Impact of the Medicaid drug rebate program

46 Pages·1995·2 MB·English

by  University of Minnesota. Institute for Health Services Research

HCFA
Office of
Research and
Demonstrations
Extramural
Research
Report
Background • DescribeandanalyzetrendsinMedicaiddrug
programexpendituresbeforeandafterthe
TheOmnibusBudgetReconciliationActof OBRA90legislationandidentifyfactors
1990(OBRA90)establishedaMedicaiddrug contributingtothosetrends.
rebateprogram. Thisprogramwasenactedon • Documenttheamountofrebatesaccruedand
November5,1990andwentintoeffect54days collectedandtheirimpactonthetotalMedic-
lateronJanuary1,1991. Specificprovisionsof aiddrugexpenditures.
thelegislationincludedmanufacturerrebatesto • EvaluatetheoverallimpactonMedicaiddrug
Medicaidprograms,generaleliminationof expendituresofchangesinaccesstodrugsdue
States'authoritytouserestrictiveformularies, todiscontinuationofrestrictiveformularies,
andsomeadditionalrequirementsforStates' implementationormodificationofprior
implementingpriorauthorizationprograms. At authorizationprograms,provisionofsix
theendof1994theMedicaiddrugrebatepro- monthsopenaccessafterFDAapprovalofa
gramhadbeeninplaceforfouryears. drugproduct,andotherStatedrugprogram
policiesandcharacteristics.
• Assesstheimpactof"openaccess"provisions
EvaluationoftheMedicaid (formularydiscontinuation,sixmonthmanda-
DrugRebateProgram torycoverageofproductsnewlyapprovedby
FDA,andimplementationormodificationof
Theoverallpurposeofthisprojectwasto priorauthorizationprograms)onthenumber,
assesstheimplementationandnetimpactofthe mix,andcostofdrugsusedbyMedicaid
Medicaiddrugrebatelegislationonaccessto, recipients.
utilizationof,andexpendituresforprescribed • Documenttheadministrativecostsandrebate
drugsfortheMedicaidpopulation. Thefinal programimplementationexperiencesof
reportforthisstudyaddressed: thedrugrebate HCFAandtheStateMedicaidprograms,
programbackgroundandexperience,astatement includingbothstart-upcostsandcontinued
oftheoverallevaluationobjectives,anoverview operationcosts.
ofdatasourcesandtheevaluationframework,a • DeterminetheoverallimpactoftheOBRA90
descriptiveanalysisofaggregatetrends,methods legislationonnetMedicaiddrugexpenditures,
andfindingsofdetailedStatecasestudies, afteraccountingfortheeffectofrebates,
administrativeimpactcasestudies,andintegra- changesinformularyandpriorauthorization
tionofstudyfindingswithadiscussionof programs,openaccessfornewlyapproved
implicationsforpolicyandfutureresearch drugs,andadministrativecosts.
needs.
EvaluationOverviewandLimitations
ProjectObjectives
TheMedicaiddrugrebateprogramisvery
Theoverallgoalofthisprojectwastoassess complexandhasbeensuperimposeduponan
thenetimpactoftheMedicaiddrugrebate alreadydiverseenvironmentofStateMedicaid
legislationonaccessto,utilizationof,and drugprogrampolicies. Whileitisnotpossible
expendituresfordrugsintheMedicaidpopula- toenumeratealloftheeffectsandrepercussions
tion. Theprimaryfocusofthestudywason ofthisnationalprogramoneachStateMedicaid
changebetween1990(pre-OBRA90)and1992 program,themajoreffectscanbeisolatedby
(post-OBRA90). Severalspecificresearch identifyingandcontrollingforsomeotherknown
objectiveswereestablishedtoachievethis sourcesofvariation. Theimpactofchangesin
overallgoal: thenumberandmixofMedicaidenrolleesby
ExtramuralResearchReport,Number1, 1995 1
eligibilitytype,changesindrugrestrictionssuch tionsoftheMedicaidStatisticalInformation
asformulariesandpriorauthorizationprograms, System(MSIS)otherclaimsfilewhichcontains
andchangesinmanufacturers'drugpricescan prescriptionclaims. Thequantityfieldforall
bedetermined. Somesourcesofvariationcanbe prescriptionclaimsinthisdatasethasbeenset
describedandquantifiedfornearlyallStates,but to'1',meaningoneprescriptionwasprovided.
