Department of Health and Human Services 
OFFICE OF 
INSPECTOR GENERAL 
MEDICAIDS MENTAL HEALTH 
DRUG EXPENDITURES 
INSPECTOR GENERAL 
AUGUST 2003 
OEI-05-02-00080  O I G
FFICE OF  NSPECTOR  ENERAL

http://www.oig.hhs.gov/ 
The mission of the Office of Inspector General (OIG), as mandated by Public Law 95-452, as amended, 
is to protect the integrity of the Department of Health and Human Services (HHS) programs, as well as 
the health and welfare of beneficiaries served by those programs.  This statutory mission is carried out 
through a nationwide network of audits, investigations, and inspections conducted by the following 
operating components: 
Office of Audit Services 
The OIG's Office of Audit Services (OAS) provides all auditing services for HHS, either by conducting 
audits with its own audit resources or by overseeing audit work done by others.  Audits examine the 
performance of HHS programs and/or its grantees and contractors in carrying out their respective 
responsibilities and are intended to provide independent assessments of HHS programs and operations in 
order to reduce waste, abuse, and mismanagement and to promote economy and efficiency throughout the 
Department. 
Office of Evaluation and Inspections 
The OIG's Office of Evaluation and Inspections (OEI) conducts short-term management and program 
evaluations (called inspections) that focus on issues of concern to the Department, the Congress, and the 
public.  The findings and recommendations contained in the inspections reports generate rapid, accurate, 
and up-to-date information on the efficiency, vulnerability, and effectiveness of departmental programs. 
Office of Investigations 
The OIG's Office of Investigations (OI) conducts criminal, civil, and administrative investigations of 
allegations of wrongdoing in HHS programs or to HHS beneficiaries and of unjust enrichment by 
providers.  The investigative efforts of OI lead to criminal convictions, administrative sanctions, or civil 
monetary penalties.  The OI also oversees State Medicaid fraud control units which investigate and 
prosecute fraud and patient abuse in the Medicaid program. 
Office of Counsel to the Inspector General 
The Office of Counsel to the Inspector General (OCIG) provides general legal services to OIG, rendering 
advice and opinions on HHS programs and operations and providing all legal support in OIGs internal 
operations.  The OCIG imposes program exclusions and civil monetary penalties on health care providers 
and litigates those actions within the Department.  The OCIG also represents OIG in the global settlement 
of cases arising under the Civil False Claims Act, develops and monitors corporate integrity agreements, 
develops model compliance plans, renders advisory opinions on OIG sanctions to the health care 
community, and issues fraud alerts and other industry guidance.  E X E C U T I V E  S U M M A R Y  
OBJECTIVE 
To measure the efficiency and economy of the Medicaid program as a purchaser of mental 
health drugs by comparing Medicaid to four other Federal payers. 
BACKGROUND 
Title XIX of the Social Security Act established Medicaid as a jointly-funded, Federal-State 
health insurance program.  Medicaid plays a fundamental role in the provision of prescription 
drugs to over 42 million low-income and disabled beneficiaries, spending an estimated $20 
billion in 2001. 
In purchasing mental health drugs, as with all Medicaid expenditures, Title XIX requires States, 
as part of their State plan, to provide methods and procedures to assure that payments are 
consistent with efficiency, economy, and quality of care. The Centers for Medicare & 
Medicaid Services (CMS) exercises this control in two ways: by placing aggregate limits on 
pharmacy reimbursements and collecting statutorily-defined manufacturer rebates. 
Despite efforts to save program dollars, drug costs are the fastest growing component of 
Medicaid expenditures, growing an average annual rate of 20 percent compared to overall 
Medicaid expenditure growth of 9 percent from 1998 to 2000. According to a report issued 
by the United States Surgeon General, spending on drugs used to treat mental disorders are 
among the fastest rising costs for Medicaid. 
Of the $20 billion the Medicaid program spent on prescription drugs, mental health drugs 
represent an estimated 20 percent, or $4 billion. 
Methodology 
To assess the efficiency and economy of Medicaids drug expenditures, this inspection 
compared Medicaids average net costs for mental health drugs to four other Federally-
discounted prices:  1) Federal Ceiling Prices, 2) 340B Drug Discount Program ceiling prices, 3) 
Federal Supply Schedule prices, and 4) Big 4 (Department of Defense, Department of 
Veterans Affairs, Public Health Service and the Coast Guard) prices.  These programs prices 
serve as criteria by which to assess the economy of Medicaids drug purchasing, without any 
judgement as to the appropriateness of different Federal drug purchasing mechanisms. 
i 
Medicaid Mental Health Drugs  OEI-05-02-00080  To calculate Medicaids net average price, we secured information on 25 mental health drugs 
from the 10 State Medicaid agencies with the largest reimbursement for prescription drugs. 
We obtained data on pharmacy payment and rebates for the first two quarters of Federal fiscal 
year 2001 (October 2000 - March 2001). The Department of Veterans Affairs and the CMS 
provided the Federal Ceiling Prices, the Federal Supply Schedule prices, the Big 4 prices, and 
340B ceiling prices. 
FINDINGS 
The 10 State Medicaid agencies reviewed paid more than other Government 
purchasers for the 25 mental health drugs reviewed 
Despite Federal and State measures to reduce prescription drug expenditures for the Medicaid 
program, the 10 State Medicaid agencies paid more than the other Federal prices reviewed. 
The complete range of differences between each programs average price to Medicaids 
average net price is listed in the chart below. 
Average Percent Difference between Medicaid Net Prices 
and other Federal Drug Purchasers Prices, FY2001 
Percent More Paid by 
Federally-Mandated Drug Schedules  Medicaid 
Federal Ceiling Prices  27% 
340B Ceiling Prices  13% 
Federal Drug Contract Prices 
Federal Supply Schedule Prices  11% 
Big 4 Prices  29% 
Source: OIG survey of State Medicaid drug expenditures 
As a result of price differences, the 10 State Medicaid agencies paid, on average, 
between $47 and $126 million more for the 25 mental health drugs than other 
Federal purchasers 
Medicaid would have saved $47 million if it had been able to pay prices equivalent to the 
Federal Supply Schedule prices and $126 million if it had paid prices equal to the Big 4 prices. 
In comparison to the Federal Ceiling Prices and the 340B ceiling prices, Medicaid would have 
saved $116 and $66 million, respectively, for the 25 drugs. The subgroup of nine antipsychotic 
drugs accounts for over half of the difference between Medicaid and the two ceiling pricing 
schedules. 
ii 
Medicaid Mental Health Drugs  OEI-05-02-00080  CONCLUSION 
To safeguard the Medicaid program from excessive payments and capitalize on potential 
savings, we encourage CMS to reconsider previous OIG recommendations. In past reports, 
the OIG has recommended that CMS work with States to pursue more efficient means of 
purchasing pharmaceuticals and initiate a review of the Medicaid rebate program. We also 
suggest that CMS share this report with the States. 
iii 
Medicaid Mental Health Drugs  OEI-05-02-00080  T A B L E  O F  C O N T E N T S  
PAGE

