States paid too much for prescriptions

According to a new report from the Department of Health and Human Services (HHS) Office of Inspector General (OIG), under their Medicaid programs, states paid more than $1 billion more than they should have for prescription drugs in 1999 alone.

How did this happen? According to the report, states receive a discount of 10% off the average wholesale price on prescription medications; pharmacies, however, regularly receive discounts of up to 20%. The report notes that in 1999, states received an average discount of 10.13%, which compared with a nationwide discount of 21.84% paid by pharmacies. (Pricing information was gathered from 216 pharmacies in eight states.) The disparity, the report says, adds up to as much as $1.08 billion in lost savings on the 200 brand name drugs with the greatest amount of Medicaid reimbursement in 1999.

In its review, the OIG did not examine ingredient acquisition costs nor did it look at other areas such as medication dispensing because states generally pay retail pharmacies for these services separately than they do for the medications.

The report also calls on the Centers for Medicare and Medicaid Services (CMS) to require states to "bring pharmacy drug reimbursement more in line with the actual acquisition cost of brand name drugs."

CMS "agreed that an accurate acquisition cost should be used to determine drug reimbursement and will encourage states to review their estimates of acquisition costs in light of our findings."