othersourcesrequireanextensiveanalysisof PrescriptionclaimsinmostStatedatabases,
drugprogramexpendituresattheindividual however,usetheNationalCouncilforPrescrip-
prescriptionlevelandwere,therefore,only tionDrugPrograms(NCPDP)uniformprescrip-
practicalforthoseStateswhichhadstandardized tionclaimformwhich,hasthenumberof
MSISdatafilesthatincludedprescribedmedi- tablets,capsules,ormillilitersinthequantity
cines. Theadministrativeimpactassessmentof fieldallowingmultiplicationbyafactor(e.g.,
theMedicaiddrugrebateprogramrequired unitsperdayoftherapy)tocalculatethedaysof
directinputfromStateandFederalMedicaid therapyprovidedbyeachprescription.
personnelthroughon-siteandtelephoneinter- TheMedicaiddrugrebateprogramhashadan
viewswithselectedStates. impactonpharmaceuticalmanufacturers,other
ThreedifferentsetsofStateswereusedfor pharmaceuticalpurchasers,andmanyothers.
analysisinthisproject. First,theaggregate Thescopeofthisstudy'sobjectives,however,
analysisoftotalMedicaiddrugexpendituresand waslimitedtoassessmentoftheimpactofthe
rebatesbothatthenationalandStatelevelswas rebateprogramonStateMedicaidagenciesand
performedusingdataderivedfromtheHCFA theHealthCareFinancingAdministration
Form2082reportsbytheStates. Oneportionof (HCFA). Thestudydidnotattempttoanalyze
thisaggregateanalysisexaminedabreakdownof theexperienceofpharmaceuticalmanufacturers
expenditureandutilizationdatabybasisof withthedrugrebateprogram.
eligibilityandmedicalassistancestatusfora Thisstudylimiteditsevaluationtoexamina-
subsetof27Statesthathadreportedrecipient tionoftheexpendituresfor,andutilizationof,
andexpendituredatabrokendownatthislevel outpatientprescribedmedicines. Prescribed
forallyearsfrom1988to1992. Aggregate medicinesusedininpatientsettingswerenot
rebatepaymentsreceivedwereassessedusing includedinthisstudy. Also,theeffectofthe
HCFAestimatesdrawnfromHCFAForm64 rebateprogramandrelatedprogramchanges
reports. In-depthStatecasestudiesofprescribed (e.g.,discontinuationofrestrictiveformularies
medicineuse,costandaccesswereconductedon andcontinuationorimplementationofprior
aselectedsetofnineStates. OneoftheseStates authorizationprocedures)onuseof,andexpen-
(Kansas)hadproblemswithenrollmentdataand dituresfor,allothertypesofhealthcareservices
was,therefore,leftoutofcertainanalyses. The andoutcomes(e.g.,hospitalizations,physician
thirdanalyticalsetinvolvedtwelveStatesstud- visits,longtermcareuse,orpatientoutcomes)
iedfortheadministrativeimpactoftherebate wasnotevaluatedbythisproject.
program.
Limitationsofthestudyconcernthedatabases BackgroundofMedicaid
availableandthescopeofthestudy. First,there DrugRebateProgram
wereanumberoflimitationstothedatabases
usedinthisstudy. Forexample,oneofthe Historically,Medicaidprogramshavecovered
originalobjectivesofthisstudywasassessment outpatientprescriptiondrugs,eventhoughsuch
ofchangesindruguseratesasmeasuredbydays coverageisdefinedasoptionalbytheauthoriz-
oftherapyperrecipient-yearratherthannumber inglegislation. ThenationalaggregateofState
ofprescriptionsperrecipient-year. Thislevelof Medicaidexpendituresforprescribeddrugs
analysiswasnotpossible,though,duetolimita- nearlydoubledinthefiveyearperiodfrom1985
2 ExtramuralResearchReport,Number1, 1995
to1990,growingfrom$2.3billionto$4.4 TherebateamountduetotheMedicaidpro-
billion(PharmaceuticalBenefitsUnderState gramwasdependentupon: (1)thedrugproduct
MedicalAssistancePrograms;Reston,VA: type(i.e.,singlesource(SS),innovatormultiple
NationalPharmaceuticalCouncil,1986to1991 source(IMS),andnon-innovatormultiplesource
annualreports). (NMS));(2)theaveragemanufacturerprice
PrescribeddrugexpendituresunderMedicaid (AMP)foraspecificproduct;and(3)the
hadbeenrisingatanaverageannualrateof13.9 manufacturer'sbestpriceforthesameproduct.
percentinthefiveyearspriortotherebate Eachoftheparticipatingmanufacturersreports
legislation. ManyStategovernmentsfacesevere therequiredpricingdataonaquarterlybasisto
budgetaryproblems,ingeneral,andwithMedic- HCFA. HCFAusesthisinformationtocompute
aid,inparticular. Medicaidistypicallythe aunitrebateamount(URA). ThisURA,linked
singlelargestpayerforoutpatientprescriptions toauniquedrugproductNDCnumber,ispro-
withineachState,yetthisgovernmentprogram videdtotheStatesonadatatapeeachquarter.
