Evolving Medicaid Coverage Policy and Rebates

Medicaid covers approximately 1 in 5 Americans and accounts for one-sixth of US health care spending. Despite having to navigate increasing and variable spending on prescription drugs, Medicaid programs must balance their annual budgets, and they rely heavily on the Medicaid Drug Rebate Program (MDRP). The MDRP requires programs to maintain an open formulary covering all of a manufacturer's drugs in exchange for being given the lowest price in the market. Recent attempts by states to close their formularies signal that the benefit of this program might be attenuated by the lack of negotiating leverage in the rest of the market, exposing Medicaid to higher prices. Regardless of whether closed formularies would succeed in constraining Medicaid prescription drug spending, this trend raises important questions about the usefulness of a system that pegs Medicaid drug spending to net prices negotiated by others in the market.