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Study: N.J. could save $806 million with Medicaid drug changes

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A new study suggests New Jersey could save $806 million over the next decade if it managed its Medicaid drug benefits the same way the private sector does.

The report, published by the Pharmaceutical Care Management Association, a trade group representing pharmacy benefit managers, said the nation as a whole could save $74.4 billion if its recommendations were carried out.

Mark Merritt, president and CEO of the association, said the changes wouldn't require without reducing access or the quality of benefits patients receive.

"By upgrading Medicaid pharmacy management, New Jersey policymakers can protect patients without cutting benefits or slashing payments to doctors, hospitals and other providers," he said in prepared remarks.

The report argues the state need only look to the private-sector pharmacy benefits managers to find cost-saving best practices.

The greatest potential for savings comes from limiting pharmacy networks. The study says allowing every drugstore in the state to participate in its Medicaid network leads to higher costs. Limiting the network would encourage more competition, it says.

The report also suggests increasing the use of generic drugs and managing the state's formulary — a list of drugs covered by the plan — to encourage the use of the most affordable, "preferred" brand-name drugs.

The state could also lower the amount it pays to pharmacies in dispensing fees by negotiating lower costs. New Jersey's fee-for-service Medicaid program pays $3.73 per prescription. Medicaid managed-care organizations and Medicare Part D programs pay about $2 for the same services, the study said.

In addition to those changes, the report says Medicaid is still ravaged by waste and fraud. Eliminating those problems would save the nation $2.3 billion over the next decade.

The study credits New York with enacting many of the changes the association is advocating. New York overhauled its pharmacy benefits system in 2011. Those changes cut the state's 2012 costs by $425 million, and caused an 80 percent increase in the generic-drug dispensing rate among the Medicaid population. It also helped cut dispensing fees in half, to $1.75.

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