Prescription Drugs

Released December 21, 2022

An Analysis of Pharmacy Benefit Managers' Impact on Medicaid Drug Pricing provides some insights into the question of how decision makers can best incorporate Pharmacy Benefit Managers ("PBMs") into the management of Medicaid and CHIP. The report summarizes how PBMs work in practice at the state level to contain retail prescription drug costs in Medicaid programs, and to the extent relevant, how the “Managed Care Organizations (“MCOs”) contract with various state governments to administer Medicaid and CHIP benefits and services. Additionally, the report provides a brief explanation of how the retail prices for prescription drugs are determined at the state level for Medicaid programs in the Managed Care/PBM setting —and how that differs from the traditional Fee-for-Services or FFS setting. 

The report also provides a national snapshot of the PBM's impact on drug pricing nationally, and then delves into the impact of PBMs on prescription drug costs in Medicaid and CHIP programs for five states: Illinois, West Virginia, Louisiana, Missouri, and Florida. West Virginia and Missouri are examples of states that use a pharmacy benefit “carve out,” which means some or all Medicaid prescription drug benefits are not included in the state’s respective managed care contracts. Illinois, Florida, and Louisiana were selected as states that rely on a pharmacy benefit “carve in,” which means Medicaid prescription drug benefits are for the most part included in the applicable managed care contracts.