States have responded to declining budgets and double-digit inflation in Medicaid drug costs with a variety of cost-control policies to limit use of expensive or risky medications. These policies include restricting reimbursement through use of preferred drug lists, requiring prior authorization for specific drugs, requiring that an inexpensive drug be tried before use of an expensive drug, increasing patient cost sharing for expensive drugs, and excluding drugs in certain categories. This report, which is based on studies published between 1965 and 2003, critically examines the evidence for the economic and clinical benefits and risks of such policies, identifies ways to reduce clinical risks and maximize savings, and recommends research and policy for the state and federal levels. Among the findings are as follows:
- Under certain circumstances, rigid policies that target essential classes of medications can reduce appropriate care, adversely affect health status, and shift costs to other drugs or more expensive types of care.
- Careful consideration of the degree of inappropriate use of high-cost drugs before implementing regulations, along with use of simple and rapid ways to exempt high-risk patients, may minimize harm.
- The current exponential growth in cost-containment policies throughout the United States and the limited evidence base justifies a substantial investment in research to identify which policies can achieve savings without shifting costs or adversely affecting the health of our nation's most vulnerable populations.
This AARP Public Policy Institute Issue Paper, published in March 2004, was written by Professor Stephen Soumerai, Department of Ambulatory Care and Prevention, Harvard Medical School and Harvard Pilgrim Health Care. For further information, please contact David Gross, 202/434-3895. (16 pages).
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