Prescription drug spending was a key driver of the increase in national health spending from 2013 to 2014. After many years of low to moderate growth, overall prescription drug spending increased more than 12 percent in 2014, compared to just under a 5 percent increase for all other health expenditures. Moreover, increases were even higher for Medicaid—the increase in Medicaid prescription drug spending was more than 24 percent in 2014. Much of this increase in spending was driven by population increases through Medicaid coverage expansions as well as the introduction of new specialty drugs to treat conditions such as hepatitis C.
Total Medicaid spending for outpatient prescription drugs reflects the amount paid to pharmacies as well as any rebates the program receives from drug manufacturers. In fiscal year 2014, Medicaid spent approximately $42 billion on prescription drugs and collected about $20 billion in rebates, for net drug spending of $22 billion. Net spending for outpatient drugs accounted for about 5 percent of total Medicaid benefit spending.
This issue brief presents recent data on Medicaid prescription drug expenditures and rebates, including historical drug spending and rebate amounts in both fee for service and managed care. It also analyzes some of the key components contributing to recent trends in drug spending.