Generic drug cost containment in Medicaid: lessons from five State MAC programs

Health Care Financing Review, Spring, 2004 by Richard G. Abramson, Catherine A. Harrington, Raad Missmar, Susan P. Li, Daniel N. Mendelson

Our discussions with Medicaid officials revealed two important contributing factors regarding the variability among MAC lists in breadth, depth, and pricing aggressiveness: (1) MAC list creation and administration is tedious and resource-intensive, and (2) State MAC programs have difficulty obtaining reliable pricing data for the drugs on their lists. Our study offers several lessons for policy development along both of these fronts.

With regard to the tedious nature of MAC list maintenance, our study results suggest three possible approaches for optimizing resources (Table 2). First, States might focus on the generic drugs with the highest sales volumes. Because FUL drugs account for approximately 65 percent of sales, States with resource limitations might benefit by focusing on more aggressive pricing for these drugs, rather than adding lower volume non-FUL drugs to their lists. When adding non-FUL drugs, States should focus on the highest volume drugs. Further research, including detailed cost-benefit accounting of MAC list operations, may shed light on whether MAC lists yield diminishing marginal returns as they expand (due to higher maintenance costs), or whether increasing savings continue to accrue as lists become broader.

Second, States might ensure that MAC lists contain prices for as many available forms and dosages of a listed product as possible. Our data demonstrated surprising variability in depth for non-FUL drugs, indicating that MAC lists often do not include some of the available strengths and forms (i.e., GCNs) of listed drug entities, lf a prescribed dosage form is not on the MAC list, it will be reimbursed at the (generally much higher) non-MAC price. Therefore, States might be able to achieve additional cost savings by reviewing their MAC lists to ensure they have as complete an accounting as possible of the available GCNs for each drug entity. Expanding MAC lists by adding GCNs for existing drug entities (i.e., increasing depth without increasing breadth) may be less resource intensive than adding new drug entities (i.e., increasing breadth).

Third, States might consider collaborating with other States on one or more elements of MAC list operations. Our discussions with Medicaid officials uncovered scant evidence of such collaboration to date, although Texas officials indicated that several States have considered defaulting to their MAC list. Potential barriers to collaboration include (1) regional variation in the supply and demand of individual drug products, (2) different degrees of wholesaler and pharmacy leverage in individual States, (3) the need for collaborating programs to agree on a wide variety of procedures for obtaining pricing information and establishing MAC prices, and (4) the possibility of losing special relationships with local pharmacies. Resource demands also raise the question of whether the Federal Government might expand the FUL program or create an optional national MAC list to ease the burden on States. However, some States believe that they are able to update their MAC lists faster than the Federal Government can update the FUL; this is attributed to special relationships with local pharmacies that provide current information on product availability and prices.