traditionallydoesnothaveaccesstothedis- EachStatedeterminestheutilizationvolume
countsandrebatesoftenobtainedbycertain ofeachspecificdrugproduct(i.e.,foreachNDC
otherbuyers,suchashospitalsorHMOs. number,whichspecifiesacertaindrugentity,
Theprimarygoalsoftherebateprogramwere dosageform,strength,packagesizeandtype,
toallowMedicaidprogramstoachievesavings andmanufacturerorlabeler)basedonMedicaid
indrugprogramexpendituresandtoincrease paidclaimsdataforthequarter. TheURAtimes
Medicaidbeneficiaryaccesstodrugs. Savings thenumberofunitsutilizedresultsintheamount
of$3.4billiondollarsoverthefiveyearperiod, ofrebatedueforaspecificdrugproduct. Ifthe
1991to1995,wereexpected(Pollard,Michael manufacturerdisagreeswiththeutilizationdata,
R.andJohnM.Coster,"I. Legislation. Savings adisputedclaimmayresult. Disputedclaims
forMedicaidDrugSpending," HealthAffairs, mayleadtodelayedpaymentsandadditional
vol.10,no.2,Summer1991,pp.196-206). administrativecostsforboththeStatesandthe
CongressrequestedthatHCFApreparequarterly manufacturerduetogenerationofspecialized
andannualreportsontherebateprogramand reportsorauditstoestimateorverifytheutiliza-
thatotherprovisions(i.e.,drugutilizationre- tionofaspecificdrugproduct.
view)beevaluatedtodeterminethecostimpact
ofthelegislation. NationalAggregateAnalysisof
Implementationoftherebateprogramwas MedicaidDrugExpendituresandRebates
accomplishedthroughacomplexpartnership
betweenHCFA,StateMedicaidagencies,and MedicaidDataSources
pharmaceuticalmanufacturers. TheOBRA90
drugrebatelegislationincludedanumberof Dataforthisoverviewhasbeendrawnfrom
specificoperationalcomponentsincluding: threeprincipalsources. First,State-specificand
• theminimumpercentagecomponentofthe nationalaggregatedataweredrawnfromthe
basicrebate; HealthCareFinancingAdministration's(HCFA)
• thebestpricecomponentofthebasicrebate; Form2082andForm64reports. Second,addi-
• aninflationadjustmentrebate; tionalMedicaiddrugexpenditure,enrollment,
• ageneralprohibitionofrestrictiveformularies; andpharmaceuticalprogramdatawereextracted
• openaccesstonewdrugsfor6monthsafter fromtheannualreportstitled,Pharmaceutical
FDAapproval(repealedafterSeptember30, BenefitsUnderStateMedicalAssistancePro-
1993);and grams(Reston,VA:NationalPharmaceutical
• conditionsforoperationofpriorauthorization Council,annualreportsfrom1975to1994). A
programs. thirdreference,usedprimarilyasasourceof
ExtramuralResearchReport,Number 1, 1995 3
informationonMedicaiddrugrebatetrends,was substantialexpansioninthenumberofpersons
thesetofannualreportspublishedbyHCFA qualifyingforMedicaid,ortheeffectofopen
titled,ReporttoCongress:MedicaidDrug formularies. Inadditiontoestablishingthedrug
RebateProgram(HealthCareFinancingAdmin- rebateprogram,theOBRA90legislationex-
istration,1992,1993,and1995). pandedtheeligibilitycriteriaforMedicaid.
