Department of Health and Human Services 

OFFICE OF 

 
INSPECTOR GENERAL 

 
 
 
 
 
 
 
M D P
  E DICAID  RUG  RICING IN 

 
S M
TATE  AXIMUM 

 
 
A C
LLOWABLE  OST 

 
P
ROGRAMS
 
 
Daniel R. Levinson 
  
Inspector General
  
 
August 2013 

OEI-03-11-00640 
 EXECUTIVE SUMMARY:   MEDICAID DRUG PRICING IN STATE MAXIMUM 
ALLOWABLE COST PROGRAMS 
OEI-03-11-00640 
 
WHY WE DID THIS STUDY 
 
To take advantage of lower market prices for certain multiple-source drugs, States may use the 
Federal upper limit (FUL) and/or State Maximum Allowable Cost (MAC) programs.  However,  
FUL amounts have often exceeded market prices, and the Affordable Care Act (ACA), 
P.L. 111-148, required the Centers for Medicare & Medicaid Services (CMS) to change the 
method it uses to calculate these amounts.  Unlike the FUL program, State MAC programs give 
States flexibility in determining which drugs to include in the program and in setting 
reimbursement rates.  Because generic drug use is expected to increase under ACA provisions 
that expand Medicaid, an aggressive MAC program may help States contain Medicaid drug 
costs.  
 
HOW WE DID THIS STUDY  
 
In January 2012, we surveyed the 45 States (including the District of Columbia) with MAC 
programs to identify the methods used to set MAC prices and criteria used to select covered 
MAC drugs. We also obtained the MAC prices and drugs covered at that time.  We compared 
States criteria for selecting drugs and setting prices in their MAC programs.  We also calculated 
the aggregate percentage difference between each States MAC prices and the FUL amounts in 
effect for the first quarter of 2012 (based on published prices), as well as the draft FUL amounts 
set by the ACA (based on average manufacturer price).  Finally, we identified the State with the 
most aggressive MAC program and calculated the potential national savings had all States used 
this program.      
 
WHAT WE FOUND 
 
Most of the 45 States with MAC programs used acquisition cost to set MAC prices.  In 
comparison, the pre-ACA FUL amounts were, on average, nearly double State MAC prices in 
January 2012, in the aggregate. However, the post-ACA FUL amounts were lower, on average, 
than MAC prices, in the aggregate. Although these amounts were required to take effect in 
October 2010, as of May 2013 CMS had not implemented them.  Unlike the FUL program, State 
MAC programs give States flexibility in setting their coverage requirements.  As a result, State 
MAC programs covered a wide range of drugssignificantly more than are covered under the 
FUL program.  Lastly, we found that certain States could achieve additional cost savings by 
using more aggressive MAC pricing formulas and inclusion criteria.  
 
WHAT WE RECOMMEND 
 
We recommend that CMS complete the implementation of the post-ACA FUL amounts.  We also 
recommend that CMS encourage States to reevaluate their MAC programs for additional       
cost-saving opportunities. CMS concurred with both recommendations.  
  TABLE OF CONTENTS 
 
Objectives ....................................................................................................1 

Background..................................................................................................1 

Methodology................................................................................................5 

Findings......................................................................................................12 

Most States with MAC programs used acquisition cost as the          
basis for setting MAC prices ..............................................................12 

Aggregate pre-ACA FUL amounts were higher than State MAC             

prices, on average; however, the post-ACA FUL amounts were  

lower...................................................................................................13 

States exercised their flexibility in setting varying MAC coverage                
criteria, which resulted in a wide number of covered drugs ...............16 

State MAC programs covered significantly more drugs than                        

the FUL program ................................................................................17 

States may achieve additional cost savings by using different                  

MAC pricing formulas and inclusion criteria .....................................19 

Conclusion and Recommendations ............................................................21 

Agency Comments and Office of Inspector General Response .........23 

Appendixes ................................................................................................24 

A: Methodology Used To Compare State Maximum  Allowable                 

Cost (MAC) Programs ........................................................................24 

B: Dispensing Fees and Benchmarks  Used As the Basis For        

Setting State Maximum  Allowable Cost (MAC) Prices  ....................27 

C: State Maximum Allowable Cost (MAC) Prices Compared to                        

Federal Upper Limit (FUL) Amounts .................................................29 

D: Criteria States Use To Select Drugs Included in State                   

Maximum  Allowable Cost (MAC) Programs.....................................31 

E: Agency Comments  ........................................................................39 

Acknowledgments......................................................................................41 

   
   
