Amid Unwinding of Pandemic-Era Policies, Medicaid Programs Continue to Focus on Delivery Systems, Benefits, and Reimbursement Rates: Results from an Annual Medicaid Budget Survey for State Fiscal Years 2023 and 2024



States may administer the Medicaid pharmacy benefit on their own or may contract out one or more functions to other parties, including delivery of benefits through managed care organizations (MCOs) and pharmacy benefit managers (PBMs). PBMs may perform a variety of administrative and clinical services for Medicaid programs (e.g., developing a provider network, negotiating rebates with drug manufacturers, adjudicating claims, monitoring utilization, overseeing preferred drug lists (PDLs), etc.) and are used in fee-for-service (FFS) and managed care settings. However, PBMs have been under increasing scrutiny in recent years as more states recognize a need for transparency and oversight. All states have adopted at least one law to regulate PBMs, and legislation to limit spread pricing and increase transparency is also being considered at the federal level.

Managing the Medicaid prescription drug benefit and pharmacy expenditures is a policy priority for state Medicaid programs. Prescription drugs account for approximately 5% of total Medicaid spending, and Medicaid gross and net spending on prescription drugs has increased since 2018 despite a utilization decrease during the COVID-19 pandemic, likely due to increased spending on high-cost drugs. These new high-cost drugs, including cell and gene therapies, can put pressure on state budgets. Under the federal Medicaid Drug Rebate Program (MDRP), states must cover nearly all FDA-approved drugs from rebating manufacturers but can use an array of payment strategies and utilization controls to manage pharmacy expenditures, including PDLs, managed care pharmacy carve-outs, and value-based arrangements (VBAs) negotiated with individual pharmaceutical manufacturers that increase supplemental rebates or refund payments to the state if the drug does not perform as expected. At the federal level, CMS recently issued a proposed rule aimed at increasing price transparency, and there have been recent bills under consideration with Medicaid drug pricing provisions and potential implications for Medicaid drug spending. Further, the passage of the Inflation Reduction Act included a number of prescription drug reforms that primarily apply to Medicare; however, some of the provisions interact with the MDRP and may lead to increases in Medicaid prescription drug spending.

There is particular focus among all payers right now on a new class of drugs to treat obesity. A long-standing statutory exception allows states to choose whether to cover weight-loss drugs under Medicaid, leading to variation in coverage policies across states. Some states may be re-evaluating their coverage of anti-obesity or weight-loss drugs due to the emergence of a new group of highly effective weight-loss agents known as GLP-1 (glucagon-like peptide-1) agonists, including Ozempic, Rybelsus, Wegovy, and Mounjaro. (Ozempic, Rybelsus, and Mounjaro are drugs approved to treat diabetes, and covered by Medicaid for that purpose in all states; however, off-label coverage for weight loss in Medicaid may be limited.) Expanding coverage of weight-loss drugs under Medicaid would increase access to these medications that remain unaffordable or inaccessible for many but, at the same time, would likely contribute to increases in Medicaid drug spending. New American Academy of Pediatrics (AAP) guidelines also now recommend pharmacotherapy obesity treatment for children ages 12 and older. Changes in physicians’ practice stemming from the updated treatment recommendations could have an impact on Medicaid programs and enrollees because Medicaid now covers half of all children in the U.S., and an even larger percentage of children who are likely to have obesity.

This section provides information about:

  • Managed care’s role in administering pharmacy benefits
  • Pharmacy cost containment
  • Coverage of anti-obesity or weight loss drugs


Managed Care’s Role in Administering Pharmacy Benefits

Most states that contract with MCOs include Medicaid pharmacy benefits in their MCO contracts, but eight states “carve out” prescription drug coverage from managed care. While the vast majority of states that contract with MCOs report that the pharmacy benefit is carved in to managed care (32 of 41), eight states (California, Missouri, New York, North Dakota, Ohio, Tennessee, Wisconsin, and West Virginia) report that pharmacy benefits are carved out of MCO contracts as of July 1, 2023 (Figure 14). As of April 1, 2023, New York carved the pharmacy benefit out of managed care, becoming the latest state to implement a full pharmacy carve-out. Instead of implementing a traditional carve-out of pharmacy from managed care, Kentucky contracts with a single PBM for the managed care population. Under this “hybrid” model, MCOs remain at risk for the pharmacy benefit but must contract with the state’s PBM to process pharmacy claims and pharmacy prior authorizations according to a single formulary and PDL. Louisiana and Mississippi report that they are moving to a similar model in FY 2024. In addition, about half of the responding states that generally carve in pharmacy benefits reported carving out one or more specific drug classes from MCO capitation payments as of July 1, 2023. Some of the most commonly carved out drugs include hemophilia products, spinal muscular atrophy agents, hepatitis C drugs, and behavioral health drugs such as psychotropic medications.

Cost Containment Initiatives

Over two-thirds of responding states reported at least one new or expanded initiative to contain prescription drug costs in FY 2023 or FY 2024. On this year’s survey, states were asked to describe any new or expanded pharmacy program cost containment strategies implemented in FY 2023 or planned for FY 2024, including initiatives to address PBM spread pricing and value-based arrangements. States were asked to exclude routine updates, such as to PDLs or state maximum allowable cost programs, as these utilization management strategies are employed by states regularly and are not typically considered major new or expanded policy initiatives.

