YELLOW SHEET Office of the State Auditor of Missouri Claire McCaskill

June 28, 2002

Report No. 2002-48

State Medicaid program may pay too much for prescription drugs and reimburse pharmacies more than necessary 

Missouri’s Medicaid outpatient prescription drug costs have more than doubled in the last 5 years and totaled $770 million in fiscal year 2001.  This audit focuses on the Division of Medical Services’ efforts to reduce prescription drugs costs.  Auditors found Missouri has not been as proactive as other states with certain containment programs, such as preferred drug lists or prior authorization.  The following highlights our findings: 

Preferred drug lists help other states save money 

Many states are now following practices of most employee health insurance plans in using preferred drug lists to reduce costs.  Physicians who want to prescribe drugs not on the list have to seek prior approval from the Medicaid program.  Michigan and Florida officials estimate these lists will save annually $80 million and $150 million, respectively.  Legislation just passed in Missouri’s 2002 session allows the division to establish a preferred drug list by January 2003, but division officials predict, in the end, the state rule making process will block its implementation.  (See page 5) 

State prior authorization rules more complicated then federal 

Division officials have not placed many drugs in prior authorization status in the last 5 years, partly due to restrictive state rules which exceed federal requirements.  Drugs in this status require a physician seek Medicaid program approval before dispensing them, which often saves costs by resulting in fewer unnecessary prescriptions.  State rules require Missouri-specific clinical and therapeutic analysis before placing a drug in prior authorization.  Federal law only requires a state plan to respond within 24 hours of a request and dispense a 72-hour emergency prescription.  In January 2002, division officials tried to place more drugs in this status, but were blocked from doing so.  (See page 6) 

Outdated pharmacy reimbursement rates raise costs 

Each state Medicaid agency determines how pharmacies are reimbursed for acquiring and dispensing drugs for Medicaid recipients.  One way Missouri reaches this price is to use the average wholesale price for a drug less 10.43 percent.  But Missouri has not changed this percentage decrease since 1991 and 19 states use a higher percentage decrease than Missouri.  For example, a Missouri pharmacy would receive a $119.66 reimbursement from Medicaid for a month’s supply for the 20 milligram version of Prilosecâ, whereas pharmacies in a state with a 14 percent decrease would receive $115.05 for dispensing the same supply.  Overall, if Missouri changed its percentage decrease from 10.43 percent to 14 percent, division records estimated annual savings of $16.4 million.  (See page 7) 

Lower reimbursement rate on some drugs could save $1.5 million 

Missouri pays more than necessary on 437 drugs dispensed intravenously to at-home or non-hospitalized chronically ill patients.  The overpayment occurs because division officials have not timely implemented new dispensing fees for these drugs which would allow providers to be reimbursed using more accurate drug prices.  In May 2000, the federal government provided more accurate average wholesale prices for these drugs, with some prices being 80 percent less than previous prices.  Our calculations indicate the state could have saved an estimated $1.5 million ($2 million in drugs costs less $500,000 increase in dispensing fees) on the $8.4 million spent on these drugs in fiscal year 2001 if the more accurate prices had been used.  Division officials believe any costs savings from the more accurate drug prices would be completely offset by the higher dispensing fees.  (See page 9) 

State to pay pharmacies the nation’s highest dispensing fee to offset new tax 

Legislation  passed in the 2002 session nearly doubled the dispensing fee paid by the state Medicaid program to pharmacies.  The fee increase to $8.04 per prescription from $4.09 would rank as the nation’s highest.  On average, state Medicaid programs paid a $4.27 fee in 2001.  This increase offsets a new 2 percent pharmacy provider tax, also passed in the 2002 session, which would help the state obtain additional federal Medicaid matching funds.  Pharmacies would pay about $55.4 million with the new tax, but then receive about $60.4 million from the state in higher dispensing fees.  It is uncertain if the federal government will agree to match the tax revenues and the state legislation is not yet signed into law.  (See page 10)  

New program director appears to have conflict of interest 

The Department of Social Services hired a pharmacy program director in October 2001 who previously worked as a lobbyist for the Missouri Pharmacy Association and continues to own at least one pharmacy.  Department legal staff determined hiring this person did not violate state conflict of interest laws.  However, an appearance of a conflict still exists because of the director’s continued financial interests in the pharmacy industry and his new position’s influence over policy or legislative changes effecting the industry.  (See page 15)

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