Medicaid

Congress has tried to reduce Medicaid prescription drug costs by requiring drug manufacturers to give state Medicaid programs rebates for outpatient drugs. The rebates were based on the lowest or "best" prices that drug manufacturers charged other purchasers, such as health maintenance organizations (HMO) and hospitals. Concerns have been raised in Congress that drug manufacturers might try to minimize the rebates to state Medicaid programs by increasing best prices and cutting best price discounts for drugs purchased by HMOs and others. This fact sheet (1) determines the changes in the best prices for the drugs bought by the HMOs and group purchasing organizations GAO studied; (2) determines the changes in the difference between the drugs' best prices and their average prices, known as the "best price discount;" and (3) compares the changes in the best prices with the changes in prices paid by the HMOs and the group purchasing organizations.

GAO found that: (1) in the 2 years since the Omnibus Budget Reconciliation Act (OBRA) was enacted, the average best price for outpatient drugs purchased by HMO and GPO increased at a faster rate than the drugs' average manufacturer price (AMP) or the producer price index for prescription drugs; (2) the drugs' average best price discount decreased because their average best price increased faster than their AMP; (3) by 1993, the drugs' average best price discount had fallen to nearly the minimum rebate amount required by OBRA; (3) between 1991 and 1992, the median best price discount for drugs purchased by HMO and GPO decreased by 6 percent; (4) the fall in the average best price discount for HMO and GPO drugs continued between 1992 through 1993; (5) by 1993, the median best price discount for drugs purchased by HMO and GPO approximated the minimum rebate amount owed the Medicaid program; (6) the extent to which the drug prices changed during the 2-year period could not be determined because data on the drug prices paid by HMO and GPO were limited; and (7) during the last 6 months of 1991, the average best price and average purchase price for drugs purchased by HMO and GPO did not noticeably change.