Fiscal Fitness: How States Cope

Rebates are net gain for some states, but outlay of funds needed to increase necessary staffing

Athos Alexandrou, director of Maryland's Medicaid pharmacy program, says the state will benefit fiscally from the health care reform legislation's drug rebate program, by getting a share of rebates for pharmaceuticals dispensed by managed care organizations (MCOs). On the other hand, money will be lost on the fee-for-service side.

"The federal government will be taking a larger share of those rebates," says Mr. Alexandrou. "But the net should be some additional savings to the state. We are expecting to see an increase in state revenues due to the additional rebates."

However, system changes and additional staffing clearly will be necessary to take advantage of that. In addition, the state's drug rebate vendor will need to implement its own system changes and increase staffing, in order to accommodate the increase in rebate billings and revenues for those patients enrolled in MCOs.

"Furthermore, the department will have to hire additional staff necessary to handle the increase in rebate billings and disputes," says Mr. Alexandrou. The MCOs may have to provide the department with additional claims data and reports necessary to handle rebate billing and disputes from the drug manufacturers, as well.

Ralph Magrish, Medicaid Pharmacy Program Manager for Oregon's Department of Human Services, says that the agency will be required to spend "unplanned and unbudgeted funds." This will be necessary in order to configure systems and processes within its Medicaid Management Information System, to collect rebates on MCO claims, and require changes to the agency's accounting systems.

"The agency may need to amend contracts with MCO plans to adjust capitated rates accordingly," adds Mr. Magrish. Additionally, the agency will need to promulgate new administrative rules for the managed care plans to follow. These will detail how claims and encounter data will be provided to the state.

The state is awaiting further clarification from the Centers for Medicare & Medicaid Services on the intersection between prescriptions for members of Medicaid MCOs filled by 340b pharmacies, which are exempt from rebates. This may lead to the need for further system modifications and re-evaluation of actuarial rates.

One immediate benefit is savings resulting from the consolidation of purchasing drugs for the entire Oregon Medicaid population. "The state is anticipating that it will be entitled to keep all supplemental rebates it negotiates with manufacturers for preferred products in the fee-for-service population," says Mr. Magrish. "This is a change from current requirements where the state shares a portion with the federal government. It will encourage the state to negotiate more aggressively with manufacturers."

However, more staffing will be required to invoice, audit, and handle disputes for the rebate program. Whether it's done by state personnel or a contractor, this will require additional expenditures by the state. "It will require an outlay of funds to configure systems and processes to collect rebates on MCO claims and capturing of utilization data for drug rebate invoicing, including physician-administered drugs," says Mr. Magrish.

Contact Mr. Alexandrou at (410) 767-1455 or and Mr. Magrish at (503) 945-9691 or