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Executive Summary

MEDICAID PRESCRIPTION DRUG COPAYMENT COULD CUT $61.4 MIL. annually from state and federal outlays if the 24 states that do not use cost-sharing programs of any kind were to adopt a $1 drug copay, the HHS Office of the Inspector General estimated in a recently released report. Based on a total of 122.9 mil. drug claims during fiscal year 1991 in those 24 states and assuming a 50% exemption rate, the IG calculated savings of $61.4 mil. The report, dated July 1993, examines the potential savings from cost-sharing programs for four services: prescription drugs, physician visits, inpatient hospital stays and outpatient hospital visits. "One of the fastest-growing trends in corporate health care cost containment is greater beneficiary cost sharing," the report states. "State Medicaid programs have also increasingly been using cost sharing as a cost containment method." The IG recommends that the Health Care Financing Administration "promote the use of cost sharing in states that do not currently have programs." HCFA, however, disagrees with that recommendation. The IG report urges HCFA to "seek legislation to provide states with incentives to implement cost-sharing programs, such as decreasing federal matching to states that do not implement cost sharing," or to encourage development of "legislation to mandate cost sharing for all states." HCFA Administrator Bruce Vladeck, however, stated in a letter included in the report that "no further action should be taken pending the development and announcement of the Administration's health care proposal." Vladeck maintained that "cost sharing should remain a voluntary state option." The HCFA chief suggested that "since states are looking at ways to decrease welfare payments, increased cost sharing may mean increased copayments for recipients who, in turn, will have even less money for other basic maintenance needs, which have also risen in cost." "There are also potential difficulties with the implementation of cost sharing for outpatient prescription medications," Vladeck wrote. "One potential difficulty is that access to drugs may be limited and the dollar savings on drugs may be outweighed by the use of high cost services, emergency rooms and potentially avoidable hospitalizations because of adverse complications experienced by persons who do not obtain their prescriptions." Vladeck continued: "Any recommendation that includes prescription drugs should be reviewed to ensure that it does not conflict with other state options for limiting access to outpatient drugs for Medicaid, such as limits on the number of prescription transactions per month or on the supply (e.g., 30-day supply, six-month supply), or a state's option to totally exclude certain drugs from reimbursement. These other limitations can also cause high-cost adverse health care needs. Furthermore, the added demand for a copayment, particularly if it is based on a percentage of total charge for the drug which is already high, can place an added burden on the Medicaid recipient." The IG noted that 26 states and the District of Columbia already have cost-sharing programs in at least one of the four service areas reviewed in the report. Twenty-five states "employ cost sharing on prescription or pharmacy services," the report notes. The report concludes that, if the 24 remaining states were to adopt similar cost-sharing plans, a total of $167 mil. (assuming 50% exemptions) to $335 mil. (assuming no exemptions) in Medicaid savings per year could be realized from copays for those four services. Prescription drug savings of $61.4 mil. to $122.9 mil. provide the largest share of that total. The IG estimated that savings on inpatient hospital stays would be $21.3 mil. - $42.6 mil., outpatient hospital savings would be $51.9 mil. - $103.7 mil. and physician visit savings would be $33.1 mil. - $66.2 mil. The report adds that "these savings are due to reductions in provider reimbursement alone and do not include savings from possible utilization changes." The IG reported that data show that no states have "experienced significant reductions in the use of services after implementation of cost sharing." States that already have implemented Medicaid cost-sharing programs routinely waive the requirement for certain individuals, such as children, pregnant women and severely or chronically ill individuals. The IG noted that, overall, "nine states exempted between 40% and 50%, and eight exempted over 50%" of all Medicaid recipients.

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