Congress looks at Medicaid drug spending

Poor monitoring of market prices for prescription drugs leaves many states paying inflated costs and adds to spending growth in the program.

By Joel B. Finkelstein, AMNews correspondent. July 25, 2005.

Washington -- Medicaid's drug rebate formula is failing to accurately track the price of drugs, according to lawmakers who would like to change how the program pays for medicines.

The program has become the single largest purchaser of prescription drugs, spending $33.8 billion in 2003. While overall Medicaid spending grew an average 10% annually between 2000 and 2003, drug spending grew by an average 18% a year, according to the Government Accountability Office.

With the size and cost of Medicaid continuing to rise dramatically, drug spending could begin to crowd out other priorities, such as physician reimbursement, because funding for the program isn't increasing at the same rate, lawmakers say. That, combined with recent reports that Medicaid is overpaying for medications due to problems with the rebate formula being used, makes drug spending an area ripe for overhaul by a Congress seeking to reign in the program's cost.

"The potential remedies for this flawed payment policy are varied and complex. What is clear, however, is that states and the federal government simply cannot continue to pay more than they should for prescription drugs under Medicaid," said Rep. Michael Bilirakis (R, Fla.), vice chair of the House Energy and Commerce Committee.