Medicaid Waste in California Adds Strain on Budgets and Taxpayers

In 2009, unnecessary Medicaid spending in California was $102 million--the highest among all states--according to a new working paper by American Enterprise Institute economist Alex Brill.

Brill demonstrates that there is a considerable need to improve the cost efficiency of Medicaid drug programs in order to relieve the program's strain on already-overburdened state budgets. This is particularly important given the current fiscal crisis facing state and federal budgets and the added burden of recent health care reform legislation that will add 16 million new enrollees to Medicaid rolls by 2019.

Brill finds that the Medicaid drug program currently overpays for popular drugs by paying pharmacists for more costly brand-name medications that can easily be replaced by less costly generic alternatives containing the same active ingredient. He finds that Medicaid programs often reimbursed pharmacies for expensive brand-name drugs when alternative generic products were available at a lower cost--costing states in 2009 an estimated $329 million in excessive payments.

Among the study's highlights:

• By taking a look at twenty brand-name popular drugs which have less expensive generic versions, Brill finds that in 2009, Medicaid spent a total of $1.5 billion on drugs that could have been purchased for 22 percent less -- thus wasting $329 million.

• Among the twenty drugs studied, Medicaid wasted an average of $95 per prescription.

• On the state level, the greatest amount of unnecessary spending was in California ($102 million), Texas ($31 million), Georgia ($25 million), and Ohio ($21 million). Per Medicaid enrollee, the most wasteful states were Vermont and Iowa ($31 per enrollee in each state), Maine ($18 per enrollee), and New Hampshire ($17 per enrollee).

Alex Brill is available for interview and can be reached at alex.brill@aei.org (202.862.5931) or through his assistant at chad.hill@aei.org (202.862.5862). For all other media inquiries, please contact Hampton Foushee at hampton.foushee@aei.org (202.862.5806).

AEI's in-house ReadyCam TV studio--for live and taped interviews--can be booked through VideoLink at 617.340.4300. For radio interviews, please e-mail sara.huneke@aei.org to book AEI's ISDN facilities.

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