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CVS Health Research Finds that Managed Care Formulary Model Can Save State Medicaid Programs Millions

October 25, 2018 | Medicaid

States with PBM-managed Medicaid formulary have higher generic drug use and lower overall drug costs

PBMs are an important partner to help states deliver cost-effective formulary management and overall taxpayer savings in Medicaid

WOONSOCKET, R.I., Oct. 25, 2018 /PRNewswire/ -- New research from CVS Health (NYSE: CVS) shows that state Medicaid programs that use a Managed Care Organization (MCO) and a contracted pharmacy benefit manager (PBM) to administer prescription drug coverage have significantly lower overall drug costs than those states that manage their own formulary. Further, researchers found that when states switched to managing their own Medicaid formularies, overall prescription drug costs increased by about $16 million in the first quarter following the change. The research was presented Wednesday at the Academy of Managed Care Pharmacy Nexus meeting.

"This research underscores the vital role that pharmacy benefit managers play in helping to deliver important and affordable care to the millions of Americans enrolled in Medicaid while also delivering value to taxpayers in states across the country," said Troyen A. Brennan, M.D., Executive Vice President and Chief Medical Officer, CVS Health. "As Medicaid spending continues to increase and states look for opportunities to rein in drug costs under the program, our research proves that the managed care model continues to be an efficient and effective approach."

Across the country, the majority of Medicaid program benefits are administered by MCOs that contract with the state to administer medical and prescription drug coverage. To help contain rising drug costs, MCOs work with PBMs to manage formularies with a preferred drug list (PDL) that maximize the use of inexpensive generic medications. Recently, under the assumption of higher cost-savings, multiple states have moved away from the managed care PDL (MCPDL) model to uniform PDL (UPDL) or fee-for-service models, where the state defines and manages the formulary directly.

"Our research clearly shows that states which employ a managed care formulary in support of their Medicaid program often outperform those states with alternative formulary management models," said Jennifer Polinski, MPH ScD, study co-author and Senior Director of Analytics, CVS Health. "As there is continued debate over which formulary management approach results in lower overall drug costs to the state, these findings provide evidence of significant cost-savings for many drug classes when states outsource their pharmacy benefit under their Medicaid program."

CVS Health researchers analyzed cost-savings and utilization of generics in 34 state Medicaid programs with varying formulary management models over a more than two-year period. The analysis found that when states switched from a MCPDL to a UPDL, the generic dispensing rate declined significantly at 0.35 percent in every quarter thereafter. Further, in addition to increased overall prescription costs, generic drug costs also increased by $7.7 million in the first quarter following the change. In contrast to states that adopted a uniform PDL, states that maintained a MCPDL display a higher generic dispensing rate in about half of the analyzed drug classes with an associated additional annual cost-savings of $322 million for mental health medications alone. The data also showed that to achieve the same level of cost-savings in state-managed Medicaid formularies as in the managed care model, considerable supplemental rebates from pharmaceutical manufacturers would be necessary.

Medicaid and the Children's Health Insurance Program (CHIP) serve as the primary source of health care for a large proportion of individuals in the United States, with an average of 73.4 million individuals enrolled per month. In 2016, federal and state government spending on Medicaid topped $565.5 billion, with prescription drugs representing more than 10 percent of those costs.

About CVS Health

CVS Health is a pharmacy innovation company helping people on their path to better health. Through its more than 9,800 retail locations, more than 1,100 walk-in medical clinics, a leading pharmacy benefits manager with approximately 94 million plan members, a dedicated senior pharmacy care business serving more than one million patients per year, expanding specialty pharmacy services, and a leading stand-alone Medicare Part D prescription drug plan, the company enables people, businesses and communities to manage health in more affordable and effective ways. This unique integrated model increases access to quality care, delivers better health outcomes and lowers overall health care costs. Find more information about how CVS Health is shaping the future of health at

Media Contacts:

Christine Cramer
CVS Health

Christina Beckerman
CVS Health
(401) 770-8868