OBJECTIVES 
1. 	  To determine the pricing methodologies that State Medicaid agencies 
(States) use to set payment amounts for their Maximum Allowable 
Cost (MAC) programs.  
2.	   To compare payment amounts under State MAC programs to Federal 
upper limit (FUL) amounts.  
3.	   To determine how States select the drugs included in their MAC 
programs. 
4.	   To compare MAC programs and estimate the savings had all States 
used one States pricing and inclusion criteria that resulted in the 
lowest overall drug cost. 
BACKGROUND   
The FUL program was established to ensure that Medicaid takes 
advantage of lower market prices for certain multiple-source drugs       
(i.e., generic drugs and brand-name drugs for which generic alternatives 
are available).  In addition to this federally administered program, States 
have the option to develop their own MAC programs.  Unlike the FUL  
program, in which both payment amounts and inclusion criteria are set by 
Federal law, State MAC programs give States greater latitude in             
(1) selecting the drugs and (2) setting the reimbursement amounts for the 
drugs included in their MAC programs.  MAC programs enable States to 
achieve additional savings by setting lower reimbursement amounts for 
more multiple-source drugs than are included in the FUL program.    
A 2004 study showed that the expansion of existing MAC programs and 
the creation of new ones could contribute to cost containment nationwide.1   
The cost-savings effect from a well-developed MAC program may be 
even more apparent now because use of generic drugsand spending on 
themis expected to increase as a result of provisions in the Affordable 
Care Act (ACA), P.L. 111-148, that expand the Medicaid program.2   A 
letter to State Governors in February 2011 from the Secretary of Health 
 
1 Health Care Financing Review, Generic Drug Cost Containment in Medicaid:  Lessons  
from Five State MAC Programs, Spring 2004, Volume  25, Number 3.  
2 U.S. Pharmacist, Trends in Generic Drug  Reimbursement in Medicaid  and Medicare.   
Accessed at http://www.uspharmacist.com  on  January 25, 2012.  
Medicaid Drug Pricing in State Maximum Allowable Cost Programs (OEI-03-11-00640)   1       
   
and Human Services also encouraged States to increase use of generic 
drugs as a way to reduce costs.3    
Medicaid Reimbursement for Prescription Drugs 
Medicaid, jointly funded by Federal and State governments, provides 
health coverage for certain low-income and medically needy people. 
Federal Medical Assistance Percentage (FMAP) payments are the Federal 
funds each State receives for its Medicaid program and are based on the 
States per capita income.4   Individual States establish eligibility 
requirements, benefit packages, and payment rates for their Medicaid 
programs under broad Federal standards.  All 50 States and the District of 
Columbia (referred to as States) offer prescription drug coverage as part of 
their Medicaid benefit packages.   Medicaid expenditures for prescription 
drugs totaled $28 billion in 2011.5    
Medicaid beneficiaries typically receive covered drugs through 
pharmacies, which are reimbursed by State Medicaid agencies.  Federal 
regulations require, with certain exceptions, that each States 
reimbursement for a covered outpatient drug not exceed, in the aggregate, 
the lower of (1) the estimated acquisition cost plus a reasonable dispensing 
fee or (2) the providers usual and customary charge to the public for the 
drug.6  CMS gives States flexibility in defining estimated acquisition cost, 
with most States basing their calculation on list prices published in 
national compendia.7,  8  For certain multiple-source drugs, States also 
reimburse on the basis of the FUL program and/or State MAC programs.   
CMS is collecting National Average Drug Acquisition Cost (NADAC) 
data to develop a new reimbursement benchmark for State Medicaid 
agencies that is more reflective of pharmacies acquisition costs.  To 
 
3 U.S. Department of  Health and Human Services, Sebelius Outlines State Flexibility and  
Federal Support Available for MedicaidFull Letter, February  3, 2011.   Accessed at  
http://www.hhs.gov  on June 11, 2012.    
4  Pursuant to section 1905(b)  of the Social Security Act (the Act), FMAPs can total 
between 50 and 83 percent of a States Medicaid cost.   
 
5 Medicaid expenditures were calculated using data from the Centers for Medicare & 

Medicaid Services (CMS) Medicaid Budget and Expenditure System.  This total does 

not reflect rebates collected through the Medicaid drug  rebate program. 
   
6  42  CFR  447.512.  

7 Historically, the majority of States used average wholesale price (AWP) to set 

reimbursement and obtained this  data from the publisher First DataBank.  However, First 
 
DataBank stopped publishing AWPs as of  September 2011.  This has forced many States 

to reevaluate their AWP-based methodologies.  See OIG, Replacing Average Wholesale 
Price: Medicaid Drug Payment Policy (OEI-03-11-00060), July 2011.     
8 CMS, Medicaid Covered Outpatient Prescription Drug Reimbursement Information by     
StateQuarter Ending  September 2012. Accessed at http://www.medicaid.gov on  
January 29, 2013.  
Medicaid Drug Pricing in State Maximum Allowable Cost Programs (OEI-03-11-00640)   2       
   
develop this benchmark, CMS will use a monthly nationwide survey to 
obtain pharmacy drug acquisition costs from a random sample of 
pharmacies. 
Medicaid FUL Program 
The FUL program limits Medicaid reimbursement for certain  
multiple-source drugs and ensures that the Federal Government acts         
as a prudent buyer by taking advantage of market prices for 
multiple-source drugs.9   As of January 2012, 760 drugs had been identified 
with FUL amounts.     
Criteria for Inclusion in the FUL Program 
Section 1927(e)(4) of the Act generally requires CMS to establish a FUL  
amount for a drug when three or more formulations of the drug are rated 
as therapeutically and pharmaceutically equivalent by the Food and Drug 
Administration (FDA).  In addition, Federal regulation has required that at 
least three suppliers of the drug be listed in current editions (or updates) of 
published compendia of cost information for drugs available for sale 
nationally.10  FDA publishes a list of approved prescription drugs with 
their therapeutic equivalents in the Approved Drug Products with 
Therapeutic Equivalence Evaluations, commonly referred to as the 
Orange Book.11  If FDA considers the drug to be therapeutically 
equivalent, it receives an A rating.12  
Calculating FUL  Amounts 
Historically, CMS sets FUL amounts equal to 150 percent of the price 
published in national compendia for the least costly therapeutically 
equivalent product that could be purchased by pharmacists in quantities of  
100 tablets or capsules, plus a reasonable dispensing fee.13 States are 
required to meet the FUL requirements only in the aggregate.  In other 
words, a State may pay more than the FUL amount for certain products as 
 
