North Carolina cannot solve its Medicaid crisis and close the state budget shortfall by limiting the price and availability of prescription drugs. Indeed, Medicaid spending has grown by over 85 percent over the past decade and now threatens to explode the budget of the state and its counties. However, to address this problem by limiting access to the most cost-effective medical therapy available, prescription drugs, is to miss the point entirely. North Carolina should work to reform Medicaid by eliminating waste, fraud, and abuse.
By capping the price of prescription drugs and limiting access to them, North Carolina will directly limit innovation in new life-saving medicines. Whenever the government sets prices, it creates shortages and limits the creation of new products. Government control of the costs of prescription drugs will limit access to medicines and handicap innovation for new life-saving products. Politicians make lousy doctors!
Prior Authorization and Supplemental Rebates are Taxes on Consumers
Prior Authorization would a complicated formulary program where doctors are all but forbidden from prescribing drugs not on a state-sanctioned list. To get on the list– which provides access to between 9 and 13 percent of the entire instate market – they must pay the state 10 percent of the price of each prescription issued, called a Supplemental Rebate.
Prior Authorization would put the decision about what drug best suits a patients needs in the hands of a government commission instead of in the hands of doctors. This ill-advised attempt to reduce costs will compromise health care as less-effective drugs are pushed into the market.
Under current law, drug companies must provide each state’s Medicaid program with a 15.1 percent discount to the average manufacturer’s price. When these “rebates” went into effect in 1990, the price for drugs rose by 10 percent for HMOs and by 14 percent for group purchasing organizations. Supplemental Rebates will exacerbate this problem and further increase private health care costs to make up for the below-cost care.
Every $1 spent on Prescription drugs is estimated to save $4 on traditional medical expenses. By requiring Prior Authorization for prescription drugs, North Carolina would allocate resources away from the most cost-effective method of medical treatment and may actually increase health care spending. While a $600 annual prescription for cholesterol-reducing drugs Zocor and Lipitor may seem expensive, if they can avert a $300,000 hospital stay and bypass surgery, they are more than worth the investment.
What are the possible solutions to NC’s budget shortfall and escalating health care spending?
North Carolina should re-evaluate Medicaid eligibility to ensure that scarce resources are spent on those most deserving of government-financed health care. Medicaid was intended to be a safety net, not an entitlement for anyone who lacks employer-sponsored insurance.
North Carolina needs a comprehensive state-based Medicaid reform to ensure that beneficiaries seek value for state dollars. Too often, beneficiaries make careless decisions because they are not affected by the cost of care.
This reform can best be accomplished through tax credits, vouchers, and state-granted Medical Savings Accounts. Market incentives, not command-and-control bureaucracies, are the best means to reduce Medicaid spending.