Programs To Control Prescription Drug Costs Under Medicaid and Medicare Could Be Strengthened

HRD-81-36: Published: Dec 31, 1980. Publicly Released: Jan 30, 1981.

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The Department of Health and Human Services (HHS) established two programs to contain the costs of prescription drugs under Medicaid and Medicare by setting upper limits on the amounts that could be reimbursed. One program, the Maximum Allowable Cost (MAC) Program, pertains to multiple-source drugs and is applicable to Medicaid and Medicare. The other program, the Estimated Acquisition Cost (EAC) Program, pertains to all drugs and is applicable only to Medicaid. GAO looked into the effectiveness of these programs in five States and obtained information on the effectiveness of State drug substitution laws nationwide.

The MAC program has resulted in savings of about $1.4 million a year under Medicaid for outpatient drugs in the five States; however, the savings could have been greater if: (1) States had implemented the MAC limits on a more timely basis and/or, in accordance with regulations, had not claimed Federal sharing for savings lost due to delays in implementation; and (2) HHS had a formal mechanism for systematically updating the limits. Medicare's enforcement program for MAC drugs provided by hospitals has not been adhered to. Even if the program was enforced, it would have little impact on costs because the forms or types of drugs covered by MAC do not appear to be those purchased in large quantities by hospitals. The program could affect costs if it focused on drugs with the greatest cost saving potential in the hospital inpatient setting. One of the objectives of EAC was to move the States away from using the published average wholesale prices of drugs for setting limits. States are still using the published wholesale prices to set limits. Encouraging State MAC programs and other special EAC programs likely would produce lower drug costs under Medicaid than the EAC Program as currently established. State substitution laws have the potential for significant savings to all consumers. However, substitutions have not been made wherever possible. Forty-five States and the District of Columbia permitted or required substitutions under certain circumstances.

Recommendations for Executive Action

  1. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Secretary of HHS should direct the Administrator of HCFA to require State claims processing systems to identify drug costs ineligible for Federal sharing through implementation of the recently enacted amendment in S. 1177 or under existing authority.

    Agency Affected: Department of Health and Human Services

  2. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Secretary of HHS should direct the Administrator of HCFA to encourage the States to review their EAC drug limits to identify drugs that would be suitable for the MAC multiple-source approach on a statewide basis.

    Agency Affected: Department of Health and Human Services

  3. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Secretary of HHS should direct the Administrator of HCFA to recover from California and Florida the Federal share of excess costs attributed to the delays in implementing the MAC limits.

    Agency Affected: Department of Health and Human Services

  4. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Secretary of HHS should direct the Administrator of HCFA to encourage the States to determine drugs for which it is appropriate to establish EACs based on direct purchase prices and then do so.

    Agency Affected: Department of Health and Human Services

  5. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Secretary of HHS should direct the Administrator of HCFA to encourage the States to determine the package sizes most commonly purchased by pharmacists and adjust their EAC levels accordingly.

    Agency Affected: Department of Health and Human Services

  6. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Secretary of HHS should direct the Administrator of HCFA to encourage the States to review the Federal MAC limits to determine whether a lower statewide MAC would be reasonable and appropriate.

    Agency Affected: Department of Health and Human Services

  7. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Secretary of HHS should direct the Administrator of HCFA to provide for the systematic and formal updating of the MAC limits.

    Agency Affected: Department of Health and Human Services

  8. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Secretary of HHS should direct the Administrator of HCFA to reevaluate the applicability of the MAC Program to the inpatient hospital setting with the view toward eliminating the existing regulatory and administrative structure which is not being enforced or focusing on the forms or types of drugs which would make the structure worthwhile.

    Agency Affected: Department of Health and Human Services

 

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