376 Medicaid’s Role in the Health-Care System ............................................................................. 377 Eligibility .................................................................................................................................378 Benefits ....................................................................................................................................379 Administration and Financing ................................................................................................. 380 Medicaid Outpatient Drug Benefits ........................................................................................ 382

Trends in Drug Benefit Use and Expenditures .................................................................... 382 Covered Populations ........................................................................................................... 384 Covered Drugs .................................................................................................................... 384 Drug Utilization Review ......................................................................................................385 Combating Fraud and Abuse ...............................................................................................385 Utilization Management ..................................................................................................... 386

Requiring or Encouraging Generic Substitution ............................................................. 386 Prior Authorization and Preferred Drug Lists ................................................................. 387 Implementing “Fail First” Policies .................................................................................. 387 Prescription Limits ......................................................................................................... 388

Beneficiary Cost Sharing ..................................................................................................... 388 Pharmacy Reimbursements and Manufacturer Rebates ....................................................... 389

Payments to Retail Pharmacies ....................................................................................... 389 Federal Upper Limits ..................................................................................................... 390 State Maximum Allowable Costs .................................................................................... 390 Dispensing Fees .............................................................................................................. 390 Manufacturer Rebates .....................................................................................................391 Coordination of Rebates with the Federal 340B Drug Discount Program .......................391 Challenges to Manufacturers’ Prices ................................................................................392 Bringing More Transparency to Drug Pricing in Medicaid ..............................................392

Introduction Established in 1965 as Title XIX of the Social Security Act, Medicaid is the nation’s public health insurance program for low-income people. It is a means-tested entitlement; any applicant who meets the financial and/or categorical eligibility requirements must be allowed to enroll. Referring to Medicaid as one program is somewhat inaccurate; each state administers its own program with federal oversight through the Centers for Medicare and Medicaid Services (CMS) in the U.S. Department of Health and Human Services (HHS). The federal government helps states pay for covered services and program administration. State programs have to meet certain standards to receive federal funds, but each state sets its own Medicaid eligibility rules, selects which services it covers for eligible groups, and determines payment rates for those services, resulting in considerable variation between state programs. State participation is voluntary, but all 50 states, the District of Columbia, and the 5 U.S. territories participate.*