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Illinois Medicaid managed care pharmacy analysis

In 2018, Illinois expanded Medicaid managed care to more than 550,000 citizens across the state. This change raised concerns with many providers before its implementation, and once in effect, community pharmacists began expressing concerns that reimbursements within the Medicaid managed care program were not covering their cost to dispense prescriptions to those beneficiaries.

This study was commissioned by the Illinois Pharmacists Association (IPhA) to analyze change in reimbursements and state costs as a result of the 2018 Illinois Medicaid managed care expansion​.

Key findings of the study are:​

  • Average pharmacy margins* fell from just over $6 per prescription in 2017 (before managed care expansion), to under $2 per prescription in July 2017 (after managed care expansion)​

  • Pharmacies lost money (before operating expenses) on 26% of claims in Q3 2018, up from 5% of claims in Q1 2017​

  • Despite pharmacy reimbursement pressure, managed care does not appear to be bringing down drug costs when compared to the Medicaid fee-for-service​ program

  • In Q2 2018, we estimate that Illinois paid $3.82 per prescription above pharmacy acquisition cost** for generic drugs​

  • $1.39 per prescription went to the pharmacy and $2.43 per prescription of pricing spread was retained by the pharmacy benefit manager (PBM)/health plan​

  • Q2 2018 pricing spread was 23% of overall generic cost​

  • Illinois Medicaid fee-for-service program is not in compliance with the Centers for Medicare and Medicaid Services (CMS) pharmacy reimbursement requirements​

3 Axis Advisors concludes that the managed care expansion has materially pressured pharmacy margins without generating corresponding savings on drug costs***​, and recommends that the state conduct a full audit to assess cost savings and pricing spread, including the long-term impact of under-reimbursement of pharmacies on patient access and Medicaid medical expenses​

* Total amount reimbursed less CMS’ National Average Drug Acquisition Cost (NADAC)
** NADAC is used as a proxy for pharmacy acquisition cost to normalize for differences in purchasing between pharmacies
*** Based on publicly available information

3 Axis AdvisorsMedicaid, MCO, Managed Care, PBM, Spread pricing, Pharmacy, Illinois