The largest share of states noting new cost containment policy changes reported initiatives related to value-based arrangements (VBAs) with pharmaceutical manufacturers as a way to control pharmacy costs. Over one-third of responding states reported working toward, implementing, or expanding VBA efforts in FY 2023 or FY 2024. This includes states that are just beginning to lay the groundwork for VBAs in their state, which can include submitting a State Plan Amendment (SPA) to allow VBAs and negotiations with manufacturers. Some examples of drugs targeted for VBAs include hepatitis C treatment, accelerated approval drugs, and long-acting injectable (LAI) antipsychotics. Last year’s survey asked if states had a VBA in place as of July 1, 2022 and found only seven states had VBAs at that time. Though this year’s survey did not specifically ask what states had VBAs in place and instead asked about new or expanded cost containment initiatives more broadly, state interest in VBAs for high-cost drugs appears to be accelerating. Four of the seven states with VBAs in place from last year’s survey also reported plans to expand VBAs in their state in this year’s survey.

While VBAs were the most commonly reported initiative, states also reported a variety of other cost containment policy changes related to utilization management and rebate maximization generally. Among states that reported at least one cost containment initiative, a number reported new or expanded pharmacy cost containment initiatives that target physician administered and/or biologic drugs. These drugs can be very costly, and states are employing strategies to mitigate the cost impact to providers and MCOs. Specific cost containment policy changes reported in FY 2023 and FY 2024 include:

  • Significant PDL or rebate changes. At least three states (Alaska, Delaware, and Kentucky) reported initiatives to significantly update or expand their PDLs. Six other states reported new PDL initiatives: Arkansas and South Dakota joined multi-state purchasing pools in FY 2023. Connecticut and Montana moved items traditionally covered as durable medical equipment to pharmacy to allow the state to collect manufacturer rebates on items such as continuous glucose monitors. Maine and Vermont created PDLs for biosimilar physician administered drugs in FY 2023. Maine will require identification of non-340B physician administered drugs on claims to allow the state to capture rebates for these drugs. South Dakota implemented a limited PDL and began collecting supplemental rebates.
  • Medication Therapy Management (MTM) Services. At least six states (Alaska, District of Columbia, Hawaii, Mississippi, New Hampshire, and Oklahoma) reported implementing or expanding medication therapy management services to increase adherence, reduce adverse drug events, and improve outcomes in either FY 2023 or FY 2024. By improving management of disease through medication compliance, the states also hope to control costs.
  • Uniform PDLs. Uniform PDLs help states maximize supplemental rebates by covering drugs administered under both the FFS and managed care delivery system. They also streamline pharmacy benefit coverage and access for enrollees and providers. At least four states (Indiana, Kentucky, Massachusetts, and Michigan) reported creating or expanding uniform PDL policies for at least a subset of drugs as a cost containment initiative in FY 2023. New Mexico plans to implement a uniform PDL in FY 2025.
  • PBMs. At least six states reported initiatives related to PBMs. Ohio in FY 2023 and Louisiana and Mississippi in FY 2024 plan to move to contracting with a single PBM. Tennessee plans to create a partial risk-sharing program with its PBM in FY 2024 with the goal of improving medication compliance and medical outcomes. New Hampshire reported new clawback contract language in FY 2023, and Delaware plans to expand an initiative on PBM reporting in FY 2024. This year saw fewer initiatives related to PBM transparency and spread pricing than previous survey years, but states have taken significant action on this front since 2016.
  • A few states reported other cost containment strategies. Mississippi reported introducing a high-cost drug risk corridor into managed care contracts starting in FY 2023, which allowed them to carve in all drugs that were previously carved out. Two states, Vermont and Utah, plan to carve out certain high-cost drugs in FY 2023 and FY 2024, respectively. Nevada will implement a physician-administered drug fee schedule and a specialty physician-administered drug management program in FY 2024. North Carolina is enforcing 340B ceiling price limits, and a few states also mentioned efforts related to quantity limits and utilization management.
Coverage of Weight-Loss Drugs

Sixteen state Medicaid programs reported covering at least one weight-loss medication for the treatment of obesity for adults under FFS as of July 1, 2023 (Figure 15). The survey asked states to identify whether they covered anti-obesity or weight-loss medications for adults when prescribed for the treatment of obesity under FFS and if a co-morbid condition was required. At least ten states that reported covering these medications noted a comorbidity was required. Though not specifically addressed in the survey, at least three states also noted coverage was limited to one drug (Orlistat/Xenical) at this time,1 and a few states mentioned imposing body mass index (BMI) or prior authorization requirements when covering these drugs. While indicating they do not currently cover weight-loss drugs, at least five states (Illinois, Massachusetts, New Mexico, Utah, and Vermont) noted they were evaluating or considering adding coverage.

Benefits Telehealth

KFF Headquarters: 185 Berry St., Suite 2000, San Francisco, CA 94107 | Phone 650-854-9400
Washington Offices and Barbara Jordan Conference Center: 1330 G Street, NW, Washington, DC 20005 | Phone 202-347-5270 | Email Alerts: | |

The independent source for health policy research, polling, and news, KFF is a nonprofit organization based in San Francisco, California.