A new study by the National Center for Policy Analysis shows that states and the federal government could save $33 billion in prescription medication costs by switching to models used by Medicare and other private payers.

“Drug therapies often substitute for more expensive and less effective surgical treatment and can reduce the need for hospitalization. Americans see their doctors more than 890 million times each year, and two-thirds of office visits to physicians result in prescription drug therapy,” said Devon M. Herrick, senior fellow with NCPA and an author of the report. “Even though they appear to provide better value for money than other forms of therapy, drug expenditures are one of the fastest growing components of the Medicaid program.”

“Increasing the Cost-Effectiveness of Medicaid Drug Programs” identified a number of areas in which states could save money, including increased use of generic drugs, negotiating competitive rates for drug dispensing, coordinating and tracking drug therapies, establishing reimbursement rates similar to what private plans pay, and empowering consumers with some control of the money they spend on medications.

Many states pay for Medicaid prescription drugs on a fee-for-service model and are lobbied on the local level to negotiate higher dispensing fees paid to pharmacies. The average state dispensing fee is $4.82 per prescription, with Alabama ($10.64) and Texas ($7.50) having the two highest rates in the country. By comparison, Medicare Part D pays an average dispensing rate of $2.

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