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