9 CMS, Federal Upper Limits.  Accessed at http://www.medicaid.gov  on                
January 15, 2013.  
10  See, e.g., 42 CFR   447.332.  
11 FDA,  Approved  Drug  Products with Therapeutic Equivalent Evaluations. Accessed at 
http://www.fda.gov on  August 15, 2012.  To  be therapeutically equivalent, a drug must 
match an innovator  drug in terms of active ingredients, dosage form, route of  
administration, strength and/or concentration, and have the  same clinical effect and safety  
profile as the innovator  drug.  
12 If there are no  known bioequivalence problems, drugs are given either an  AA, AN, AO, 
AP, or  AT code, depending on the dosage form.  If there are actual  or potential  
bioequivalence problems that have been  resolved, an AB code is  designated.  FDA gives 
any drug not considered therapeutically equivalent a B code.  
13 See, e.g., 42 CFR   447.332.  If the drug is not commonly available in quantities of  
100, the package size commonly listed is used; in the case of liquids, the commonly listed  
size is used. 
Medicaid Drug Pricing in State Maximum Allowable Cost Programs (OEI-03-11-00640)   3       
   
long as these payments are balanced out by lower payments for other 
products. 
The most commonly used published prices in setting FULs are wholesale 
acquisition costs (WAC), AWPs, and direct prices.  National compendia, 
such as RedBook, publish these figures based on information provided by 
drug manufacturers.  Previous Office of Inspector General (OIG) work 
consistently found that the published prices used to set Medicaid FUL  
amounts often greatly exceeded prices available in the marketplace.14 For 
example, an October 2012 OIG report found that FUL amounts based on 
published prices were more than four times higher than sampled pharmacy 
acquisition costs.15   
Changes to FUL  Amounts Under the ACA. Section 2503 of the ACA  
amended section 1927(e) of the Act by revising FUL amounts to be no less 
than 175 percent of the utilization-weighted average of the most recently 
reported monthly average manufacturer prices (AMPs).16   The ACA  
changes to the FUL amounts were required to take effect in October 2010.   
State MAC Programs 
In addition to the FUL program, States have the option to achieve 
additional savings by developing MAC programs.  MAC programs operate 
similarly to the FUL program in that States establish maximum 
reimbursement amounts for certain multiple-source drugs.  Unlike the 
FUL program, States have flexibility in determining the drugs covered 
under their MAC programs and the formula used to set these drugs prices.  
Compared to the FUL program, MAC programs enable States to achieve 
additional savings by (1) setting reimbursement limits for multiple-source 
drugs that are not included in the FUL program and (2) using a formula 
that results in the MAC prices being lower than FUL amounts.    
State MAC programs are designed to standardize reimbursement for 
chemically equivalent drugs in the same strength, dosage, and package 
 
14 For example, see OIG, Medicaid  Drug Price Comparisons:  Average Manufacturer  
Price to Published Prices (OEI-05-05-00240), June 2005;  Medicaid Drug Price 
Comparison: Average Sales Price to Average Wholesale Price (OEI-03-05-00200),     
June 2005; or  A Comparison  of Medicaid Federal Upper Limit Amounts to Acquisition 
Costs, Medicare Payment Amounts, and Retail Prices (OEI-03-08-00490), August 2009. 
15 OIG,  Analyzing Changes to  Medicaid Federal Upper Limit Amounts                        
(OEI-03-11-00650), October 2012. 
16 Section 2503 of the ACA also amended section  1927(k) of the Act by  revising the 
definition  of AMP.  Under the ACA provisions, the new definition of AMP is the average 
price paid to the manufacturer for the drug in the United States by (1) wholesalers for 
drugs distributed to retail community pharmacies and (2) retail community pharmacies 
that purchase drugs directly from the manufacturer.   
Medicaid Drug Pricing in State Maximum Allowable Cost Programs (OEI-03-11-00640)   4       
   
size.17   The MAC price will typically apply to all brand and generic drugs 
for each multiple-source drug.18  Because pharmacy reimbursement is 
based on a single MAC price (regardless of whether a generic or brand 
version of a drug is dispensed), the program creates a financial incentive 
to substitute lower-cost generic equivalents for their brand-name  
counterparts.19  In general, States will not reimburse pharmacies more than 
a drugs MAC price.  However, many States provide pharmacies the 
option to appeal or dispute the MAC price if it is lower than the purchase 
price.  
Reimbursement for Drugs in FUL and State MAC Programs   
The FUL and State MAC programs may contain many of the same  
multiple-source drugs.  As a result, the Federal government and States 
may set different upper limits for certain multiple-source drugs.  States 
have implemented various policies to determine the payment amount 
when the FUL and MAC programs conflict.  For example, a State may 
defer to the FUL amount whenever a  multiple-source drug is covered 
under both the FUL and MAC programs.  However, a State may also 
determine the reimbursement for covered drugs by using the lower of the 
FUL or State MAC prices.   
METHODOLOGY 
Data Sources and Collection 
In January 2012, we sent online surveys to the 51 State Medicaid 
pharmacy directors.  We asked States to provide their prescription drug 
reimbursement methodologies and dispensing fees and to identify whether 
they had a MAC program as of January 1, 2012.20   We received completed 
surveys from 50 States.21  Forty-five of the fifty responding States reported 
 