Recipients. Thenumberofdrugrecipients
MedicaidDrugExpendituresandRebates underMedicaidgrewfrom17.3millionin1990
to19.6millionin1991(a13.3percentincrease)
DrugExpenditures. Drugandtotalmedical andto22.1millionin1992(a12.8percent
expendituresforMedicaidincreasedaboutten- increase). Between1990and1992,theaverage
foldbetween1975and1993incurrentyear annualgrowthrateinnumberofdrugrecipients
dollars. Medicaiddrugexpendituresin1975 was12.9percent. Incontrast,duringthefive
totaled$815millionandby1993hadreached yearsfrom1985to1990theaverageannual
nearly$8billionbasedonHCFAForm2082 growthrateindrugrecipientswasonly4.5
data(Figure1andTable1). Drugpayments percent
grewfrom5.4percentto7.8percentoftotal ThenumberofpersonseligibleforMedicaid
medicalexpendituresbetween1982and1993. atanypointintimeisdifficulttodetermine. The
Drugpaymentsrepresentedalargershareof totalnumberofpersonsreceivinganytypeof
Medicaidtotalvendorpaymentsin1993thandid medicalassistanceserviceduringagivenperiod
physicianpaymentsat7.8percentand6.8 canbeusedasafunctionalproxyfortotal
percent,respectively. eligibles. ThenumberoftotalMedicaidrecipi-
Recentgrowthintotalmedicalpaymentsand entsremainedremarkablystableat21millionto
drugpaymentshasbeenparticularlystrong. 23millionrecipientsperyearduringtheperiod
Totalmedicalpaymentsin1993increased109 1975to1988(Figure2). However,bothtotal
percentsincethe1988paymentlevelandmore anddrugrecipientshaveexpandedconsiderably
than56percentsince1990. Drugpayments inthelastfiveyears. Since1988thenumberof
beforerebatesin1993representedanevenmore totalMedicaidrecipientshasgrownmorethan
dramaticincreasewith1993payments142 42percent,reaching32.7millionrecipientsin
percentgreaterthanin1988and80percentover 1993. ThenumberofMedicaiddrugrecipients
the1990paymentlevel. expandedslightlyfasterthantotalrecipients,
Medicaiddrugexpendituresgrewfrom$4.4 withthe23.9milliondrugrecipientsin1993
billioninFY1990,theyearbeforetherebate representinga43percentincreaseoverthe15.3
program,to$5.4billioninFY1991and$6.8 milliondrugrecipientsin1988anda29percent
billioninFY1992,notaccountingforrebates. increaseoverthe17.3milliondrugrecipientsin
Theannualdrugexpendituregrowthrateswere 1990.
22.8percentand25.1percent,respectively,in TheexpandedMedicaidpopulationinthefive-
1991and1992. Thesegrowthratesappearquite yearperiod,1988to1993,appearstobemore
dramaticincomparisontothe13.9percent likelytouseprescribedmedicationsthanrecipi-
averageannualgrowthrateexperiencedbetween entspreviouslyenrolled. Drugrecipientshave
1985and1990. grownasapercentoftotalmedicalassistance
Beforedrawinganyconclusionsaboutthe recipients. In1988,67percentoftotalmedical
sourceofthisgrowthindrugexpenditures, assistancerecipientsweredrugrecipients,and
however,itisimportanttopointoutthatthese thepercentagein1993grewtomorethan73
expenditurefigureshavenotbeenadjustedfor percent.
rebateamounts(eitherbilledorcollected),the
4 ExtramuralResearchReport,Number1,1995
DrugExpenditureperRecipient. Intensity recipientsutilizemoreprescriptionmedications
indicatorsarenotdirectlyinfluencedbychanges andhealthcareservicesthanothers. Asetof27
inthenumberofenrollees,becausethefocusis Stateswasfoundtohavereportedsuchabreak-
onexpendituresorunitsofserviceperperson. downforeveryyearfrom1988to1992. These
Theintensityofdrugexpendituresperdrug 27Statesaccountedforabout64percentof
recipienthasgrownsteadilyoverthepasttwo nationaldrugexpendituresoverthistimeperiod
decades. Thedrugexpenditureperdrugrecipi- andwereconsideredtobebroadlyrepresenta-
entwas$57.58peryearin1975,$128.97in tive.ThisanalysisdrewitsdatafromtheHCFA
1983,and$333.50in1993,representingan 2082formsasreportedintheannualeditionsof
increaseofnearlysix-foldsince1975. PharmaceuticalBenefitsUnderStateMedical
Druguseintensityismeasuredasprescrip- AssistancePrograms(Reston,VA:National
tionsperdrugrecipientperyear. Duringthelast PharmaceuticalCouncil,variousyears).
twodecadesthisintensitymeasurehasgrown Drugrecipientsandexpenditureswere
gradually. In1975theaverageMedicaiddrug groupedintofourcategories:aged,disabledand
recipientused12.4prescriptionsperyear. By blind,AFDC-adult,andAFDC-child. Allper-
1983,drugrecipientswerereceiving13.0pre- sonsclassifiedasotherorunclassifiedwere
scriptionsperyear,onaverage,andin1993they treatedasmissingforpurposesofthisexamina-
averaged14.6prescriptionsannually. tion. TheAFDC-childgroupwasfoundtobethe
Drugexpendituresperdrugrecipienthave largestgroupbynumberofrecipients(46.7
beengrowingatafasterratethanthenumberof percent),buttheyaccountedforthesmallest
prescriptionsperrecipient,indicatingthata proportion(11.4percent)ofdrugexpenditures
majorportionofthegrowthindrugexpenditure (Figure3). AFDC-adultsalsoaccountedfora
intensityiscomingfromgrowthinpaymentsper largerpercentofrecipientsthanexpenditures. In
prescriptionratherthanfromthenumberof contrast,theagedandthosewhoaredisabled/
prescriptionsused. Theannualrateofchangein blindconsumedadisproportionateshareofthe
drugexpendituresperdrugrecipientinboth expenditureswhencomparedwiththeirshare
currentandconstantdollarshasroutinelygrown amongrecipients. Thedisabledandblindwere
fasterthanthenumberofprescriptionsperdrug onlyone-fifthoftherecipientswhileconsuming
recipientperyear. nearlyone-half(46.2percent)ofdrugexpendi-
Theannualrateofchangeindrugexpenditure tures.
