Objective

To determine whether the Department of Health (Department) obtained Medicaid pharmacy services under managed care in an economical manner. The audit covered the period January 1, 2016 to December 31, 2019.

About the Program

The Department administers New York’s Medicaid program, which covers prescription and nonprescription drugs for Medicaid enrollees. The Department uses two methods to pay health care providers for Medicaid pharmacy services: fee-for-service (FFS) and managed care. Under FFS, the Department pays pharmacy providers directly for each drug dispensed to a Medicaid recipient. Under managed care, the Department contracts with managed care organizations (MCOs), which arrange for the provision of pharmacy services for Medicaid recipients and payments to pharmacy providers.

Under FFS Medicaid, the Department has taken a number of actions to help ensure pharmacy services are provided in an efficient and economical manner. However, it has not established sufficient controls and oversight to ensure the most cost-effective delivery of pharmacy services under managed care. Rather, the Department has relied on MCOs and the MCOs’ Pharmacy Benefit Managers to achieve the goal of effectively and efficiently managing drug costs for the Medicaid program.

Key Findings

• The Department missed opportunities to minimize costs on pharmacy services delivered through Medicaid managed care because Department officials did not take steps to ensure the use of the lowest net cost drugs to the Medicaid program. As a result, for the period January 1, 2016 through December 31, 2019, we estimated $605 million in unnecessary costs to the Medicaid program.
• The Department does not require MCOs to use the most cost-effective drugs to the Medicaid program, nor does it provide MCOs with information or assistance to determine the most cost-effective drugs.
• Medicaid-participating MCOs are required to regularly provide their drug formulary information, as well as information on costs and supplemental rebates (which MCOs did not always provide as required) for all drugs delivered under managed care, but the Department does not review this information to determine if MCO formulary preferences result in the use of the most cost-effective drugs.

Key Recommendation

• Conduct timely routine analyses to identify the most cost-effective drugs to the Medicaid program and ensure drug utilization is steered toward drugs with the lowest net cost when medically appropriate.