17 For example, see Frequently Asked Questions  on Iowas Department of Human 
Services Web site.  Accessed at http://www.mslciowa.com on January 25,  2012.  
18 The States MAC rate may not apply to the brand version of  the drug  if  the State 
requires a prior authorization and brand medically necessary is indicated on the  
prescription.  States may also have a preferred drug list that  includes the brand version of  
the MAC drug.  In these cases, the rate applies only  to  the generic version of  the drug.  
For example, see Iowas Department of Human Services Web site, Frequently Asked 
Questions. Accessed at http://www.mslciowa.com on  January 25, 2012. 
19 Congressional Research Service, Prescription Drug Coverage Under Medicaid,      
February  6, 2008.  Accessed at  http://aging.senate.gov on  January 27, 2012.  
20  Based on  this answer,  States responded to different  survey questions.  
21  We made multiple attempts to  obtain a response from Nevada; however, this State did  
not  respond to our request.  From CMSs Web site, it appears that this State does not 
have a MAC program.  See CMS, Medicaid Prescription  Reimbursement Information by  
StateQuarter Ending  December 2011. Accessed at http://www.medicaid.gov on  
February 22, 2012. 
Medicaid Drug Pricing in State Maximum Allowable Cost Programs (OEI-03-11-00640)   5       
   
that they had MAC programs.  We also requested that each of the 45 States 
with MAC programs provide a spreadsheet listing the drugs included in its 
MAC program and their corresponding prices.  All 45 States with MAC 
programs provided these data during the first quarter of 2012.   
Survey for States With MAC Programs. We asked the 45 responding 
States with MAC programs to: 
 	  provide the pricing benchmarks (e.g., AWP,  WAC, acquisition 
cost) and formulas used to calculate MAC prices;   
 	  indicate whether they had changed the formula used to set MAC 
prices since 2010; 
 	  indicate whether they intended to change before the end of 2012 
the formula used to set MAC prices; 
 	  describe how they determine payment when a drug is covered 
under both MAC and FUL programs (e.g., use the lower of the 
MAC price or FUL amount, defer to the MAC price, or defer to 
the FUL amount); and 
 	  provide the criteria used to determine which drugs are included in 
their MAC programs.   
To assist States in providing the criteria, we listed common criteria that 
States use to select drugs covered under MAC programs and asked them to 
indicate all that apply and to provide a description.22 For example, a State 
first indicates that it uses therapeutic equivalence as a criterion and then 
describes that it requires a drug to have at least two therapeutically 
equivalent versions for it to be on the MAC list. 
State Data Request. We requested that each of the 45 States provide a 
spreadsheet listing the MAC prices for all drugs covered under its MAC 
program.  We requested that this spreadsheet include the drug name, 
dosage and form, the code used to identify the drug, and the MAC price.  
We also asked States to provide the date the drug was added to the MAC 
program, the date the MAC price was last updated, and the date the drug 
will be removed from the MAC program (if known).  
Twenty-one of the forty-five States provided Generic Code Numbers 
(GCN) on their spreadsheets; 10 provided Generic Sequence Numbers 
 
22  We  reviewed  States Web  sites with available information  to devise a list of seven  
commonly used criteria for selecting MAC drugs:  approval rating, availability, drug cost, 
drug  utilization, generic availability, manufacturer supply, and therapeutic equivalence.  
We also  provided States with  an other option to  report any inclusion criteria not on this 
list. 
Medicaid Drug Pricing in State Maximum Allowable Cost Programs (OEI-03-11-00640)   6       
   
(GSN); and 1 provided National Drug Codes (NDC).23   We crosswalked 
GSNs and NDCs to (i.e., matched them up with) their corresponding 
GCNs using information in First DataBanks drug compendium.  The 
remaining 13 States either did not provide a drug code (generally because 
the State considered it proprietary) or provided codes that we were unable 
to crosswalk to a GCN. Appendix A provides more detail about our 
review of these spreadsheets and our crosswalking of States drug codes to 
GCNs. Table 1 provides a summary of the survey responses and 
spreadsheet information received from the responding States. 
Table 1: Number of States Responding to Request 
Number of  
Data Collected from States  
States  
Responded to Survey   50 
State Had MAC Program   45 
State Did Not Have MAC Program   5 
Responded with Spreadsheet of MAC Prices   45 
State MAC Spreadsheet Contained GCNs or Codes That Could Be          32 
Matched With GCNs 
State MAC Spreadsheet Did Not Contain Drug Codes or Codes Could Not Be  13 
Matched With GCNs 
Source:  OIG analysis of States MAC  survey responses, 2012. 
First DataBank Drug Compendium. Using First DataBanks drug 
compendium, we obtained CMS-calculated FUL amounts based on 
published prices for the first quarter of 2012 (i.e., pre-ACA FULs that 
were in effect at this time).  We also used information in the drug 
compendium to identify the generic drugs in CMSs Medicaid State Drug 
Utilization Data file.  
CMS Post-ACA FULs. We obtained the January 2012 draft FUL amounts  
based on the ACA methodology (i.e., ACA FULs based on AMPs) from  
CMSs Web site.  We also reviewed information from this site to 
determine whether CMS had implemented the post-ACA FUL amounts as 
of May 2013 and whether CMS had posted information about the 
implementation of AMP-based FULs. 
 