intensity(drugexpendituresperdrugrecipient TheelderlyMedicaidrecipientsrepresented
peryear)overthelastdecadehasrangedfrom8 13.8percentoftherecipientsand30.1percentof
percentto12percentincreases. Thedruguse thedrugexpenditures. Similarly,theelderly
intensityhadannualratesofchangeranging representabout12percentoftheoverallUnited
from-3percentto+3percentoverthelastten Statespopulationandaccountforover34per-
years. From1988to1993thedruguseintensity centoftheoutpatientdrugexpenditures(Joseph
fordrugrecipientshasgrownlessthan1percent. ThomasIIIandStephenW.Schondelmeyer,
Increasesindruguseintensitydonotappearto ReporttoCongress,Manufacturers'Priceand
beamajorfactorinthegrowthofprescription Pharmacists'ChargesforPrescriptionDrugs
expendituresinrecentyears. UsedbytheElderly,HealthCareFinancing
Administration,Washington,DC,June1990).
DrugExpendituresbyRecipientType. The ThenumberofrecipientsintheAFDC-adult
drugexpenditurelevelsinaMedicaidprogram andAFDC-childgroupshasbeengrowing
canbeinfluenced,notonlybythegrowthin especiallywiththeOBRA90mandatedexpan-
recipients,butalsobychangesinthemixof sionsaspreviouslydiscussed. Despitethe
typesofrecipients. CertaintypesofMedicaid growthinnumberoftheAFDCpopulation,
ExtramuralResearchReport,Number1, 1995 5
provisionofdrugtherapyforthesegroupsis declineinrealdollarterms(Figure6). Atthe
relativelyinexpensivecomparedtothecostof sametime,theaveragedrugproductpayment
drugtherapyforagedanddisabled/blindrecipi- grewinconstantdollars(1993)from$5.69in
ents. 1975to$18.74in1993. Thisaccountsformore
Notsurprisinglytheelderlyandthedisabled thanathree-foldgrowthofdrugproductpay-
haveamuchhigherannualdrugexpenditurerate mentsinrealdollarterms.
perrecipientthandotheAFDC-adultorAFDC-
childgroups. In1992theaverageMedicaid
elderlyhaddrugexpendituresof$721ascom- ImpactoftheMedicaidDrugRebateProgram
paredwithonly$205foranAFDC-adultand
$80foranAFDC-child.(Figure4). Drugexpen- EachStatebillsmanufacturersforrebates
dituresperrecipientincreasedsteadilybetween basedonutilizationdataandthespecifiedunit
1988and1992inallcategories. Formost rebateamount(URA). Theamountoftherebate
recipientgroupstheexpenditureratehasnearly istobepaidtotheStatewithin38daysofthe
doubledinthelastfiveyears. Theagedhad postmarkdatefortheinvoice. Theamountof
expendituresof$380perpersonin1988,which rebatescollectedbyaStateMedicaidprogram
increasedto$720by1992. Expendituresfor mustbesubtractedfromthetotaldrugexpendi-
AFDCchildrenwere$41peryearin1988and turesinordertodeterminethenetexpenditures
reached$80by1992. AFDCadultssawtheir forthedrugprogram. MostStatesandHCFAdo
expenditurelevelgrowfrom$95in1988to$205 notreportdrugprogramexpendituresasan
in1992. amountnetofrebates. Whendrugexpenditures
areexaminedasanamountnetofrebates,one
PrescriptionandDrugProductPayments. getsadifferentperceptionofdrugexpenditure
Costefficiencyindicatorsaremeasuresofexpen- trends.
dituresorpaymentsperunitofservice. The RebateamountsthataccruedtotheMedicaid
primaryefficiencyfactorfortheMedicaiddrug programinthefirsttwocalendaryears(1991and
programistheexpenditureperprescription. The 1992)ofoperationtotaled$1.35billion(Figure7
averageMedicaidpaymentperprescriptionin andTable2). Duringthefirsttwofiscalyears
1975was$4.64. By1983theaverageprescrip- (1991and1992)thedrugrebateamountsac-
tionpaymentwas$9.93,anditreached$22.85in cruedwere10.3percentofthetotalMedicaid
1993(Figure5). drugexpenditures,$1.26billionaccruedin
Theaveragepaymentperprescriptioncanbe rebatescomparedto$12.2billionspenton
subdividedintotwocomponents:thedrug prescribedmedicines{ReporttoCongress:
productpaymentandthedispensingfeepay- MedicaidDrugRebateProgram,HealthCare
ment. Theaveragepaymentforeachofthese FinancingAdministration,1992and1993).
