We were enlisted by the Anthem Public Policy Institute to assess the cost-effectiveness of different states’ approaches to managing Medicaid prescription drug benefit.  States were grouped into five cohorts depending on the degree to which their Medicaid prescriptions are paid for by MCOs or via the fee-for-service (FFS) setting – and by the degree of latitude MCOs have to manage the mix of drugs. We assessed 100% of Medicaid prescriptions across federal fiscal years 2018, 2019, and 2020.

We find that states where MCOs pay for 90% or more of Medicaid prescriptions have collective pre-rebate costs per prescription that are nearly $30 and 36% lower than states where Medicaid prescriptions were predominantly paid for in the FFS setting. We also find that states using the FFS model rely more on brand medications, and thus receive far larger rebates per prescription than in the states with high MCO discretion to manage the benefit.  Rebates per prescription across these states were $22 and nearly 50% above those in MCO-dominant states. This large rebate differential did not close the full pre-rebate gap, however.  States with high MCO involvement and drug mix management latitude outperformed the FFS-dominant states by over $8 per prescription, a differential of 19.9%.  This differential increased to 22.8% when we adjusted all states to normalize for the impacts of their Medicaid expansion decisions.  We also found that the MCO latitude model achieved lower net prescription costs (by a few percentage points) than the states requiring all MCOs to use a uniform preferred drug list.