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States Could Do More to Oversee Spending and Contain Medicaid Costs for Specialty Drugs


Recent trends have shown that a small number of drugs account for a disproportionately large share of Medicaid spending. This subset of drugs, often referred to as "specialty drugs," is frequently defined as high-cost drugs and/or drugs that may require special handling. Each State may define and pay for these expensive drugs differently, which potentially leads to some States paying more than others. States may also categorize drugs as specialty drugs as part of a strategy to mitigate and control the costs associated with these drugs.

In addition to State fee-for-service (FFS) programs, Medicaid managed care organizations (MCOs) provide health care services, including prescription drug coverage, to beneficiaries and are responsible for managing utilization and medical costs. (We refer collectively to State FFS programs and MCOs as "Medicaid programs.") Given the high costs of some specialty drugs, as well as the substantial role of Medicaid MCOs, reviewing how programs categorize and reimburse for these drugs is important to ensuring Medicaid's fiscal integrity.


We surveyed 51 State Medicaid agencies to determine (1) whether and how States categorized specialty drugs in their Medicaid programs; (2) the extent to which States conducted oversight of how their Medicaid MCOs categorize specialty drug and reimburse for them; and (3) whether States implemented cost-management strategies to control spending for specialty drugs. In addition, we obtained Medicaid reimbursement data to compare reimbursement for drugs that were categorized as specialty drugs across Medicaid programs.


No standard definition of specialty drugs exists in Medicaid. Overall, State Medicaid programs used over 100 distinct criteria to categorize thousands of drugs as specialty drugs. While most Medicaid MCOs chose to categorize certain drugs as specialty drugs, most State FFS programs did not. Additionally, about half of these drugs had no Medicaid reimbursement data reported by States. This may mean that Medicaid programs that choose to categorize drugs as specialty drugs reported data for drugs that are not available for purchase and are not updating or proactively managing their lists of these drugs.

States reported limited oversight of their Medicaid MCOs' management of specialty drug categorization and spending. Twenty-four States reported that they were not aware of all the cost management strategies their MCOs implemented to contain specialty drug spending. Because Medicaid MCOs are responsible for the majority of Medicaid prescription drug reimbursement, a lack of cost containment by MCOs can increase long-term Medicaid expenditures, as States base MCO capitated payment rates on costs and utilization from previous years. States also may be limited in their ability to set accurate reimbursement for specialty drugs. CMS conducts the national average drug acquisition cost (NADAC) survey to collect what pharmacies actually pay for drugs. This is a tool States can use to set accurate reimbursement amounts. However, this survey does not include acquisition cost data from specialty or mail-order pharmacies. As a result, 60 percent of drugs categorized as specialty drugs with Medicaid reimbursement in 2018 did not have NADAC data available.


We recommend that CMS work with States to expand alternative reimbursement models. However, given the tremendous variation in the definition of specialty drugs in Medicaid and the fact that most State FFS programs do not rely on this categorization, we recommend that CMS work with States to address high-cost drugs, regardless of their categorization. In addition, we recommend that CMS provide States with acquisition cost data for a wider range of specialty drugs. We also recommend that CMS collaborate with States to conduct greater oversight of how Medicaid MCOs manage specialty drugs, which could include a review of contract language that allows States to obtain requested information on specialty drug categorizations, specialty drug reimbursement methodologies, and cost management strategies from the MCOs. CMS concurred with our first and third recommendations. CMS did not concur with our second recommendation.