componentshasgrownincurrentyeardollars. Infiscalyear1991therebateprogramhadjust
Thedispensingfeepaymentgrewfrom$2.18in begun. Rebateswerefirstinvoicedandcollected
1975to$4.11in1993,lessthanatwo-fold duringthethirdCYquarterof1991(fourthFY
increaseoverthis18-yearperiod. Incontrast, quarter),totalingabout$110million. DuringFY
theaveragedrugproductpaymenthasgrown 1992,Statesreportedcollectingaround$900
from$2.46perprescriptionin1975to$18.74in millioninrebates(Figure7andTable2). Rebate
1993,morethanaseven-foldgrowthinthis collectionsforFY1993reachedabout$1.41
period. billion. Theserebatepaymentsresultedina4.6
Theaveragedispensingfeepaymentactually percentreductioninFY1991drugexpenditures,
decreasedinconstantdollars(1993)from$84in
1975to$4.11in1993,representinga30percent
6 ExtramuralResearchReport,NumberI,1995
1
a13.0percentreductioninFY1992drugexpen- 1993($18.80)waslessthantheaverageMedic-
ditures,anda17percentreductioninFY1993 aidprescriptionpaymentexperiencedfouryears
drugexpenditures. earlierin1989($19.08).
TheimpactoftherebatepaymentsonMedic- Rebatesaccruedwerefoundtoaveragearound
aiddrugexpendituretrendswasreviewedin 11percentto14percentoftotalMedicaiddrug
severalways. First,thedrugexpenditureper expendituresin1992and1993. Onthesurface
drugrecipientwascalculatedaftersubtractionof thisproportionappearslow,buttotaldrugexpen-
rebateamountscollected. Althoughthetotal dituresalsoincludedispensingfeepayments.
drugexpenditureperdrugrecipientin1993was Thesedispensingfeepaymentsaccountforabout
$333.50,thisfigurefallsto$274.37whencol- 18percentofthetotaldrugexpenditures. When
lectedrebatesaresubtracted. Whenadjustedfor dispensingfeepaymentsaresubtractedfrom
inflation(1993constantdollars),the1993drug totaldrugpayments,therebateamountrisesto
expenditure($274.37)netofcollectedrebates approximately14percentto15percentofthe
perdrugrecipientwaslessthanthe1990drug remainingdrugproductpaymentamount.
expenditureperdrugrecipient($282.11)experi- Therearetwogeneraltypesofrebatesandthe
encedthreeyearsearlier,andnearlyaslowasthe amountofrebatedueisafunctionofthetypeof
1989amountof$269.53. Inotherwords,the drugproductandthepricingpracticesofthe
rebateprogramhasresultedinthedrugexpendi- manufacturer. Therebatetypesare: (l)the
tureperdrugrecipient,inconstantdollars, innovator(SSandIMSdrugproducts)rebate
levelingoffoverthefirstthreeyearsofthe whichis(a)thelargerofthebasicrebatebased
program. ontheminimumrebatepercentageapplicablefor
Thenationalaggregatechangeindrugexpen- eachquarterandyearaccordingtocurrent
ditureperdrugrecipientbetween1990and1992, legislativestatuteandthebestpricerebatewhich
whenadjustedforrebatescollectedandgeneral isdifferencebetweentheAMPandthebestprice
inflation,wasa2.9percentdecrease. Whenthis plus(b)anadditional(inflationadjustment)
samefactorwasexaminedonaState-by-State rebateifAMPhasrisenfasterthantheCPI-u;
basis,29Stateshadalowerdrugexpenditureper and(2)thenon-innovatorrebate(NMSor
drugrecipientin1992thanin1990(Figure8). genericdrugproducts)whichisbasedonthe
FourStates,inparticular,hadverylargein- applicableminimumrebatepercentage(1
creasesindrugexpendituresperdrugrecipient percent). Drugproductshavebeenclassifiedby
(adjustedforrebatesandinflation)between1990 therebatelegislationassinglesource(SS;i.e.,
and1992: WestVirginia(33.5percent),Ken- stillprotectedbyapatentoranotherformof
tucky(33.3percent),Missouri(29.2percent), marketexclusivity), innovatormultiplesource
andMassachusetts(18.4percent)(Figure8). (IMS;anoriginalmarketersproductwhichnow
Whenrebatescollectedperprescriptionwere hasoneormorecompetitorsonthemarket),and
subtractedfromtheaverageprescriptionpay- non-innovatormultiplesource(NMS;non-
ment,theaverageprescriptionpaymentin1993 originatorversionsofproductswhichhavelost
decreasedfrom$22.85to$18.80incurrent theirexclusivity). Abriefanalysiswasper-
dollars,a17.7percentreduction. Thislower formedatthenationallevelusinginformation
prescriptionpaymentamountnetofcollected fromHCFAestimatestodescribetherelative
rebatesmeansthatMedicaidwaspayinglessfor proportionofthetotalrebateamountthatis
theaverageprescriptionin1993thanitpaidin derivedfromeachofthefollowing:themini-
1991($18.80versus$18.88). Afteradjusting mumrebate,thebestpriceprovision,theaddi-
forinflation(1993constantdollars),theaverage tional(inflationadjustment)rebate,andthe
prescriptionpaymentlessrebatescollectedinFY minimumgeneric(NMS)rebate.