EXECUTIVE SUMMARY ...................................................... i

INTRODUCTION .............................................................1

FINDINGS 
Compared to Other Federal Purchasers, Medicaid Paid More  .......................6

Medicaid Paid Between $47 and $126 Million More  ..............................8

CONCLUSION  ............................................................. 11

APPENDICES

A: Sampled Mental Health Drugs  ........................................... 12 

B: Related Office of Inspector General Report Summaries......................... 14 

C: Related Office of Inspector General Reports  ................................ 16 

D: Endnotes ........................................................... 18 

ACKNOWLEDGMENTS .................................................... 19 

iv 
Medicaid Mental Health Drugs  OEI-05-02-00080  I N T R O D U C T I O N  
OBJECTIVE 
To measure the efficiency and economy of the Medicaid program as a purchaser of mental 
health drugs by comparing Medicaid to four other Federal payers. 
BACKGROUND 
Title XIX of the Social Security Act established Medicaid to be a jointly-funded, Federal-State 
health insurance program.  Medicaid plays a fundamental role in the provision of prescription 
drugs to over 42 million low-income and disabled beneficiaries, spending an estimated $20 
billion in 2001.1 In fact, 12 percent of adults rely on Medicaid to cover their physical and 
mental health care needs. 
In purchasing mental health drugs, as with all Medicaid expenditures, Title XIX requires States, 
as part of their State plan, to provide methods and procedures to assure that payments are 
consistent with efficiency, economy, and quality of care.2 The Centers for Medicare & 
Medicaid Services (CMS) exercises this control in two ways.  In 1987, CMS published a 
notice of the final rule (52 FR 28648) that limits Medicaid reimbursement to pharmacies. 
According to the rule, State payments to pharmacies are limited to the agencys best estimate 
of the price generally and currently paid [to wholesalers] by providers for the drug. In 
addition, States are authorized to collect rebates from drug manufacturers for drug purchases 
made under the Medicaid program. 
Medicaid and Mental Health Drugs 
Overall expenditures for prescription drugs grew more than twice as fast as total Medicaid 
spending from fiscal years (FYs) 1998 to 2000.  More specifically, expenditures for  drugs 
used for the treatment of mental disorders are among the fastest-rising costs for Medicaid, 
currently representing an estimated 20 percent of Medicaids total payment for pharmaceuticals 
($4 billion).3 For 15 States, spending on mental health drugs exceeds 20 percent of the total 
Medicaid drug expenditures.4 
For some State Medicaid programs, the costs of treating mental disorders, such as 
schizophrenia and depression, have surpassed expenditures for medications to treat traditional 
high-cost ailments, such as high blood pressure, respiratory problems, and diabetes.5 Among 
the various categories of mental health drugs, spending on anti-psychotic medications is the 
highest, accounting for 11 percent of Medicaids total pharmacy costs for all drugs.6 
Antidepressants and anti-anxieties are also listed among the highest cost medications in 
Medicaid programs. 
1 
Medicaid Mental Health Drugs  OEI-05-02-00080  Related Work by the Office of Inspector General 
The Office of Inspector General (OIG) has issued a significant body of work related to 
Medicaid drug pricing, including such topics as reimbursement, rebates, and the accuracy of 
Average Wholesale Price. This report is part of the OIGs continuing work focusing on 
Medicaids expenditures for specific classes of pharmaceuticals.  In the report entitled Cost 
Containment of Medicaid HIV/AIDS Drug Expenditures (OEI-05-99-00611),  OIG found 
that Medicaid pays up to 33 percent more than other Federal drug discount programs for 16 
antiretroviral drugs. Medicaid could have saved $102 million in Federal/State funds in fiscal 
year 2000, if the 10 sampled States had purchased the 16 antiretrovirals at Federal Ceiling 
Prices. Based on these findings, OIG recommended that CMS review the current 
reimbursement methodology and work with States to find a method that more accurately 
estimates pharmacy acquisition cost. Additionally, OIG recommended that CMS initiate a 
review of Medicaid rebates. See Appendices B and C for a more complete list of related OIG 
reports. 
2 
Medicaid Mental Health Drugs  OEI-05-02-00080  OBJECTIVE, SCOPE AND METHODOLOGY 
Objective and Scope 
The objective of this report was to measure the efficiency and economy of Medicaids mental 
health drug purchases. To do this, we compared Medicaids prices for mental health drugs to 
those of four other Federal pricing schedules also designed to limit the Governments payments 
for prescription drugs. In addition to Medicaids cost containment measures, Federal payments 
for outpatient drugs are contained through: 1) Federal Ceiling Prices (FCP), 2) 340B Drug 
Discount Program ceiling prices, 3) Federal Supply Schedule prices (FSS), and 4) Big 4 
(Department of Defense (DoD), Department of Veterans Affairs (VA), Public Health Service 
(PHS), and the Coast Guard) prices.  Table A illustrates how each of the discounts operate. 
Table A: Federal Discount Formulas 
Drug Purchasing Program  Eligible Purchasers  Discount Mechanism 
!Aggregate limits on 
Medicaid  State Medicaid Agencies  pharmacy reimbursement 
!Approximately 15.1% off 
manufacturer prices 
Federal Ceiling Prices  the Big 4 agencies  At least 24% off manufacturer 
(DoD, VA, PHS, and Coast  prices 
Guard) 
340B Drug Discount Program  certain Federally-qualified  Approximately 15.1% off 
groups and grantees  manufacturer prices 
Federal Supply Schedule  specified agencies  Contracts negotiated with 
manufacturers capped by 
most favorable customer 
prices 
Big 4 prices  Big 4 agencies  Contracts negotiated with 
(Represents the 4 agencies  manufacturers capped by the 
actual price)  Federal Ceiling Prices, but the 
lowest of several possible 
prices including the FSS 
The four Federal pricing mechanisms used in our comparisons offer a robust picture of the 
prices available across Federal programs.  Comparing Medicaid prices to theoretical upper 
limits represented by the FCP and the 340B ceiling prices provided a means to assess 
Medicaid in relation to other programs with statutorily-defined manufacturer discounts. 
Comparing Medicaid to FSS and the Big 4 provided an opportunity to evaluate the actual 
prices paid by Medicaid to the actual negotiated prices paid by other Federal agencies. 
3 
Medicaid Mental Health Drugs  OEI-05-02-00080  In this inspection, we focused on differences in drug acquisition costs.  For Medicaid, we 
defined acquisition costs as the net costs to Medicaid for mental health drugs. To calculate this, 
we subtracted the manufacturer rebates Medicaid received from the reimbursement rates 
Medicaid paid to pharmacies. For the other Federal prices used as points of comparison, drug 
acquisition cost equals the discounted price they pay for the drug. 
We did not attempt to factor in the cost of administrative overhead, drug distribution, and 
storage expenses. These expenses differ considerably depending on the drug purchasing and 
distribution systems employed by various pharmaceutical purchasers. Including these costs in 
our comparisons would result in a discussion of the cost-effectiveness of particular purchasing 
and distribution systems, and a discussion of that magnitude is beyond the scope of this report. 
Methodology 
Based on data from the National Pharmaceutical Councils 1999 guide to State pharmaceutical 
benefits, we purposively selected State Medicaid agencies representing the top 10 States in 
terms of the highest amount of Medicaid reimbursement for prescription drugs. The States are: 
California, New York, Florida, Texas, Ohio, Illinois, Pennsylvania, Massachusetts, North 
Carolina, and New Jersey.  These 10 States accounted for 58 percent of the total Medicaid 
drug payment amount ($7.9 billion out of $13.7 billion). 
We identified mental health drug classes using the Food and Drug Administration (FDA) list of 
therapeutic classes. We examined three of the four FDA-classified groups of mental health 
drugs: anti-anxiety, antidepressant, and antipsychotic/anti-maniac.  We did not look at the 
fourth class, sedatives/hypnotics, because most of the drugs in this category are prescribed as 
sleep aids rather than for mental disorders.  From each of these three classes, we selected the 
10 National Drug Codes (NDCs)1 with the greatest total national reimbursement, including all 
doses and package sizes of each NDC, based on an analysis of the calendar year 2000 Drug 
Utilization Files. After discovering generic versions were available for 5 of the NDCs2, our net 
sample was 25 brand-name drugs, representing 63 percent of the total national Medicaid 
payment for the 3 categories of mental health drugs in 2000. 
To gather data on State Medicaid agencies actual expenditures, we collected fee-for-service 
pricing data from each of the 10 sampled States in November 2001. The States reported their 
drug reimbursements, rebates and dispensing fees for the first 2 quarters of 
1	
Each drug manufactured in the United States has a unique National Drug Code (NDC) which identifies the 
drugs manufacturer, product dosage form, and packet size. 
2 
Clozaril 100 mg, Wellbutrin 150 mg, and Xanax .5 mg, 1 mg, 2 mg 
4 
Medicaid Mental Health Drugs  OEI-05-02-00080  Federal fiscal year 2001 (October 2000 - March 2001). Due to a variety of data issues 
regarding the rebates, we assumed 100 percent collection of rebates for all 10 States.  This 
estimation consisted of multiplying each States total units by the Medicaid unit rebate amount. 
The State of California negotiated additional rebate amounts with the pharmaceutical 
manufacturers of each of the drugs in our sample.  Therefore, to approximate Californias net 
cost, we subtracted an additional amount using a rough estimate of the rebate formula, per the 
States direction. The State did not submit any pricing data relating to the specific calculation 
or net amount of the supplemental rebates, as this information is proprietary. 
In addition to the pricing information, we conducted telephone interviews with the 10 State 
Medicaid pharmacy directors.  We interviewed the directors to gain further understanding of 
State-specific program operations and to explore any cost containment efforts surrounding 
mental health drugs.  The interviews were conducted between November 2001, and January 
2002. 
We also gathered information regarding pharmaceutical pricing from CMS and the Department 
of Veterans Affairs (VA). The CMS supplied us with the Average Manufacturers Prices, the 
Best Prices, the Medicaid Unit Rebate Amounts, and the 340B ceiling prices. The VA 
provided us with data on FCP and FSS contract prices. 
To represent Medicaids average net price, we calculated an average unit price per drug, per 
State for the two quarters worth of data collected. Each States average unit price per drug 
was then averaged to represent the average unit price Medicaid paid for each of the 25 drugs. 
We used this average per drug unit price as the point of comparison to the unit price per drug 
for the other Governmental programs.  We also calculated and utilized average FCPs because 
our study spanned a time period in which the FCP was refigured. The median difference 
between the calculated average FCP and any given FCP for the 25 drugs is 2 cents. 
This report reveals no specific drug pricing information because of the proprietary nature of this 
data. Toward this end, most estimates are averages and all estimates have been rounded. All 
savings estimates based on this information have been aggregated and rounded down for 
conservative estimates. 
We conducted our review in accordance with the Quality Standards for Inspections issued 
by the Presidents Council on Integrity and Efficiency. 
5 
Medicaid Mental Health Drugs  OEI-05-02-00080  F I N D I N G S  
To measure Medicaids efficiency as a Government purchaser of pharmaceuticals, this study

compared 10 State Medicaid programs net costs for 25 mental health drugs to four other

Federal pricing schedules.  Our review revealed that Medicaids net costs for the 

25 mental health drugs were the highest among all of the Government purchasers.  Medicaid

could have saved between $47 and $126 million, on average, if they had been able to achieve

the lower prices paid by the other Federal purchasers for these 25 mental health drugs. 

The 10 State Medicaid agencies paid more than other 
Government purchasers for the 25 mental health drugs 
reviewed 
Despite Federal and State measures to reduce prescription drug expenditures for the Medicaid 
program, the 10 State Medicaid agencies average net price was between 11 and 29 percent 
more for the 25 sampled drugs than the other Federal programs.  Table B demonstrates the 
complete range of differences between each programs average price and Medicaids average 
net price. See Appendix A for a breakdown of the percent differences between Medicaid and 
each of the other Federal purchasers by drug. 
Table B: Average Difference Between Medicaid Prices and Other Federal Prices 
Federally-Mandated Drug Schedules  Percent More Paid by Medicaid 
Federal Ceiling Prices  27% 
340B Ceiling Prices  13% 
Federal Drug Contract Prices 
Federal Supply Schedule Prices  11% 
Big 4 Prices  29% 
Source: OIG survey of State Medicaid drug expenditures 
Medicaid pays more than other programs with statutorily-defined discounts 
On average, the net cost to the Medicaid program for the 25 mental health drugs reviewed was 
13 percent higher than the 340B ceiling prices, ranging from 9 to 28 percent. Medicaid paid an 
average 26 cents more per pill than the 340B ceiling price. The difference ranged from 6 cents 
more per pill for Buspar (5 mg, 500 units) to 65 cents more for Zyprexa (10 mg, 60 units). 
6 
Medicaid Mental Health Drugs  OEI-05-02-00080  On average, Medicaid paid 27 percent more than the FCP.  The differences between 
Medicaids average net price and the FCP ranged from Medicaid paying 7 percent more for 
Buspar (10 mg, 500 units) to 50 percent more for Effexor (75 mg, 100 units).  For over half of 
the sampled drugs, Medicaid paid at least 25 percent more than the FCP. Translated into 
actual dollar differences, Medicaid paid 48 cents more, on average, than the FCP. This 
difference ranged from 4 cents more per pill for Buspar (5 mg, 500 units) and $1.30 more for 
Zyprexa (10 mg, 60 units). 
It is important to remember that these two pricing schedules - the FCP and the 340B - are 
computed ceiling prices. The actual prices paid by entities covered by these programs can be, 
and typically are, below the mandated ceiling prices. For example, the Big 4 prices represent 
the actual prices paid by agencies benefiting from the FCP.  When Medicaids prices are 
compared to the theoretical upper limit set by the FCPs, there is a 27 percent gap.  However, 
this discrepancy grows to 29 percent when Medicaids prices are compared to the actual 
prices paid by the agencies benefitting from the FCPs. 
Medicaid also pays more in comparison to Federally-contracted prices 
In addition to comparing Medicaids net prices to other statutorily-defined prices, we 
compared Medicaids prices to the Federally-contracted prices of the FSS.  This comparison 
involved both direct FSS prices as well as the prices actually paid by the 
Big 4 (VA, DOD, PHS and Coast Guard). 
Medicaids net cost, on average, was 11 percent higher than the FSS prices.  This translates 
into an average of 23 cents more per pill. Overall, Medicaid paid more for all the drugs in the 
sample except the four versions of Risperdal (1 mg, 2 mg, 3 mg, and 4 mg). In these four 
instances, the 10 State Medicaid agencies paid an average of 13 percent less than the FSS 
contract prices, or 47 cents less per pill. With the exception of Risperdal, State Medicaid 
agencies paid between 1 cent more to $1.02 more per pill than the FSS, averaging 36 cents 
more per pill than the FSS contract. 
Comparing Medicaids average net prices to the Big 4 prices, we found that Medicaids price 
was 29 percent higher. Medicaids prices ranged from 6 percent to 67 percent higher than the 
prices paid by the Big 4. For 4 of the drugs, Medicaid paid approximately 50 percent more 
than the Big 4 prices. On average, States paid anywhere from 4 cents to $1.28 more per pill 
than the Big 4 agencies, averaging 51 cents more per pill. 
7 
Medicaid Mental Health Drugs  OEI-05-02-00080  As a result of price differences, the 10 State Medicaid 
agencies paid, on average, between $47 and $126 million 
more than other Federal purchasers for the 25 mental health 
drugs 
The 10 State Medicaid agencies would have saved, on average, between $47 and $126 million 
during the first 2 quarters of FY 2001 if they were able to obtain the lower prices of the other 
Federal drug purchasers for the 25 mental health drugs. The States would have saved a total of 
$116 million in the 2 quarters if their drug prices equalled the FCPs.  This savings represents 
approximately 20 percent of the 10 States net costs for this time period.  The Federal share of 
this savings is over $62 million.  The 10 States would also have saved over $66 million if their 
prices for the 25 mental health drugs had equalled the 340B ceiling price. 
We additionally analyzed the potential savings for the Medicaid program if they were able to 
obtain prices comparable to FSS and Big 4 prices.  While State Medicaid agencies do not 
currently negotiate directly with pharmaceutical manufacturers, these comparisons demonstrate 
the potential savings negotiations might be able to offer the Medicaid program. In fact, faced 
with dramatic increases in drug prices, more than 20 States are exploring the creation of 
purchasing coalitions with the intention of wielding aggregate purchasing power to negotiate 
lower prices.7 
The difference between FSS prices and Medicaid prices translates into potential Medicaid 
savings of $47 million semiannually. If the 10 State Medicaid agencies received prices similar 
to those negotiated for the Big 4, they would have saved $126 million during the same time 
period. Table C illustrates the potential savings in comparison to each Federal pricing program. 
Table C: Average Medicaid Savings 
Federally-Mandated Drug Schedules  Savings (millions) 
