Financing structure dynamics and other determinants of Medicaid pharmaceutical expenditures, 1993-1996

Medicaid budgets, growing two to three times faster than total state budgets, constitute the fastest growing component of state budgets. Due to their high expenditure growths, pharmaceutical benefits, a cost-effective provision of the indigent health program, gradually began restructuring in the early 1980s. More recent policy shifts (beginning in the early 1990s) toward managed Medicaid (federal HCFA Waivers 1115 and 1915b) are placing renewed emphasis on minimizing program expenditures, expanding access, and reducing cost-ineffective interventions. Therefore, this article investigates the roles that changes in the Medicaid finance configurations, cost-control policies, and program design attributes play as determinants of indigent drug expenditures of states. (Medicaid Compilation Data for 1993 and 1996, obtained from the National Pharmaceutical Council, were used in multiple regression analysis.) Cost containment policy recommendations for managing the drug program expenditures are discussed.