Recent Trends in Medicaid Outpatient Prescription Drug Utilization and Spending
Editor’s Note: This brief was updated on January 8, 2024 to clarify that this analysis measures utilization as the number of prescriptions and does not account for a prescription’s number of days supplied.
There have been various federal actions to address high prescription drug costs in recent years, including the passage of the Inflation Reduction Act, proposed legislation to regulate pharmacy benefit managers (PBMs), and a new proposed federal rule with provisions that increase price transparency. State officials also remain concerned about the emergence of new, high cost drugs and continue to implement various cost containment initiatives. At the same time, the start of the COVID-19 pandemic and the pandemic-related continuous enrollment provision drastically affected Medicaid enrollment and spending trends. States have now begun to “unwind” the continuous enrollment provision which is expected to further impact Medicaid enrollment and spending, although considerable uncertainty remains related to how Medicaid enrollment will change over the course of the unwinding. This issue brief describes recent trends in the number of Medicaid outpatient prescriptions and the spending on those drugs, examines how the pandemic may have impacted those trends, and explores what recent trends could mean as states unwind the continuous enrollment provision and continue to contend with new, high-cost drugs entering the market. Key findings include:
- Even though Medicaid enrollment reached historic levels during the continuous enrollment period, Medicaid prescription drug utilization, measured in number of prescriptions, remained below FY 2017 levels through FY 2022.
- Net spending (spending after rebates) on Medicaid prescription drugs is estimated to have grown in recent years, increasing from $29.8 billion in FY 2017 to $43.8 billion in FY 2022, a 47% increase.
- Despite fewer prescriptions, Medicaid spending on prescription drugs has increased, and both states and the federal government continue to take action to combat rising costs (Figure 1).
Even though Medicaid enrollment reached historic levels during the continuous enrollment period, in the number of prescriptions Medicaid paid for remained below FY 2017 levels through FY 2022 (Figure 2). After peaking in FY 2017, the number of outpatient prescriptions started to decline, even before the COVID-19 pandemic. Prescriptions declined by 3% in FY 2020, the first year of the pandemic, before beginning to increase again in FY 2021 (by 1%) and FY 2022 (by 5%). Despite recent increases, the total number of Medicaid prescriptions in FY 2022 (761.1 million) remained below FY 2017 levels (765.6 million). At the same time, enrollment in Medicaid and the Children’s Health Insurance Program (CHIP) grew substantially following the onset of the pandemic, peaking at 94.5 million people in April 2023 – an increase of 23.1 million enrollees or 32.4% from February 2020. The number of Medicaid prescriptions per person has declined since FY 2020, pointing to lower drug utilization among those individuals enrolled during the continuous enrollment provision. One limitation of this analysis is that the data do not include the number of days supplied per prescription, which may have increased in recent years (see Methods). Decreases in the number of prescriptions may reflect lower utilization or a greater number of days supplied in each prescription.
Net spending (spending after rebates) on Medicaid prescription drugs is estimated to have grown in recent years, increasing from $29.8 billion in FY 2017 to $43.8 billion in FY 2022, a 47% increase (Figure 3). Gross Medicaid spending (spending before rebates) on outpatient prescription drugs has also grown since 2017, increasing from $64.7 billion in FY 2017 to $92.3 billion in 2022. The difference between net and gross spending is drug rebates. Under the Medicaid Drug Rebate Program, drug manufacturers provide rebates to the federal government and states in exchange for Medicaid coverage of their drugs, and a Congressional Budget Office study found these rebates result in lower net drug prices in Medicaid compared with other federal programs. Growth in rebates on Medicaid prescription drugs was slower than gross spending growth over the period, with rebates increasing from $34.9 billion to $48.5 billion, or 39%, from FY 2017 to FY 2022.
Both gross and net prescription drug spending have increased every year starting in FY 2019, despite the onset of the pandemic and prescription declines through FY 2020, likely driven by increased spending on high-cost brand drugs. Studies have found substantial drug price increases beyond the rate of inflation in recent years as well as increasing launch prices for new drugs. Overall, net Medicaid spending per prescription increased from $39 in 2017 to $58 in 2022, though recent changes in the number of days a prescription is supplied for could also be contributing to increases. Net Medicaid spending on prescription drugs overall accounted for 5.6% of total Medicaid spending in FY 2022, only a slight increase from FY 2017 (5.2%).
Rebates reduce Medicaid spending on prescription drugs by over half, but the decrease is larger for fee-for-service (FFS) drug spending (Figure 4). Over the period, the share of gross spending rebates accounted for held relatively steady, around an average of 54% of gross Medicaid spending (Figure 3). Rebates are typically much higher for brand drugs compared with generic drugs. A MACPAC analysis of FY 2020 data found statutory rebates were around 61.6% of gross spending on brand drugs but 8.6% of gross spending on generic drugs. In 2022, drug rebates comprised 65% of gross FFS spending but only 46% of gross managed care organization (MCO) spending. There are several possible reasons for that difference:
- One study found the structure of the rebate program may incentivize the use of generic or lower priced drugs in MCOs since MCOs do not receive statutory rebates. States do receive a portion of statutory rebates (which are typically higher for brand drugs), so there may be muted incentive to shift to generics in FFS.