23 GCNs and GSNs are, respectively, five-digit and six-digit numbers that are specific to 
the drugs active ingredient, route of administration, dosage form, and drug strength.  
These codes can be used to group pharmaceutically equivalent products together and are 
the same across manufacturers and package  sizes.  NDCs are unique 11-digit identifiers 
that indicate the manufacturer, product  dosage form, and package size of a drug. 
Medicaid Drug Pricing in State Maximum Allowable Cost Programs (OEI-03-11-00640)   7       
   
CMS Medicaid Drug File. We obtained the Medicaid State Drug 
Utilization Data (hereinafter referred to as Medicaid reimbursement data)  
for the first half of 2011 from CMSs  Web site.24   These data included 
reimbursement and utilization information for 46 of the 51 States.25   This 
file also listed the total Medicaid reimbursement (ingredient costs and 
dispensing fees), number of prescriptions, and number of units distributed 
for each drug provided by NDC in each State.  
Data Analysis  
MAC Programs Reimbursement Formulas and Inclusion Criteria. Using 
the survey responses for the 45 States with MAC programs, we 
determined the number of States that used each pricing benchmark (or a 
combination of benchmarks) in setting MAC prices.  We calculated the 
average price difference in dispensing fees between States that used 
average acquisition cost (AAC) in setting MAC prices and States that did 
not.26    
We also reviewed the 45 States survey responses to determine the criteria 
States used to select the drugs included in their MAC programs.  We  
calculated the number of criteria used  and determined the extent to which 
these criteria varied among States. 
Number of Covered MAC Drugs. We calculated the total number of drugs 
covered by each States MAC program and the median covered by all 
States. We defined the number of drugs as the number of GCN codes 
represented on the States MAC list.  Therefore, we included in this 
analysis the 32 States that either used GCNs or were States for which we 
could crosswalk the NDC or GSN to a GCN.27   We identified the States 
with the most- and least-covered drugs and reviewed their MAC drug 
inclusion criteria. 
 
24 These data were  downloaded on February 23, 2012.  As  of May 2012, these were the 
most recent quarters available. 
 
25 Medicaid reimbursement data were missing for Alabama, Arizona, Nevada, 

Rhode Island, and Vermont.  Additionally, Kansas, Louisiana, Montana, New Jersey, 

South Carolina, Virginia, and  Washington  had data for only the first or second  quarter of 

2011.   

26 For the dispensing fee comparison, we used  data from 33 States that had either             
1 dispensing  fee, a standard dispensing  fee, or a separate dispensing fee for generic drugs.  
27 Thirteen States were excluded  because they either did not provide drug codes or 
because the drug codes provided were not comparable to a GCN (i.e., the drug counts 
would have been different because of the drug code and not because of an actual 
difference in the number of covered drugs).  
Medicaid Drug Pricing in State Maximum Allowable Cost Programs (OEI-03-11-00640)   8       
   
Comparison of MAC and FUL  Amounts. We determined the percentage of 
drugs covered by the 32 States MAC programs that were not covered and 
were covered by the pre-ACA FUL program, on average.28    
When a drug was covered under both programs, we calculated the 
aggregate percentage difference between the States MAC prices and the 
pre-ACA FUL amounts (i.e., FUL amounts based on published prices), on 
average.29   We also determined the percentage of drugs with MAC prices 
that were lower than the pre-ACA FUL amounts for each State and on 
average for all 32 States.  We determined the number of States that          
(1) reimburse using the lower of the MAC price or FUL amount; (2) defer 
to the MAC price; or (3) defer to the FUL amount.          
We calculated the average aggregate percentage difference between the   
32 States MAC prices and the post-ACA FUL amounts (based on AMP) 
for January 2012. We also determined the average number of additional 
drugs State MAC programs covered compared to the post-ACA FUL  
program.  We used CMSs Web site to determine whether the agency had 
implemented the post-ACA FUL amounts as of May 2013.  See Appendix 
A for additional details about the FUL portion of our analysis.   
Savings Estimate. Using CMSs Medicaid reimbursement data and First 
DataBanks drug compendium, we identified the NDCs for generic drugs 
and matched these to the drugs corresponding GCN.  We calculated the 
volume-weighted average reimbursement amount per GCN in each State.30   
We calculated these averages for all 46 States with available Medicaid 
reimbursement data in the first half of 2011, including States that did not 
have MAC programs.   
We identified the MAC program that would result in the greatest savings   
by estimating expenditures had each of the 32 States MAC programs    
been used by the 46 States with first-half 2011 Medicaid reimbursement 
 
