After several years of spending growth below five percent, Medicaid spending on outpatient drugs increased 25 percent from $22.4 billion in 2013 to $28 billion in 2014 and another 13 percent in 2015 to $31.7 billion (Figure 1).1 This spike in 2014-2015 is in large part attributed to Sovaldi, Harvoni, and Viekira Pak2, the breakthrough hepatitis C Direct Acting Antivirals that came to market in 2013 and 2014. The high cost of specialty drugs and certain classes of drugs, the rapid rise in generic drug prices from some manufacturers in 2015, and the price hikes of Mylan’s EpiPen in 2016, fueled concern among policymakers and the public about rising drug costs.3 However, reflecting system-wide trends, Medicaid drug spending growth slowed in 2016, though recent rates of prescription drug spending growth in Medicaid are still higher than other payers. Although drug spending constitutes only 6% of Medicaid total spending,4 the high cost of specialty drugs continues to be a concern among Medicaid policy directors looking to control future spending.5
Due to the structure of Medicaid’s rebate program, states are generally obligated to provide a drug to their beneficiaries when it comes on the market and currently cannot exclude high cost drugs from their programs. In the early 2000s, prescription management programs, which included preferred drug lists, supplemental rebates, and script limits, were implemented and expanded by states in an effort to control costs.6 However, these programs have reached maturity, and states, facing the prospect of more new and costly drugs coming to market, are now looking to develop new ways to achieve savings in the prescription drug program. This issue brief provides a snapshot of current state initiatives aimed at addressing the cost of prescription drugs in Medicaid.