States with MCOs may opt to “carve in” the pharmacy benefit by including it as a covered benefit and placing the MCO at risk for costs or “carve out” the pharmacy benefit by excluding it from the MCO contract and covering drugs in FFS. States with the pharmacy benefit “carved in” or “carved out” may have exceptions for specific populations or drugs. For more about how this practice is used in management of the Medicaid pharmacy benefit, please see Management and Delivery of the Medicaid Pharmacy Benefit.
For updated information on changes to Medicaid pharmacy benefits related to COVID-19, please see Medicaid Emergency Authority Tracker: Approved State Actions to Address COVID-19.
Drug Utilization Review (DUR): Drug utilization review programs establish standards to ensure prescriptions are appropriate, medically necessary, and unlikely to lead to adverse medical results.
Interstate purchasing pool: Multi-state purchasing pools formed by states in order to consolidate their purchasing power when negotiating supplemental Medicaid rebates. The largest are the Sovereign States Drug Consortium (SSDC), TOP$, and the National Medicaid Pooling Initiative (NMPI).
Pharmacy benefit managers (PBMs): Third party administrators that perform a variety of financial and clinical services for Medicaid programs and help states administer the pharmacy benefit.
Preferred Drug List (PDL): A list of outpatient drugs that states encourage providers to prescribe over others, as a mechanism to negotiate higher supplemental rebates. A state may attach a higher copay or require prior authorization for drugs not on the PDL.
Spread pricing: The difference between the payment the pharmacy benefit manager (PBM) receives from the MCO and the reimbursement amount it pays to the pharmacy dispensing to the beneficiary. For more on spread pricing, please see this brief.
Supplemental rebates: States may negotiate with drug manufacturers for supplemental rebates on certain drugs in addition to the federal statutory rebates they receive from the Medicaid Drug Rebate Program (MDRP). These drugs often receive preferred status. For more on the MDRP, please see this brief.
Uniform PDL: A state-level PDL that requires all MCOs to cover the same drugs as FFS on their PDLs, often using the same clinical criteria.
Uniform Classes: States using MCOs to administer pharmacy benefits may adopt uniform preferred drug lists (PDLs) in order to require all MCOs to cover the same drugs as FFS within each PDL class, often using the same clinical criteria.
Value-based arrangements (VBAs): Also known as value-based purchasing (VBP). Alternative payment models under which a state negotiates payment terms with a manufacturer, often allowing states to receive drugs at a lower cost. Though colloquially known as “value-based,” most of these agreements do not condition payment on clinical outcomes. For more on VBAs, please see this brief.
Total Medicaid population: State Health Facts. “Total Monthly Medicaid and CHIP Enrollment, April 2020.” KFF, https://www.kff.org/health-reform/state-indicator/total-monthly-medicaid-and-chip-enrollment/.
Share of Medicaid population in managed care: Kathleen Gifford, Eileen Ellis, Aimee Lashbrook, Mike Nardone, Elizabeth Hinton, Robin Rudowitz, Maria Diaz, and Marina Tian. A View from the States: Key Medicaid Policy Changes: Results from a 50-State Medicaid Budget Survey for State Fiscal Years 2019 and 2020 (Washington, DC: KFF, October 2019), https://www.kff.org/medicaid/report/a-view-from-the-states-key-medicaid-policy-changes-results-from-a-50-state-medicaid-budget-survey-for-state-fiscal-years-2019-and-2020/.
Inclusion of pharmacy benefits in managed care: State Health Facts. “Inclusion of Pharmacy Benefits in Medicaid MCO Contracts, as of July 1, 2019.” KFF, https://www.kff.org/other/state-indicator/inclusion-of-pharmacy-benefits-in-medicaid-mco-contracts/.
Fee-for-service (FFS) vendors: State Health Facts. “Use of Pharmacy Vendors and PBMs for Medicaid Fee-for-Service Benefit, as of July 1, 2019.” KFF, https://www.kff.org/other/state-indicator/use-of-pharmacy-vendors-and-pbms-for-medicaid-fee-for-service-benefit/ and State Health Facts. “Services Provided by Pharmacy Vendors or PBMs in Medicaid Fee-for-Service Benefit, as of July 1, 2019.” KFF, https://www.kff.org/other/state-indicator/services-provided-by-pharmacy-vendors-or-pbms-in-medicaid-fee-for-service-benefit/.
State Medicaid drug spending: Medicaid and CHIP Payment and Access Commission. “Exhibit 28: Medicaid Gross Spending and Rebates for Drugs by Delivery System, FY 2018.” MACPAC, https://www.macpac.gov/publication/medicaid-gross-spending-and-rebates-for-drugs-by-delivery-system/. For Delaware and Iowa: Medicaid and CHIP Payment and Access Commission. MACStats: Medicaid and CHIP Data Book. (Washington D.C.: MACPAC, December 2018), https://www.macpac.gov/publication/medicaid-gross-spending-and-rebates-for-drugs-by-delivery-system/.
Due to anomalous data reporting in FY 2018, rebate and net spending data from FY 2017 was used for Delaware and Wyoming. Due to anomalous data reporting in FY 2018 and FY 2017, rebate and net spending were not reported for Iowa.
Spread pricing prohibition: State Health Facts. “Prohibition of Spread Pricing in Medicaid MCO Contracts, as of July 1, 2019.” KFF, https://www.kff.org/other/state-indicator/prohibition-of-spread-pricing-in-medicaid-mco-contracts/.
Supplemental rebates: State Health Facts. “State Medicaid Pharmacy Supplemental Rebate Agreements, as of July 1, 2019.” KFF, https://www.kff.org/other/state-indicator/state-medicaid-pharmacy-supplemental-rebate-agreements/.
Interstate purchasing pool: State Health Facts. “State Medicaid Participation in Interstate Purchasing Pools for Prescription Drugs, as of July 1, 2019.” KFF, https://www.kff.org/other/state-indicator/state-medicaid-participation-in-interstate-purchasing-pools-for-prescription-drugs/.
FFS preferred drug list (PDL): State Health Facts. “State Medicaid Preferred Drug Lists, as of July 1, 2019.” KFF, https://www.kff.org/other/state-indicator/medicaid-preferred-drug-lists/.
Uniform PDL: State Health Facts. “State Medicaid Preferred Drug Lists, as of July 1, 2019.” KFF, https://www.kff.org/other/state-indicator/medicaid-preferred-drug-lists/.
Mandatory generics in FFS: State Health Facts. “State Policies on Generic Drug Utilization in Medicaid, as of July 1, 2019.” KFF, https://www.kff.org/other/state-indicator/state-policies-on-generic-drug-utilization-in-medicaid/.
What to watch: Kathleen Gifford, Anne Winter, Linda Wiant, Rachel Dolan, Marina Tian, and Rachel Garfield. How State Medicaid Programs are Managing Prescription Drug Costs: Results from a State Medicaid Pharmacy Survey for State Fiscal Years 2019 and 2020 (Washington, DC: KFF, April 2020), https://www.kff.org/medicaid/report/how-state-medicaid-programs-are-managing-prescription-drug-costs-results-from-a-state-medicaid-pharmacy-survey-for-state-fiscal-years-2019-and-2020/.
This work was supported in part by Arnold Ventures. We value our funders. KFF maintains full editorial control over all of its policy analysis, polling, and journalism activities.