ExtramuralResearchReport,Number1, 1995 7
Inthefirsttwoyearsoftheprogram,thebasic thedrugproductinflationexceededthegeneral
rebateamountwastheminimumamountduefor inflationrate. Thatis,ifadrug'spricehad
SSandIMSdrugs. Arebateamountof12.5 increased12percentcumulativelysinceOctober
percentoftheaveragemanufacturerprice(AMP) 1990andthegeneralinflationrateoverthat
wasdueforSSandIMSdrugproducts. During periodwas6percent,themanufacturerwould
CY1992,thebasicrebatecomponentcontrib- oweanadditionalrebateof6percentofthe
utedbetween$78and$106millionperquarter AMP. Theadditionalrebatehasgrownovertime
whichrepresentedabout39percentofthetotal from21percentofthetotalaccruedrebatein
rebatesaccrued(Figure9andTable3). Accord- 1991to26percentoftherebateamountaccrued
ingtorebateprogramrevisionscontainedinthe in1992(Figure9andTable3). Thisinflation-
VeteransHealthCareActof1992theminimum adjustmentrebatecontributed$69millioninthe
basicrebatewasincreasedto15.7percentof fourthquarterofCY1992andisexpectedto
AMPbeginningwiththefourthquarterofCY continuouslygrowasaproportionofthetotal
1992andcontinuingduringCY1993. ForCY rebateovertimeduetothecumulativenatureof
1994theminimumrebatepercentagewassetat itsinflationindex.
15.4percent,forCY1995itwassetat15.2 Thenon-innovator,orgeneric,rebateisdueon
percent,andafter1995theminimumpercentage allnon-originatordrugproducts. TheseNMS
willbe15.1percent. drugproductsarenotsubjecttothebestpriceor
Abestpricerebateisduebeyondthebasic additional(inflationadjustment)rebates. The
minimumrebateifthemanufacturersellsthe non-innovatorrebateissetbyafixed,minimum
productatalowerpricetoanycustomernot percentageequalto10percentoftheAMPfrom
exemptedbyeithertheoriginallegislationorthe 1991to1993and11percentoftheAMPafter
VeteransHealthCareActof1992. Thebest 1993. TheNMSrebatehascontributed$2to$3
pricerebateisthedifferencebetweentheAMP millionofaccruedrebateperquarter. ThisNMS
andthebestprice. Duringthefirsttwoyearsof rebateamountrepresentsabout1percentofthe
theprogram(1991and1992),thebestprice totalaccruedrebates,andthispercentagehas
rebatewascappedatnomorethe25percentand beenshrinkingovertime(Figure9andTable3).
50percentoftheAMP,respectively. Inthefirst ThebasicrebateforSSandIMSdrugswas
yearoftherebateprogramthebestpricecontrib- increasedfrom12.5percentto15.7percentof
uted$30to$50millionperquarterinaccrued AMPinthefourthquarterof1992bytheVeter-
rebates,or28percentofallrebatesaccrued. The ansHealthCareActof1992,asdescribedearlier.
