Many state Medicaid programs have adopted a variety of strategies to control drug spending, including prior authorization programs, preferred drug lists, stepped formularies, and generic substitution policies (3). By using preferred drug lists and prior authorization programs, states hope to negotiate lower prices from manufacturers in exchange for preferred status—and no prior authorization—for their medications. Evidence on the use of various strategies suggests that these tools result in lower Medicaid drug expenditures, although the evidence is somewhat mixed on whether some of these savings are offset by other health care costs, and there is little evidence on the effects on psychotropic classes specifically (unpublished manuscript, Huskamp HA, 2005).
Drug coverage for dually eligible beneficiaries has customarily been through Medicaid. One key question is how enrollment of these individuals in Part D plans will affect the bargaining power of Medicaid programs on behalf of beneficiaries who are not dually eligible. For some classes of psychotropic medications, such as antipsychotics, a sizeable number of Medicaid beneficiaries who use the medications are dually eligible—they qualify for Medicare because of a mental disability. Because these individuals will now be served by Part D plans, state Medicaid programs attempting to negotiate discounts through the use of strategies such as preferred drug lists or prior authorization programs could find their bargaining power reduced. Manufacturers may be less willing to negotiate discounts on the basis of these strategies, because the potential prescription volume at stake is lower without the dually eligible population. As a result, states could find that the prices they pay for certain psychotropic drugs increase for their non-dually eligible Medicaid populations. However, a number of states exempt certain psychotropics from some of these drug cost containment tools. In 2003, for example, 27 states exempted first-generation antipsychotics, 26 exempted second-generation antipsychotics, 25 exempted selective serotonin reuptake inhibitors, and 16 exempted stimulants from prior authorization (3). In these states, moving dually eligible individuals, many of whom use these medications, to Part D plans may not have much effect on Medicaid pricing of psychotropic medications for the non-dually eligible populations, because the states do not currently take advantage of their bargaining power to negotiate discounts.