The Economic Impact of Changing the Texas Medicaid Pharmacy Benefit Structure
Medicaid: Medicaid is a state administered program that provides health services to low-income children, women, and some adults who meet certain eligibility requirements, as determined by each individual state.
Medicaid Managed Care: A Medicaid delivery system where third-party health service providers contract with the State to provide Medicaid services for a set payment. This type of system has been implemented by states touted as a cost-saving measure.
Managed Care Organizations (MCO’s): MCO’s are organizations that combine the functions of health insurance, delivery of care, as well as administration. Under a managed care program, certain organizations (MCO’s) are selected by the States to provide health services for State Medicaid programs for a set payment. When the managed care program includes the pharmacy benefit “carved-in”, the MCO usually contracts with a PBM to administer the pharmacy benefit.
Pharmacy Benefit Manager (PBM): A large for-profit company who acts as a third-party administrator of prescription drug programs for Medicaid in a Managed Care context. (These groups are sometimes referred to as a “middleman” between the pharmacy and the consumer or the pharmacy and the state).
Fee-For-Service (FFS): The current payment structure under which the state Medicaid Program pays for prescription drugs for Medicaid patients. These fees are typically set by state agencies. Such transactions occur without the need of a PBM and MCO to administer prescriptions, as is the case with Medicaid Managed Care.
Medicaid Carve-In: Term used to describe the potential inclusion of certain health services under Medicaid Managed Care. Services to be included in Medicaid Managed care are said to be “carved in” to the program. PCAN advocates against carve-in’s of pharmacy services to Medicaid Managed Care in states that have not fully considered and implemented alternate cost-saving measures first.
Medicaid Carve-Out: Certain health and pharmacy services that are not included in Medicaid Managed care are considered to be “carved out” of the program. Example: Pharmacy services that are not under the umbrella of Managed Care are said to be “carved out.”
Medicaid Pharmacy Reimbursement: Rates paid by the state to a provider/pharmacy that consists of two primary parts (some states have more complex rate structures, but his definition is sufficient to capture essence of rate structure). Part of the rate is for reimbursement of the cost of the product, referred to as the “Ingredient Cost.” The second part of the reimbursement rate, called the “dispensing fee”, is used to cover the cost of doing business (pharmacy staff, keeping the lights on, etc.).
Dispensing Fees: The part of a Medicaid reimbursement rate that pays providers/pharmacies for the cost of dispensing a prescription drug to a Medicaid patient, including the costs of doing business. States often cut dispensing fees in the battle to balance state budgets.
Ingredient Cost: The rate at which Medicaid reimburses providers for the cost of an actual product they provide to Medicaid patients, such as an Rx drug.