Managing Program Costs in State Pharmacy Assistance Programs

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State-sponsored pharmacy assistance programs (SPAPs) provide prescription drug coverage for low-income, older, and disabled persons who are not eligible for Medicaid and who may have no other drug coverage. But, like Medicaid and private insurance programs, SPAPs have confronted steadily increasing prescription drug costs, caused by such overall health care trends as increased prescription drug use, drug price increases, and shifts to newly introduced, more costly drugs. Increases in SPAP enrollment, reflecting such factors as reduced availability of pharmacy coverage through Medicare+Choice plans and expansions of eligibility benefits in SPAPs, also have contributed to SPAP expenditure increases. Faced with increasing costs and mounting budget pressures, SPAPs have experimented with a variety of cost-control measures, although by affecting manufacturers, pharmacies, or consumers these measures have been politically contentious.

The price-management and cost- and use-control strategies examined in this report include:

  • Substitution of generic medications for brand-name products.
  • Prior authorization (i.e., the state reviews a prescription before it is dispensed).
  • Seeking improved manufacturer rebates, differential copayments for preferred and nonpreferred medications.
  • Restricted formularies.
  • Use of pharmacy benefit managers and administrators.
  • Reimbursement of the state by other insurance plans.

This report, the third in a series on SPAPs, reviews expenditure patterns and discusses strategies used to manage costs. The first report provided an overview of state pharmacy benefit programs, including a historical overview of selected programs and cross-state comparisons of program design.1 The second report described states’ efforts to enroll eligible persons into their SPAPs including data on how well states are doing in reaching the Medicare population nationally and specific target populations within states.2 The findings of this series are based on results of a survey of all direct-benefit programs in place throughout the year 2000; information collected through qualitative case studies of programs in Maine, Massachusetts, Minnesota, Nevada, New Jersey, Pennsylvania, South Carolina, and Vermont; and reviews of the literature and program documents.


Support for this research was provided by The Commonwealth Fund. The views presented here are those of the authors and should not be attributed to The Commonwealth Fund or its directors, officers, or staff.

Copies of this report are available from The Commonwealth Fund by calling its toll-free publications line at 1-888-777-2744 and ordering publication number 691. The report can also be found on the Fund’s website at www.cmwf.org


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The Commonwealth Fund

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