Multiple drug cost containment policies in Michigan's Medicaid program saved money overall, although some increased costs

Abstract

Michigan's Medicaid program implemented four cost containment policies--preferred drug lists, joint and multistate purchasing arrangements, and maximum allowable cost--during 2002-04. The goal was to control growth of drug spending for beneficiaries who were enrolled in both Medicaid and Medicare and taking antihypertensive or antihyperlipidemic prescription drugs. We analyzed the impact of each policy while holding the effect of all other policies constant. Preferred drug lists increased both preferred and generic drugs' market share and reduced daily cost--the cost per day for each prescription provided to a beneficiary. In contrast, the maximum allowable cost policy increased daily cost and was the only policy that did not generate cost savings. The joint and multistate arrangements did not affect daily cost. Despite these policy trade-offs, the cumulative effect was a 10 percent decrease in daily cost and a total cost savings of $46,195 per year. Our findings suggest that policy makers need to evaluate the impact of multiple policies aimed at restraining drug spending, and further evaluate the policy trade-offs, to ensure that scarce public dollars achieve the greatest return for money spent.

Exhibit 1

Headline: Timeline for Michigan Medicaid’s multiple cost containment policies SOURCE: Authors’ analysis of the timeline of Michigan Medicaid cost containment policies as implemented Notes: The effective period of each policy is as noted in the legend. Please note that the multi-state pool replaced the joint pool in May 2004

Exhibit 2

Headline: Generic market share & expenditure share. SOURCE: Authors’ analysis of market share and expenditure share from cardiovascular drug prescription claims data for Michigan Medicaid dual-eligible beneficiaries 65 years and older, between FY 2000–2004. Notes: Generic market share is the proportion of generic days supply to total days supply. Generic expenditure share is generic drug expenditures as a percentage of total drug expenditures.

Exhibit 3

Headline: Preferred/non-preferred/unlisted market share and expenditure share. SOURCE: Authors’ analysis of market share and expenditure share from cardiovascular drug prescription claims data for Michigan Medicaid dual-eligible beneficiaries 65 years and older, between FY 2000–2004. Notes: Preferred market share is the proportion of preferred drug days supply to total days supply. (Nonpreferred market share and unlisted market share are analogously defined.) Preferred drug expenditure share is the preferred drug expenditures as a percentage of total drug expenditures (nonpreferred drug expenditure share and unlisted drug expenditure share are analogously defined).