Multi-State Medicaid Pooling Program Generates Significant Cost Savings for Michigan and Vermont

Contact: T.J. Bucholz (517) 241-2112
Agency: Community Health

Michigan Governor Jennifer M. Granholm and Vermont Governor Jim Douglas jointly announced today that their states reduced the rate of growth of Medicaid pharmacy programs by approximately 11 percent as a result of an innovative preferred drug list (PDL) and pharmacy management programs.

Both states are also on track to generate significant levels of additional savings and rebate revenue as a result of their participation in the nation’s first Medicaid multi-state pooling initiative.

“It is very important that we continue to increase our negotiating leverage with pharmaceutical manufacturers and reduce prescription drug costs for Michigan citizens enrolled in Medicaid,” Granholm said. “Our Medicaid drug management programs have significantly reduced the rate of growth of our Medicaid pharmacy program since their inception in 2002.”

In the next 30 days, both states will be mailing out the first round of supplemental rebate invoices to participating manufacturers who submitted successful bids to the pooling program.

“As a small state, Vermont needed to find a creative way to enhance our purchasing power with the nation's large pharmaceutical companies,” said Governor Jim Douglas of Vermont. “As a result of this unique pooling program, the total number of participating manufacturers more than doubled and we are on track to save significantly more than our first year 'single-state only' program.”

In March 2003, both states authorized their pharmacy benefits administrator, First Health Services, to simultaneously negotiate with pharmaceutical manufacturers, using the combined purchasing power of the pooled states’ Medicaid drug programs, to try to negotiate deeper discounts, known as supplemental rebates.

Unlike typical price control programs – such as Canada’s – where the government sets prices, Michigan and Vermont use a competitive bidding process that allows manufacturers to bid against each other to lower their prices.

Under Medicaid preferred drug list programs, savings generated as market share are shifted to more cost-effective preferred drugs. Manufacturers of the preferred drugs then pay states additional discounts, known as supplemental rebates, which are returned to states as rebate revenue.

The partnership also is awaiting word from several states that may be close to joining the pool soon. As a result of the pooling program, the total number of participating manufacturers more than doubled from 12 manufacturers in the first year of the program in Michigan and Vermont to 27 participating in the pooling program.

Compared to each state’s first year “single-state only” preferred drug list programs, both states are seeing an increase in their rate of savings as a result of their participation in the pool.