The Medi-Cal Prescription Drug Benefit: An Overview

Health Management Associates

This issue brief outlines the Medi-Cal outpatient drug benefit program, summarizes the impact of Medicare Part D on drug utilization and spending by Medi-Cal enrollees, and considers Medi-Cal's approaches to managing drug costs.

December 2009

Medi-Cal spent an estimated $4.4 billion on outpatient prescription drugs in 2007: $3.2 billion in fee-for-service (FFS) expenditures and $1.2 billion in drug coverage payments to managed care plans. In 2006, the new Medicare Part D program dramatically lowered Medi-Cal's outpatient prescription drug expenditures, but drug spending for Medi-Cal beneficiaries not enrolled in Part D continues to rise rapidly.

This issue brief provides an overview of the Medi-Cal outpatient prescription drug benefit program, summarizes the impact of Medicare Part D on FFS drug utilization and spending for Medi-Cal's nearly 2 million FFS beneficiaries, and considers Medi-Cal's approaches to managing drug costs, with particular attention to FFS utilization and spending from 2004 to 2007. The brief concludes with a discussion of issues to consider regarding the future of the Medi-Cal prescription drug program.

Key findings include:

  • Prior to the implementation of Medicare Part D in 2006, Medi-Cal's 1.1 million dual-eligibles were among the highest-cost users of prescription drugs. Medi-Cal outpatient FFS prescription drug expenditures fell by $2.8 billion between 2005 and 2006, a decrease of 57%.
  • Medi-Cal FFS prescription drug expenditures for the Medi-Cal-only population increased an average of 12% annually between 2004 and 2007, to $2.1 billion. Within this population, the highest-cost group in 2007 was Non-Elderly Adults with Disabilities, who averaged 42 prescriptions per person and accounted for 70% of total FFS drug expenditures.
  • State Medicaid programs adopt various strategies for managing prescription drug expenditures, including maximizing federal and manufacturer rebates, preferred drug lists, generic substitution policies, and state Maximum Allowable Cost (MAC) programs. Medi-Cal has stressed pricing strategies through its Contract Drug List to increase manufacturers' supplemental rebates, and through its Maximum Allowable Ingredient Cost (MAIC) program.
  • Improved prescription drug management must focus on both pricing and utilization, in particular through care management and medical home models for individuals with chronic or disabling conditions, controlled utilization and pricing of drug classes for which expenditures are rising most rapidly, and generic pricing. Also, prescribers need increased access to comparative effectiveness information to assess new products.

The complete issue brief is available under Document Downloads.