Kathleen Sebelius, secretary of the U.S. Department of Health and Human Services, has pitched the value of generic drugs as one way for states to help rein in escalating Medicaid expenditures.

Kathleen Sebelius, Department of Health and Human Services, HHS, Medicaid, Medicaid costs, generic drugs, Medicaid expenditures, governors, health care, prescription drugs, generic medications, generic medicines, pharmacy pricing, pharmacy costs, drug reimbursement, acquisition costs, generic drug utilization, prescription medication expenses, state Medicaid programs, Generic Pharmaceutical Association, GPhA, National Association of Chain Drug Stores, NACDS, medication adherence, Steve Anderson, pharmacy reimbursement, Community pharmacists, medication therapy management

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HHS chief to states: Generics can cut Medicaid costs

February 4th, 2011
Kathleen Sebelius

WASHINGTON – Kathleen Sebelius, secretary of the U.S. Department of Health and Human Services, has pitched the value of generic drugs as one way for states to help rein in escalating Medicaid expenditures.

Sebelius announced Thursday that she sent a letter to governors to outline alternatives for making their states' Medicaid programs more efficient while meeting health care challenges under stringent budgetary conditions.

"We recognize that many states are re-examining their Medicaid programs and looking for opportunities to meet the pressing health care challenges and better cope with rising costs," Sebelius wrote in the letter. "In light of difficult budget circumstances, we are stepping up our efforts to help you identify cost drivers in the Medicaid program and provide you with new tools and resources to achieve both short-term savings and longer-term sustainability while providing high-quality care to the citizens of your states."

To that end, the HHS secretary noted that states should look at ways to purchase prescription drugs more efficiently under Medicaid, notably by boosting patient use of generic medications and sharper assessment of pharmacy costs.

"In 2009, states spent $7 billion to help Medicaid beneficiaries afford prescription drugs. States have broad flexibility to set their pharmacy pricing. We are committed to working with states to ensure they have accurate information about drug costs in order to make prudent purchasing decisions," Sebelius stated. "As recommended by states, the department is undertaking a first-ever national survey to create a database of actual acquisition costs that states may use as a basis for determining state-specific rates, with results available later this year."

According to Sebelius, Alabama was the first state to adopt the use of actual acquisition costs as the benchmark for drug reimbursement and expects to save 6%, or $30 million, of its pharmacy costs in the first year of implementation.

"We will also share additional approaches that states have used to drive down costs, such as relying more on generic drugs, mail order, management relating to overprescribed high-cost drugs, and use of health information technology to encourage appropriate prescribing and avoidance of expensive adverse events," she said in the letter. 

Other potential avenues for Medicaid savings, Sebelius said, include benefit modifications, more effective management of care for high-cost enrollees, and improvements in program integrity via better auditing and fraud control.

On Thursday, the Generic Pharmaceutical Association (GPhA) applauded Sebelius' recommendation for increased generic drug utilization as a means of lowering prescription medication expenses in state Medicaid programs.

"Secretary Sebelius is right on the mark in her letter to governors outlining ways that states can control costs while still providing critical health care services to those who need them most. Specifically, she noted that among the approaches that states have used to drive down costs was a greater reliance on generic drugs," GPhA said in a statement.

GPhA reported that an analysis of prescription drug use in 2009, based on Centers for Medicare and Medicaid Services data, shows that each percentage point increase in the Medicaid generic dispensing rate saves an additional $591 million, $342 million of which is direct savings to the states. Also, the association said, an IMS Health analysis indicated that the use of generic medicines saved the U.S. health care system $138 billion in 2009, or more than $1 billion every three days.

"Today, three out of every four prescriptions that leave pharmacies across America are dispensed using safe and effective generic drugs. Public reliance on affordable generics and confidence in their effectiveness has never been higher. Now is the time to optimize the savings that generics can achieve instead of considering misguided initiatives such as therapeutic carve-out laws to restrict the use of generic pharmaceuticals," GPhA stated.

The group added, "GPhA applauds Secretary Sebelius for her leadership in working with governors to assure they have accurate information about drug costs in order to make wise purchasing decisions as they struggle to balance budgets."

Also on Thursday, the National Association of Chain Drug Stores sent a letter to Sebelius indicating its readiness to work with HHS and the states to rein in Medicaid costs and stressing the importance of patient access to prescription drugs and pharmacy services in controlling health care expenses and improving outcomes.

"We have spoken with many governors and state Medicaid directors and share their concerns about the current economic climate and the pressure that the Medicaid program places on state budgets," NACDS stated in the letter, signed by Steve Anderson, president and chief executive officer of the association. "We have worked with states to put cost-effective, best practices in place to control prescription drug costs, such as increasing generic utilization, expanding the use of e-prescribing and other technologies, and improving medication adherence as a means to reduce more costly medical interventions such as doctor visits and hospital stays.

"Because of our strong commitment to partnering with CMS [Centers for Medicare & Medicaid Services] and states to provide high-quality, cost-effective care to Medicaid patients, we stand ready to work with you on many of the initiatives outlined in your letter," the letter said.

NACDS outlined opportunities to coordinate care for Medicaid patients and the importance of helping patients to take their medications correctly.

"We strongly agree that better coordination of care for high cost beneficiaries provides an outstanding opportunity to reduce Medicaid spending. NACDS has conducted aggressive outreach to state Medicaid directors on Section 2703 of the Accountable Care Act (ACA), Medicaid State Option to Provide Health Home to Enrollees with Chronic Conditions," NACDS said in the letter, noting that poor medication adherence costs the nation about $290 billion annually. "Community pharmacists can play a critical role in health homes and other coordinated care models, improving patient care by promoting safe and effective medication use."

The association also pointed to increased generic drug use as a path to savings for Medicaid. "For example, for every 1% increase in generic utilization, the Medicaid program could save $468 million. The Massachusetts fee-for-service Medicaid program has the highest generic dispensing rate in the nation, at 79.3%. If all other states could match the Massachusetts rate, the Medicaid program could save $5.14 billion," the letter stated. "We believe that there are many best practices that could be put in place to reduce Medicaid spending, while at the same time allowing Medicaid patients to continue to use the pharmacy of their choice."

NACDS also noted in the letter that care should be taken to ensure fair reimbursement for pharmacies as alternatives to reduce Medicaid expenditures are explored.

"We urge all policymakers to be mindful that there are multiple components of pharmacy reimbursement: reimbursement for the drug product, reimbursement for the cost to dispense, and payment for professional services, such as medication therapy management," the association said.