Medicaid prescription drug spending has been on the rise and some states have opted to carve out prescription drug benefits and transition to a Fee-For-Service (FFS) model. In theory, this delivery system helps states assert their purchasing power to reduce costs and improve oversight. However, recent data indicates that when compared to FFS models, managed care prescription services save significantly more on brand name and generic drugs while also improving the quality of care.

In a 2018 report, the Association for Community Affiliated Plans (ACAP) analyzed Medicaid prescription drug spending between 2011 and 2017. The trade association focused on key expenditure trends and dynamics related to Medicaid’s prescription drug benefits. Here is what the report found:

  • Over a six-year period, managed care drug benefits yielded substantial savings despite the increase of prescription drug costs. “The average net (post-rebate) cost per MCO-paid Medicaid prescription during 2016 was $37, 73 percent of the average net cost of Medicaid prescriptions paid in the fee-for-service (FFS) setting during 2017, which was $50.


  • The report also found that managed care prescription services had higher utilization of generic drugs which helped to minimize drug expenditures. “In 2017, generic drugs represented 88.1 percent of MCO-paid Medicaid prescriptions versus 83.7 percent in the FFS setting.”


  • Six states that transitioned to managed care prescription benefits only had a 1 percent increase in net costs per prescription between 2011 and 2014. On the other hand, seven states that carved out pharmacy benefits saw a 20 percent increase in net costs per prescription during the same period. Compared to the six states that transitioned to a managed care model, these seven states missed out on an estimated $307 million in savings in 2014.


  • Lastly, integrating prescription drug services improves the quality of care. Since Medicaid health plans manage all of a patient’s benefits, the plan can coordinate and communicate with providers more effectively. This makes care less complicated and also reduces unnecessary hospitalizations and emergency room use.


Due to skyrocketing prescription drug costs and the increased size of the Medicaid population, some states have carved out pharmacy benefits and transitioned to FFS models to rein in costs. However, data shows that Medicaid plans are able to save more when pharmacy and medical benefits are integrated together. Not only are plans able to save on prescription drug costs, but they also improve the quality of care for their members. To preserve the program’s resources and ensure its longevity, states may want to reconsider carving out benefits.