28 Because FULs are set by NDC, we crosswalked the NDC to its corresponding GCN 
and GSN code.   We then matched the FUL amounts to the States MAC  prices using the  
drug code type provided  by the State. 
29  We  did not include all MAC prices in this comparison.   For some  drugs, certain States 
reported multiple MAC prices for the same drug code.  If the MAC price varied  by more 
than $0.10,  we removed that drug code from  this analysis.  If the MAC  price varied by  
$0.10  or less, we used the highest price in this analysis.   
30 To do so, we summed each States total expenditures for a GCN and divided that by its 
total utilization.  We doubled  the reimbursement  and utilization figures for the seven 
States that had one quarter of  Medicaid reimbursement data to account  for the missing 
quarter.  This assumes that reimbursement and  utilization does not change significantly 
from quarter to quarter.  
Medicaid Drug Pricing in State Maximum Allowable Cost Programs (OEI-03-11-00640)   9       
   
data.31,  32   To identify the MAC program that would result in the greatest 
savings, for each of the 32 States, we performed the following steps: 
Step 1: 	 calculated the dollar differences between the MAC prices of one 
State (State A) and the volume-weighted average reimbursement 
amounts of another State (State B) for each drug used in State B;33    
Step 2: 	multiplied each drugs dollar difference by the drugs first-half  
2011 utilization in State B;34        
Step 3: 	 summed these differences to get the total amount by which 
spending would have changed had State B used the MAC prices 
set by State A (we did not include dispensing fees);35    
Step 4: 	 repeated steps 13 until State As MAC prices were compared to 
the volume-weighted average reimbursement amounts in all 
remaining 45 States (i.e., the 46 States with Medicaid 
reimbursement data, minus State A); and 
Step 5: 	calculated the aggregate amount Medicaid spending would have 
changed had each of the 45 States used State As MAC program. 
We performed these five steps for all 32 States for which we had GCNs.  
This resulted in 32 spending estimates based on Medicaid reimbursement  
data for 46 States. We then identified which MAC program would have 
resulted in the greatest savings estimate (see Appendix A for more detail 
on this analysis).  We also calculated the percentage reduction in Medicaid 
spending on generics in each of the 46 States had they used the MAC 
program with the greatest savings.  
 
31 The 32 States are the States that provided GCNs  or  provided  drug codes that we  
crosswalked to a GCN.  
 
32 Although the States MAC prices and  drugs were current as of January, February, or 
 
March 2012, the most recent data we could use as the basis for our estimates were the 
 
first and second  quarters of  2011.   

33 This analysis applies only to  those drugs for which, for example, State A set a MAC 

price for a drug and State B had Medicaid  utilization for that same drug.  Therefore, this 

savings analysis takes into account not  only savings resulting  from lower MAC prices, 

but also savings resulting from a more extensive MAC list.  

34 For certain drugs, a State may have set more than one MAC price for one GCN.  In 
 
these cases, we excluded the drug if the price varied by more than $0.10.  If the prices 

varied  by $0.10 or less, we used the highest  MAC price for that drug in this analysis.  See 

Appendix A for more detail.
    
35  We  subtracted the amount spent on dispensing fees from each States total.  To  do so, 

we multiplied the States dispensing  fee by the total number of  prescriptions  per GCN 

and then subtracted this amount from that GCNs total expenditures.   We obtained the 

States dispensing fee amount from its survey response.  If  a State applied different 
 
dispensing  fees for brand or generic drugs, we used the fee for generics; if  a State used a 
 
tiered dispensing fees system, we used the tiers average price. 

Medicaid Drug Pricing in State Maximum Allowable Cost Programs (OEI-03-11-00640)   10       
   
Limitations 
The surveys and MAC spreadsheets were all self-reported data provided 
by States. We did not independently verify the accuracy of these data.  All 
MAC prices provided by States were current at the time States provided 
the information (i.e., within the first quarter of 2012).   
Of the 45 States with MAC programs, 8 were unable to provide drug 
codes that corresponded to their MAC prices and 5 provided drug codes 
that we were unable to link to other codes.  Therefore, we did not include 
these 13 States MAC prices in our determination of the State with the 
MAC program resulting in the overall greatest savings.  This means that 
any of these 13 States may have had a MAC program that could produce a 
higher aggregate savings estimate than the 32 States included in the 
analysis. We also were unable to use these 13 States data in our 
comparisons of MAC and FUL prices and in the calculation of the number 
of drugs included in each States MAC program.      
We did not verify the completeness or accuracy of CMSs FUL amounts.   
The post-ACA FUL amounts provided on CMSs Web site are draft 
amounts that have not been used as the basis for Medicaid reimbursement.  
We also did not verify the accuracy of the FUL amounts obtained from  
First DataBanks Web site. 
The savings estimates reflect the amount by which a State could reduce 
spending on generic drugs had it used the prices for drugs included in 
another States MAC program; this estimate does not take into account the 
effect that replacing a MAC program may have on the States prices for all 
drugs. In addition, the first and second quarter of 2011 Medicaid 
reimbursement data we obtained from CMSs Web site did not include 
data for 5 of the 51 States. Our savings estimates would have been 
different had we been able to include data from these States.  Lastly, seven 
States had reimbursement and utilization data for just one of the two 
quarters. We doubled the reimbursement and utilization in these States, 
which assumes that these figures would not change significantly from  
quarter to quarter.    
Standards 
This study was conducted in accordance with the Quality Standards for 
Inspection and Evaluation issued by the Council of the Inspectors General 
on Integrity and Efficiency.  
 
