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

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

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

Director: No director on record Team: No team on record Phone: No phone on record