Date: Wednesday, November 8, 1995
FOR IMMEDIATE RELEASE
Contact: HCFA Press Office (202) 690-6145

HCFA Releases Study on
Medicaid Drug Rebate Program

State Medicaid programs collected $2.51 billion from drug manufacturers from 1991 to 1993, the first three years of the Medicaid drug rebate program, according to a study released today by the Health Care Financing Administration.

These rebate payments resulted in a 4.5 percent reduction in fiscal year 1991 drug expenditures, a 13 percent reduction in FY 1992 and a 17 percent reduction in FY 1993. Moreover, the administrative costs of the rebate program by state Medicaid agencies averaged less than 1 percent of the rebates collected.

"The Medicaid drug rebate program is a tremendous success," said HHS Secretary Donna E. Shalala. "It saves federal and state governments resources that can be better spent on the care of needy Americans while ensuring that Medicaid beneficiaries get the drugs they need."

The study also reports that average annual drug expenditures per Medicaid recipient actually declined 2.9 percent overall from 1990 to 1992, after adjustments for the rebates and inflation.

The study entitled, "Impact of the Medicaid Drug Rebate Program," is published in HCFA's Extramural Research Report, issued by the Office of Research and Demonstrations.

The Omnibus Budget Reconciliation Act of 1990 established the Medicaid drug rebate program, effective Jan. 1, 1991. The rebate program was designed to tap Medicaid's purchasing power by giving the program the same kind of volume discounts afforded to other large purchasers of prescription drugs, thus holding down costs.

Medicaid, which has 36 million enrollees, pays for approximately 15 percent of all prescription drugs dispensed in the United States. Until the rebate program, this purchasing power was not tapped because individual states had difficulty in obtaining volume discounts.

The rebate mechanisms apply to all states uniformly. However, the rebate calculation varies according to drug patient status, best price and inflation adjustment.

Other findings in the HCFA report include:

- Prescription drug expenditures for Medicaid patients varied widely by state. - Some states place the drug rebate amounts directly into the general revenue fund, while others put the rebate funds directly back into the Medicaid program. The drug rebate program is a significant source of revenue for some state Medicaid programs. - The Medicaid drug rebate program appears to be successful in managing the growth in drug expenditures over its first few years of operation. After accounting for other Medicaid program changes, the growth of Medicaid drug expenditures slowed considerably and the net program expenditure for most states is considerably lower than would have been expected without the rebate program.

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