 
 
 
 
 
Medicaid Drug Pricing in State Maximum Allowable Cost Programs (OEI-03-11-00640)   11       
   
FINDINGS 
Most States with MAC programs used acquisition 
cost as the basis for setting MAC prices 
Of the 45 States with MAC programs, 41 provided the pricing benchmark 
used as the basis to set these prices.36   Twenty-nine of the forty-one States 
(71 percent) reported using pharmacy acquisition cost as either the sole 
basis for setting MAC prices or in conjunction with other benchmarks.  
Specifically, 14 of the 29 States used only acquisition cost, and the        
other 15 used a combination of acquisition cost and WAC, AWP and/or 
AMP.37,  38  See Table 2 for the benchmarks all States used as the basis for 
setting MAC prices and Appendix B for individual States benchmarks. 
Table 2: Drug Pricing Benchmarks States Use To Set MAC Prices  
Number of  
Benchmark(s) Used To Set MAC Prices 
States  
Formula includes acquisition cost  
Acquisition cost   14 
Acquisition cost and WAC   10 
Acquisition cost, WAC, and AWP  4 
Acquisition cost, WAC, AWP, and AMP  1 
Formula does not include acquisition cost 
WAC and AWP  5 
WAC  5 
AWP  2 
     Total Number of States Providing Benchmarks  41 
State did not provide benchmark    
No specific benchmark used in MAC formula   1 
Benchmark used in MAC formula was proprietary   3 
Source:  OIG analysis of State MAC surveys, 2012. 

Note: Four States that provided benchmarks also reported using additional benchmarks that are not shown in this 
 
table. 
   
 
36 Three States reported that this information is proprietary, and one State reported that it 
did not use a specific benchmark. 

37 Two States reported that they also  used other State MAC lists as a reference in setting 

their MAC prices. 

38 States that  used a combination of benchmarks may, for example, apply a different 
 
formula based on  WAC and acquisition cost to the same drug and select the lowest 

resulting MAC price.  However, many States reported that the exact formula was 

proprietary and did not explain  how they used multiple benchmarks to  set MAC prices. 

Medicaid Drug Pricing in State Maximum Allowable Cost Programs (OEI-03-11-00640)   12       
   
The 29 States reported obtaining acquisition cost data from sources such 
as pharmacy surveys and invoices, wholesaler and retailer data purchased 
by the States contractor, or through a proprietary database.  A small 
number of States specifically mentioned that they apply a percentage 
markup to the acquisition cost to set a MAC price.  For example, one State 
calculated MAC prices using the AAC plus 120 percent, whereas another 
State set it at 150 percent of the lowest acquisition cost.  Many States 
could not provide a formula either because it was considered proprietary 
or because they do not use a specific formula (e.g., they calculate on a      
case-by-case basis, they use a multi-step pricing factor calculation, or they 
vary the price in response to market trends).   
In addition to the MAC price, the total Medicaid payment for a drug 
includes a dispensing fee. Among 33 MAC States, dispensing fees ranged 
from $1.75 to $10.64 per prescription.39  On average, those States using 
acquisition cost to set MAC prices, either solely or in conjunction with 
another pricing benchmark, set dispensing fees that were $0.44 higher than 
States not using acquisition cost ($4.40 compared to $3.96).  See 
Appendix B for a list of States dispensing fees.      
 
Aggregate pre-ACA FUL amounts were higher than 
State MAC prices, on average; however, the post-ACA 
FUL amounts were lower  
Effective October 2010, section 2503 of the ACA required CMS to change 
the method it uses to calculate FUL amounts.  CMS has taken steps to 
implement the post-ACA FUL amount by calculating the new amounts 
and issuing draft FUL amounts based on AMPs for review and comment.40   
However, as of May 2013, CMS had yet to implement these changes and 
continues to base FUL amounts on 150 percent of the lowest published 
price.41  Prior OIG reports have consistently found that these published 
prices often exceed prices available in the marketplace.     
In addition to issuing the draft post-ACA FUL amounts, which represent 
monthly prices, CMS has also made available draft 3-month rolling 
averages of the post-ACA FUL amounts.  CMS developed these averages 
in response to comments that the post-ACA FULs fluctuate and, as a 
result, could create problems for pharmacies because they would be 
unable to predict State reimbursement rates.  According to CMSs Web 
 
39 These are the States that provided  a single, standard, or  generic dispensing fee.    
40 CMS, Draft Affordable Care Act Federal Upper Limits.  Accessed at 

http://www.medicaid.gov on April 17, 2013. 