- Some states also carve out specific drugs or drug classes from managed care, typically targeting high-cost, brand drugs (which have higher rebates).
- While capitated managed care is now the predominant delivery system for Medicaid in most states, managed care penetration rates for different eligibility groups can vary by state. Adults ages 65+ and people eligible through disability are less likely to be enrolled in MCOs and may require more specialty brand medications which typically have higher rebates.
- This analysis does not include any supplemental rebates that may be negotiated between managed care plans and manufacturers, but does include supplemental rebates negotiated between state Medicaid agencies and manufacturers.
What to Watch Looking Ahead?
While the COVID-19 pandemic had a significant impact on Medicaid enrollment, the number of Medicaid prescriptions was relatively unaffected. Despite historical increases in Medicaid enrollment over the past three years, the number of prescriptions that Medicaid paid for remained below FY 2017 levels. The number of prescriptions per person declined during the pandemic, suggesting lower drug utilization among those individuals enrolled in Medicaid during the continuous enrollment provision and a higher number of 90-day prescriptions. As states unwind the continuous enrollment provision, millions are expected to lose their Medicaid coverage, which may impact future drug trends depending on how much enrollment declines and how the health needs of those remaining on the program change. While national trends in the number of Medicaid prescriptions may remain relatively stable as they have in recent years, loss of Medicaid coverage on an individual level could have severe consequences for those who rely on regular access to prescription drugs. A recent KFF focus group report found that participants said that losing Medicaid would be “devastating” due to loss of access to “lifesaving” prescriptions and treatments.
Amid increasing Medicaid spending on prescription drugs, states and the federal government continue to take action to combat rising costs (Figure 4). At the federal level, there have been recent bills under consideration with Medicaid drug pricing provisions or implications for Medicaid drug spending. In addition, CMS issued a proposed rule with provisions that would increase transparency of PBM contracts and provide pricing information on certain high-cost drugs, and the Biden administration recently threatened to seize patents for drugs developed with government research funding from manufacturers if a drug’s price is too high and allow other drug companies to sell the drug. The Inflation Reduction Act, passed in 2022, aims to substantially reduce Medicare prescription drug spending, though some of the provisions interact with the Medicaid Drug Rebate Program and may lead to increases in Medicaid prescription drug spending. Further, all states have adopted at least one law to regulate PBMs, and Congress has also proposed legislation to address PBM spread pricing and increase transparency, including the recently House passed Lower Costs, More Transparency Act. In KFF’s annual survey of state Medicaid programs, states noted rising prescription drug costs were an ongoing challenge, with over two-thirds of states reporting new or expanded initiatives to contain prescription drug costs, a number of which focus on mitigating the cost impact of physician administered and/or biologic drugs. As new, costly drugs continue to emerge, including a new group of highly effective weight-loss agents, both states and the federal government will continue to contend with the budgetary impact of these drugs and develop policies to address them.
|Utilization and Gross Spending Data: This analysis uses 2016 through 2022 State Drug Utilization Data (SDUD) (downloaded in December 2023) converted to federal fiscal year (FY) 2017 through FY 2022. The SDUD is publicly available data provided as part of the Medicaid Drug Rebate Program (MDRP), and provides information on the number of prescriptions, Medicaid spending before rebates, and cost-sharing for rebate-eligible Medicaid outpatient drugs by NDC, quarter, managed care or fee-for-service, and state. It also provides this data summarized for the whole country. The data do not include information on the number of days supplied in each prescription. CMS has suppressed SDUD cells with fewer than 11 prescriptions, citing the Federal Privacy Act and the HIPAA Privacy Rule. This analysis used the national totals data because less data is suppressed at the national versus state level.
Rebate Data: This analysis uses CMS-64 Financial Management Reports (FMR) for FY 2017 through FY 2022 (downloaded in November 2023). These reports include total Medicaid expenditures broken out by various service categories, and this analysis pulls out the drug rebate line items, separating them by managed care or fee-for-service rebates. The rebate data used includes statutory rebates, state supplemental rebates, rebates under the ACA offset, and rebates for opioid use disorder medication assisted treatment. Supplemental rebate agreements negotiated between Medicaid managed care plans and manufacturers are not included. The rebates collected in the CMS-64 were subtracted from the gross spending totals from the SDUD to estimate net Medicaid spending on prescription drugs each fiscal year.
Limitations: There are a few limitations to the estimates of Medicaid utilization and spending found in this analysis, including: