Medicaid

This fact sheet looks at the extent to which pharmacies that buy outpatient drugs at a discount from drug manufacturers pass on any of the savings to state Medicaid programs. GAO compares drug purchase costs and Medicaid reimbursements in two states--Illinois and Maryland--chosen because each (1) uses one of two basic formulas to reimburse pharmacies' drug purchase costs and (2) have relatively high expenditures for outpatient drug prescriptions. For each state, GAO compares the prices that hospital outpatient and nursing home pharmacies paid for specific outpatient drugs to the Medicaid reimbursements the pharmacies received. GAO also compares the prices the pharmacies paid to the drugs' average wholesale prices--the price manufacturers would pay if they did not receive discounts.

GAO found that: (1) Medicaid reimbursed the state pharmacies about 19 percent more than they paid for outpatient drugs; (2) hospital and nursing home pharmacies' average reimbursements were 23 and 13 percent more than their purchase costs; (3) all of the pharmacies purchased drugs at prices below the average wholesale price; (4) the Health Care Financing Administration (HCFA) and the states have not established an appropriate profit margin on outpatient drugs for pharmacies; (5) the states' dispensing fees did not completely cover their dispensing costs; (6) HCFA and state Medicaid officials did not have current data on dispensing costs, so they could not determine what dispensing fees should be; and (7) data on pharmacies' actual dispensing costs are needed to determine whether Medicaid drug reimbursements are a potential source for savings.