WASHINGTON -- The Bush administration will propose today sweeping reductions in payments to pharmacies as a way to save money for Medicaid, the health program for more than 50 million low-income people.
The goal is to ensure that Medicaid can get drug discounts similar to those provided to large customers in the private market, including companies like Caremark Rx and Medco Health Solutions that manage drug benefits for people who have health insurance through an employer. Congressional investigators have found that Medicaid pays 35 percent more than the lowest price available in the private market for some commonly used brand-name drugs.
States, which share the cost of Medicaid with the federal government, make the final decision on what pharmacies are paid, subject to federal limits.
The proposed rule would provide new data for states to use in their calculations, redefining the "average manufacturer price" for brand-name and generic drugs.
S. Lawrence Kocot, a senior adviser to the administrator at the Centers for Medicare and Medicaid Services, said the proposed rule would carry out provisions of a law, the Deficit Reduction Act, signed by President Bush on Feb. 8.
The law, and the proposed rule, would limit payments to state Medicaid agencies for the aggregate costs of prescription drugs when a generic substitute is available.
Federal officials said the rule would save $8.4 billion over the next five years - a 5.6 percent reduction in total projected Medicaid spending on prescription drugs in those years. The administration estimates that the federal government would save $4.9 billion, while the states would save $3.5 billion, if the proposed rule is adopted.
Bruce T. Roberts, executive vice president of the National Community Pharmacists Association, a trade group, said the rule would discourage use of generic drugs.
"The new limits on Medicaid reimbursement will be way below what drugstores typically pay for those drugs," Roberts said.