1992contributionofthebestpricecomponent Thisgrowthintheminimumpercentageforthe
increasedtoabout34percentofrebatesaccrued basicrebatecanbeseenintherebateamounts
whichwas$60to$80millionperquarter(Figure overtimewithajumpinthebasicrebateamount
9andTable3). (lessbestpricecontribution)inthefourthquarter
Theadditionalrebatewasaddedasameansto ofCY1992(Figure9andTable3). TheNMS
neutralizethemanufacturer'ssteadilyincreasing rebatehadascheduled,onetimeincreasefrom
pricestotheMedicaidprogram. Thisrebate 10percentto11percentattheendof1993,but
appliestotheSSandIMSdrug,butnottheNMS otherwiseisnotexpectedtochangewithout
drugs. Therebateiscalculatedbycomparingthe legislativeaction. Thecontributionofthebest
rateofgeneralinflation(asmeasuredbytheCPI- pricetotherebateamountwillvarydepending
u)sinceOctoberof1990withtherateofchange uponpharmaceuticalmanufacturers'pricing
ineachdrugproductoverthesametimeperiod. practicestofavoredcustomerswhicharenot
Anadditionalrebateamountisdueaboveand exemptfromthebestpricecalculation,asde-
beyondthebasicandbestpricerebatesforeach scribedearlier. Theadditional(inflationadjust-
percentagepoint,orfractionthereof,bywhich ment)rebatehasbeengrowingbothinamount
8 ExtramuralResearchReport,Number1, 1995
andasapercentageoftotalrebatesaccrued. Therelativecontributionofeachfactorlead-
Sincedrugproductpriceshavebeengrowingto ingtogrowthinMedicaiddrugexpenditures
date,andareexpectedtocontinuegrowing,ator from1988to1993canbeestimatedbydeter-
abovetherateofgeneralinflation(CPI-u,all miningtheexpenditureexpectedfromchangein
items),theadditionalrebateshouldcontinueto thatfactorwhileholdingeachoftheotherfactors
growinimportanceasapartofthetotalrebate constantoverthefiveyearperiod. Thegrowthin
amount. numberofdrugrecipientsappearedtobethe
singlelargestgrowthfactoroverthepastfive
SourcesofDrugExpenditureGrowth years. Ifnogrowthhadoccurredinthenumber
ofeligiblesorrecipients(i.e.,ifdrugrecipients
Thedrugprogramexpenditures(current hadremainedat15.9millionratherthangrowing
dollars)increased141.9percentoverthe5-year to23.9million)theestimateddrugexpenditures
period(1988to1993)beforeaccountingfor in1993wouldhavebeen$5.1billioninsteadof
rebatesand99.0percentafteradjustmentfor $8.0billion(Figure11). Thegeneralinflation
rebatesaccrued. Whengeneralinflation(21.9 rateforthisfive-yearperiodwasabout22per-
percent)overthis5-yearperiodistakeninto cent(CPI-Uallitems). Afterfactoringinthis
account,thedrugexpenditures(1993constant generalinflationcomponent,the1993drug
dollars)increased98.5percentbeforerebates expenditurewouldhavebeen$4.2billionin
and63.3percentafterrebates. 1988constantdollars,ifallotherfactorsre-
Thesinglelargestfactorcontributingtothe mainedconstant. Finally,therebatesaccrued
growthindrugexpendituresbetween1988and from1991to1993wouldhavefurtherreduced
1993,beforeadjustmentsforinflationand the1993netMedicaiddrugexpendituretoabout
rebatesaccrued,waspaymentamountperpre- $3.1billionin1988constantdollars.
scriptionforthedrugproduct. Thisfactor Insummary,morethanone-halfofthegrowth
showeda66.3percentincreaseincurrentdollars indrugexpendituresbetween1988and1993
anda36.4percentgrowthinconstant(1993) wasattributabletorecipientgrowth,aboutone-
dollars. Closebehindingrowthrateforthis5- fifthwasduetogeneralinflation,andnearlyone-
yearperiodwastheexpansionofeligibleswhich fourthwasduetopaymentsmadetopharmaceu-
resultedina55.9percentjumpindrugrecipi- ticalmanufacturers,throughcommunitypharma-
ents. Thegrowthofdrugrecipientsdoesnot cies,whichwerelaterrecoveredbytheStatesin
changewithadjustmentforinflationorrebates, theformofrebatepayments.
leavingthisfactorasthesinglelargestfactor
contributingtogrowthindrugexpendituresafter StateCaseStudies:Basedon
otherfactorshavebeenadjusted. Druguse DetailedClaimsAnalysis
intensity(numberofprescriptionsperpersonper
year)grewbyonly0.4percentbetween1988and Objectives
1993,and,likedrugrecipients,thisfactorisnot Theprimaryfocusofthesecasestudieswas
affectedbyadjustmentsforrebatesorinflation. onchangesindrugexpendituresbeforeandafter
Withadjustmentsforrebatesaccruedandgeneral theMedicaidrebateprogramwasimplemented.
inflation(21.9percentoverthe5-yearperiod), Thecasestudiesusedindividual-levelclaims
theaverageprescriptionpaymentgrew4.3 datatocomparedrugexpendituresfortwosix-
percentwhilethedrugproductpaymentgrewby monthobservationperiodsbeforeandafter
6.9percent,andthedispensingfeepayment implementationoftherebateprograminJanuary
decreased4.3percent(Figure10). 1991. Thetimeperiodschosenwerefrom
JanuarythroughJunein1990andthecompa-
rableperiodin1992. TwoStates,however,had
ExtramuralResearchReport,Number1, 1995 9