Federal Ceiling Prices  $116 
340B Ceiling Prices  $66 
Federal Drug Contract Prices 
Federal Supply Schedule Prices  $47 
Big 4 Prices  $126 
Source: OIG survey of State Medicaid drug expenditures 
8 
Medicaid Mental Health Drugs  OEI-05-02-00080  The nine antipsychotic drugs reviewed constitute more than half of the potential 
savings between Medicaid and the other ceiling prices 
The 25 mental health drugs in our sample can be broken down into three drug classes: anti-
anxieties, antidepressants, and antipsychotics. The savings potential for the anti-psychotic 
drugs far exceeds the saving potential for the other two classes of drugs. The savings for the 9 
drugs in this class represents 68 percent of the total the 10 States would save if their prices 
equalled FCP and 58 percent of the total if the States prices equalled the 340B ceiling price. 
Table D illustrates Medicaids average unit difference and savings potential by class. 
Table D: Medicaids Average Unit Difference and Savings Potential by Drug Classification 
Drug Class  Unit  Savings  Unit Difference  Savings 
Difference to  Estimate  to 340B  Estimate 
FCP 
antipsychotic  79 cents  $79 M  37 cents  $38 M 
antidepressant  37 cents  $31 M  23 cents  $22 M 
anti-anxiety  21 cents  $5 M  16 cents  $5 M 
Source: OIG survey of State Medicaid drug figures, all expenditures have been rounded down 
The antipsychotics in our sample represent the greatest savings because of their higher costs 
and their higher utilization than drugs from the other classes.  In fact, the 5 drugs with the 
greatest gap in unit price between Medicaid and the FCP are all antipsychotics: Zyprexa (10 
mg), Risperdal (4 mg), Seroquel (200 mg), Zyprexa (5 mg), and Zyprexa (2.5 mg).  Medicaid 
would have saved $60 million semiannually if the net prices for just these 5 antipsychotics 
equalled the FCP, accounting for 52 percent of the total savings estimated for all 25 drugs in 
our sample. Antipsychotics are also heavily prescribed. In fact, just 2 of these antipsychotics 
represent almost 20 percent of all of the prescriptions for the 10 States. 
Our analysis specifies that one drug, Zyprexa (10 mg), contributes significantly to the high cost 
and utilization of antipsychotics.  Medicaid paid $1.30 more than the FCP for Zyprexa (10 mg), 
compared to 72 cents more, on average, for the other antipsychotics. Zyprexa (10 mg) also 
leads in savings for the Medicaid program when prices are compared to the 340B, FSS, and 
Big 4 price. Further, the number of prescriptions dispensed for Zyprexa (10 mg) lead all other 
NDCs sampled by far with 371,823 prescriptions filled in 6 months. The drug with the second 
highest number of prescriptions is Risperdal (1 mg), but it falls behind Zyprexa (10 mg) by a 
significant 105,000 bottles with 267,247 prescriptions filled.  Because of this, Zyprexa (10 mg) 
9 
Medicaid Mental Health Drugs  OEI-05-02-00080  is the top drug for savings for all 10 States and all 25 drugs at $58 million a year compared to 
the FCP and $14 million a year compared to the 340B price. 
Antipsychotics represent the largest potential for savings in relation to the other drug classes, 
and also comprise a significant portion of the total Medicaid drug budget. In FY 2001, the 10 
State Medicaid agencies in our sample spent $562 million on all 25 drugs selected, 67 percent 
of that expenditure, $378 million, purchased the 9 antipsychotics represented in our sample. 
These same nine antipsychotics represent 4 percent of the $20 billion Medicaid spent on all 
prescription drugs for FY 2001. 
The rapid growth in expenditures for antipsychotics has raised concerns in the State Medicaid 
programs as they struggle to contain program costs. States are concerned with finding 
strategies for maximizing cost-effectiveness while maintaining current access.  Since Medicaid 
is the main provider of care for persons with schizophrenia, an illness that typically requires 
long-term drug therapy with these drugs, consistent, if not increasing, demand seems likely. 
Program savings through reducing drug costs represent a powerful means of maintaining current 
levels of service in the face of tightening budgets. For example, saving  $79 million in drug 
acquisition costs for antipsychotics could help avoid restricting coverage of these crucial drugs. 
Alternate cost containment strategies, such as preferred drug lists and prior authorization, often 
exempt mental health drugs, making price containment strategies even more crucial for this set 
of drugs. 
10 
Medicaid Mental Health Drugs  OEI-05-02-00080  C O N C L U S I O N  
The law directs the Medicaid program to establish payment methods that are efficient and 
economical. We found that Medicaid agencies in 10 States spent between $47 and 
$126 million more for 25 mental health drugs in 6 months than they would have had they 
obtained the lower prices used by the other Federal programs reviewed. 
To safeguard the Medicaid program from excessive payments for mental health drugs and 
capitalize on potential savings, we encourage CMS to reconsider the OIG recommendations 
made in previous reports. While these past reports focus on reducing Medicaids costs for 
various classes of drugs, the analysis of each demonstrates the need for CMS to address the 
broader issues Medicaid faces in purchasing all drugs. For a listing of these reports, please 
refer to Appendices B and C. Given that this report provides further evidence of the problems 
plaguing the Medicaid prescription drug benefit program, it supports recommendations 
previously set forth by the OIG which have not yet been implemented. We also suggest that 
CMS share this report with the States. 
In particular, we continue to believe that CMS should implement the recommendations outlined 
in our report entitled, Cost Containment of Medicaid HIV/AIDS Drug Expenditures (OEI-
05-99-00611). These recommendations are summarized below. For each of the 
recommendations, we offer CMS options for implementation, which are listed in Appendix B. 
<	 CMS should review the current reimbursement methodology and work with States to 
find a method that more accurately estimates pharmacy acquisition cost. 
<  CMS should initiate a review of Medicaid rebates. 
11 
Medicaid Mental Health Drugs  OEI-05-02-00080  APPENDIX A 
Sampled Mental Health Drugs

Anti-Anxieties 
Drug Name  NDC  Medicaid/340B  Medicaid/FCP  Medicaid/ Big4  Medicaid/FSS 
Difference  Difference  Difference  Difference 
Buspar  00087081841  22%  12%  11%  11% 
Buspar  00087081844  17%  11%  11%  11% 
Buspar  00087081941  23%  8%  7%  7% 
Buspar  00087081944  18%  7%  7%  7% 
Buspar  00087082232  14%  28%  28%  28% 
Buspar  00087082233  12%  28%  27%  27% 
Buspar  00087082481  13%  28%  28%  28% 
Antidepressants 
Drug Name  NDC  Medicaid/340B  Medicaid/FCP  Medicaid/ Big4  Medicaid/FSS 
Difference  Difference  Difference  Difference 
Prozac  00777310502  28%  11%  23%  .6% 
Zoloft  00049490066  15%  37%  55%  38% 
Zoloft  00049491066  14%  36%  54%  36% 
Celexa  00456402001  13%  32%  67%  35% 
Paxil  00029321013  14%  22%  22%  22% 
Paxil  00029321113  15%  22%  30%  30% 
Paxil  00029321213  15%  25%  34%  34% 
Effexor XR  00008083301  9%  50%  50%  50% 
Remeron  00052010530  20%  30%  31%  31% 
12 
Medicaid Mental Health Drugs  OEI-05-02-00080  Antipsychotics 
Drug Name  NDC  Medicaid/340B  Medicaid/FCP  Medicaid/ Big4  Medicaid/FSS 
Difference  Difference  Difference  Difference 
Zyprexa  00002411260  11%  26%  26%  10% 
Zyprexa  00002411560  10%  27%  27%  10% 
Zyprexa  00002411760  10%  24%  24%  8% 
Risperdal  50458030006  12%  19%  19%  -17% 
Risperdal  50458032006  12%  21%  20%  -16% 
Risperdal  50458033006  11%  28%  27%  -11% 
Risperdal  50458035006  11%  26%  25%  -10% 
Seroquel  00310027110  11%  41%  42%  42% 
Seroquel  00310027210  10%  39%  41%  41% 
13 
Medicaid Mental Health Drugs  OEI-05-02-00080  APPENDIX B 
Related Office of Inspector General Report Summaries

Cost Containment of Medicaid HIV/AIDS Drug Expenditures (OEI-05-99-00611) 
Findings  Recommendations 
Medicaid pays up to 33 percent more than other  For the 16 HIV/AIDS drugs examined, CMS should 
Federal Government drug discount programs for  review the current reimbursement methodology and 
HIV/AIDS Drugs.  work with States to find a method that more accurately 
estimates pharmacy acquisition cost. 
<  Option 1: Develop safeguards to protect 
Medicaid from Average Wholesale Price 
manipulations, or 
<  Option 2: Create national estimated 
acquisition cost for the States based upon the 
Average Manufacturers Price, or 
<  Option 3: Share Average Manufacturer Price 
data with States so that they can accurately 
set Medicaid reimbursement amounts. 
Differences in Federal drug pricing formulas are  CMS should initiate a review of the Medicaid rebates 
partially responsible for cost discrepancies.  for the 16 HIV/AIDS drugs examined. Two options 
include increasing the rebate percentage off AMP or 
basing the rebates on AWP. 
<  Option 1: Increase the rebate percentage off 
of Average Manufacturer Price, or 
<  Option 2: Base the rebates on Average 
Wholesale Price rather than Average 
Manufacturer Price so that it is linked to the 
reimbursement methodology. 
State reimbursement formulas affect the magnitude of 
the gap between Medicaid and other Government drug 
purchasers. 
Medicaid could have saved $102 million if the 10 
sampled States purchased the 16 antiretrovirals at 
Federal Ceiling prices. 
14 
Medicaid Mental Health Drugs  OEI-05-02-00080  Medicaid Pharmacy: Actual Acquisition Cost of Prescription Drug Products for Brand 
Name Drugs (A-06-00-00023) & Review of Pharmacy Acquisition Costs for Drugs 
Reimbursed Under the Medicaid Prescription Drug Program of ________ (A-06-01-00001 
through A-06-01-00008) 
(This nationwide audit resulted in 8 separate, State-specific reports.  The States are: TX, FL, WI, 
CO, MO, WA, WV, IN) 
Findings  Recommendations 
The actual acquisition cost for brand name drugs is  CMS should require the States to bring pharmacy 
estimated to be a national average of 21.84 percent  reimbursement more in line with the actual acquisition 
below AWP.  cost of these drugs being realized by pharmacies. 
If reimbursement had been based on the estimates of 
this report, Medicaid could have saved $1.08 billion for 
100 drugs in calendar year 1999. 
15 
Medicaid Mental Health Drugs  OEI-05-02-00080  APPENDIX C 
Related Office of Inspector General Reports

Cost Containment of Medicaids HIV/AIDS Drug Expenditures (OEI-05-99-00611) 
Medicare Reimbursement of Albuterol (OEI-03-00-00311) 
Medicare Reimbursement of End Stage Renal Disease Drugs (OEI-03-00-00020) 
Medicaid Pharmacy: Actual Acquisition Cost of Generic Prescription Drug Products 
(A-06-01-00053) 
Medicaid Pharmacy: Actual Acquisition Cost of Generic Prescription Drug Products 
(A-06-97-00011) 
Medicaid Pharmacy: Actual Acquisition Cost of Prescription Drug Products for Brand Name Drugs 
(A-06-00-00023) 
Review of Pharmacy Acquisition Costs for Drugs Reimbursed Under the Medicaid Prescription 
Drug Program of _______ (all included in the 2001 reports) 
Texas Health and Human Services Commission (A-06-01-00001) 
Florida Agency for Health Care Administration (A-06-01-00002) 
Wisconsin Department of Health and Family Services (A-06-01-00003) 
Colorado Department of Health Care Policy and Financing (A-06-01-00004) 
Montana Department of Public Health and Human Services (A-06-01-00005) 
Washington Department of Social and Health Services (A-06-01-00006) 
West Virginia Department of Health and Human Services (A-06-01-00007) 
Indiana Family and Social Services Administration (A-06-01-00008) 
Medicaid Pharmacy: Actual Acquisition Cost of Prescription Drug Products for Brand Name Drugs 
(A-06-96-00030) 
Review of Pharmacy Acquisition Costs for Drugs Reimbursed Under the Medicaid Prescription 
Drug Program of _______ (all included in the 1996 review) 
California Department of Health Services (A-06-95-00062) 
Montana Department of Public Health and Human Services (A-06-95-00068) 
Florida Agency for Health Care Administration (A-06-95-00065) 
North Carolina Department of Human Resources (A-06-95-00071) 
Delaware Department of Health and Social Services (A-06-95-00063) 
Virginia Department of Medical Assistance (A-06-95-00072) 
16 
Medicaid Mental Health Drugs  OEI-05-02-00080  New Jersey Department of Human Services (A-06-95-00070)

Nebraska Department of Social Services (A-06-95-00069)

Missouri Department of Social Services (A-06-95-00067)

District of Columbia Department of Human Services (A-06-95-00064)

Maryland Department of Health and Mental Hygiene (A-06-95-00066)

Excessive Medicare Payments for Prescription Drugs (OEI-03-97-00290) 
Need to Establish Connection Between the Calculation of Medicaid Drug Rebates and Reimbursement 
for Medicaid Drugs (A-06-97-00052) 
Medicaid Managed Care and HIV/AIDS (OEI-05-97-00210) 
Medicaid Drug Rebates: The Health Care Financing Administration Needs to Provide Additional 
Guidance to Drug Manufacturers to Better Implement the Program (A-06-91-00092) 
Medicaid Drug Rebates: Inaccurate Reporting of Medicaid Drug Data by Pharmacies 
(A-06-91-00056) 
Medicaid Drug Rebates: Improvements Needed in the Health Care Financing Administrations 
Procedures to implement the Medicaid Drug Rebate Program (A-06-91-00102) 
17 
Medicaid Mental Health Drugs  OEI-05-02-00080  APPENDIX D 
Endnotes

1.	 Centers for Medicare & Medicaid Services, Health Care Industry Market Update: 
Pharmaceuticals. January 10, 2003. 
2.  Section 1902(a)(30)(A) of the Social Security Act. 
3.	 U.S. Department of Health and Human Services.  (1999).  Mental Health: A Report of the 
Surgeon General. Washington, DC & Centers for Medicare & Medicaid Services. (2000). 
State Drug Utilization Data. 
4.	 "Pharmaceutical Benefits Under State Medical Assistance Programs", 1999 National 
Pharmaceutical Council.  The 15 States are:  ID, IN, IA, ME, MD, MA, MN, NH, ND, OR, 
RI, UT, VT, WA, WI. 
5.  Mental Illness Drugs Top State List. (2001, February 9). The Dallas Morning News. 
6.  Centers for Medicare & Medicaid Services. (2000). State Drug Utilization Data. 
7.	 National Council of State Legislatures. 2002 Prescription Drug Discount, Bulk Purchasing & 
Price-Related Legislation. www.ncls.org/programs/health/drugdisc02.htm,. 
18 
Medicaid Mental Health Drugs  OEI-05-02-00080  A C K N O W L E D G M E N T S  
This report was prepared under the direction of William C. Moran, Regional Inspector General for 
Evaluation and Inspections in Chicago and Natalie Coen, Deputy Regional Inspector General.  Other 
principal Office of Evaluation and Inspections staff who contributed include: 
Ann Maxwell, Project Leader  Genevieve Nowolinski, Program Specialist 
Madeline Carpinelli, Program Analyst 
For information or copies of this report, please contact

the Office of Inspector Generals 

Public Affairs office at (202) 619-1343

Reports are also available on the World Wide Web at our home page address:

http://www.oig.hhs.gov/ 
19
Medicaid Mental Health Drugs   OEI-05-02-00080