41 Ibid. 

Medicaid Drug Pricing in State Maximum Allowable Cost Programs (OEI-03-11-00640)   13       
   
site, once the draft post-ACA FUL amounts and the draft 3-month rolling 
average FUL amounts are finalized, States can use either of these to 
develop a pharmacy reimbursement methodology that will allow their 
pharmacy payments to remain within the FUL in the aggregate (depending 
on the approved state plan).42      
On average, pre-ACA FUL amounts were nearly double State 
MAC prices,  in the aggregate   
The pre-ACA FUL amounts in effect for January 2012 were an average of 
1.96 times greater, in the aggregate, than the MAC prices set by the         
32 States.43  In fact, all States except Hawaii had lower aggregate MAC 
prices than pre-ACA FUL amounts (Hawaiis MAC prices were 2.3 times 
greater than pre-ACA FUL amounts).  See Table 3 for the comparisons 
between State MAC prices and pre-ACA FUL amounts and Appendix C 
for individual State comparisons. 
Table 3: Comparison of Pre-ACA FUL Amounts and MAC Prices  
Number 
Comparison  of Pre-ACA FUL and MAC  Prices*  
of States  
Aggregate FUL amount less than aggregate MAC prices  1 
Aggregate FUL amount between 1 and 1.5 times higher than aggregate MAC prices   5 
Aggregate FUL amount between 1.51 and 2.0 times higher than aggregate MAC prices  8 
Aggregate FUL amount between 2.01 and 2.5 times higher than aggregate MAC prices  15 
Aggregate FUL amount between 2.51 and 3.0 times higher than aggregate MAC prices  3 
     Total Number of States   32 
     Average Amount Aggregate FUL Is Greater Than  Aggregate MAC   1.96 times 
     Median  Amount Aggregate FUL Is Greater Than Aggregate MAC    2.11 times  
                  Source:  OIG analysis of State MAC prices and pre-ACA FUL amounts, 2012. 
                                   * These percentages exclude certain drugs that had multiple  MAC prices  for each GCN within  a State.   
 
Overall, States set MAC prices that were lower than the pre-ACA FUL  
amounts for an average of 85 percent of the drugs covered under both 
programs.  Twenty-eight of the thirty-two States had set MAC prices that  
were lower than pre-ACA FUL amounts for at least 75 percent of their 
covered drugs. For example, one State set MAC prices lower than the pre-
ACA FUL amounts for 612 of the 613 drugs covered under both programs.   
 
42 CMS,  Draft Affordable Care Act Federal Upper Limits. Accessed at 

http://www.medicaid.gov on April 17, 2013.  

43  This comparison does not include dispensing fees.  

Medicaid Drug Pricing in State Maximum Allowable Cost Programs (OEI-03-11-00640)   14       
   
Hawaii was the only State in which the majority of its covered drugs          
(90 percent) had higher MAC prices than pre-ACA FUL amounts.  
However, Hawaii was also the only State reporting that it would use the 
FUL amount for drugs covered under both programs.  The majority of the 
States (21 of 32) instead reported that they defer payment to the lower 
price (typically the MAC price).  An additional seven States reported that 
they always defer to the MAC price. 
On average, post-ACA FUL amounts were 22 percent lower than 
State MAC prices, in the aggregate 
Had the post-ACA FUL amounts been implemented in January 2012             
(i.e., FUL amounts based on AMP), the aggregate post-ACA FUL amounts 
would have been 22 percent lower than the 32 States aggregate MAC 
prices, on average.44   The post-ACA FUL amounts were lower than 
aggregate MAC prices in all but two States.  Among the 30 States in 
which post-ACA FUL amounts were lower, 17 set MAC prices that were 
within 20 percent of the post-ACA  FUL amounts.  See Table 4 for the 
comparisons between post-ACA FULs and MAC prices and Appendix C 
for individual State comparisons. 
Table 4: Comparison of Post-ACA FUL Amounts and MAC Prices 
   
Number of  
Percentage Comparison of Post-ACA  FUL and MAC Prices*   States  
 
Aggregate post-ACA FUL amount is higher than aggregate MAC prices  2 
 
Aggregate post-ACA FUL amount is 0.1%10% less than aggregate MAC prices  8 
 
Aggregate post-ACA FUL amount is 10.1%20% less than aggregate MAC prices  9 
 
Aggregate post-ACA FUL amount is 20.1%30% less than aggregate MAC prices  3 
 
Aggregate post-ACA FUL amount is 30.1%40% less than aggregate MAC prices  4 
 
Aggregate post-ACA FUL amount is 40.1%50% less than aggregate MAC prices  4 
 
Aggregate post-ACA FUL amount is over 50.1% less than aggregate MAC prices  2 
 
     Total Number of States   32 
 
     Average Percentage Aggregate  Post-ACA  FUL Is Less Than  Aggregate  MAC    22 percent 
 
     Median Percentage  Aggregate  Post-ACA  FUL Is Less Than  Aggregate  MAC    15 percent  
 
 Source:  OIG analysis of State MAC prices  and post-ACA FUL amounts, 2012. 
* These percentages exclude  certain drugs that had multiple MAC prices for each GCN within a  State.   
 
 
 
44  This comparison does not include dispensing fees.  
Medicaid Drug Pricing in State Maximum Allowable Cost Programs (OEI-03-11-00640)   15       
   
States exercised their flexibility in setting varying 
MAC coverage criteria, which resulted in a wide
number of covered drugs                                                    
The 45 States with MAC programs used a mixture of criteria with varying 
requirements when selecting covered drugs.45  In fact, three of these States 
reported not using any of the criteria we had specified on the survey when 
determining what drugs are included in the MAC program.46   Most States 
(32) required a specific number of manufacturers to supply the drug for it 
to be included in the MAC program, with many of these States (23 of the 
32) requiring 1 or 2 manufacturers.47 Additionally, 25 of the 29 States 
with criteria for the number of generic versions required at least 1 or 2 
versions.48    
States may have also set inclusion requirements based on one or more of 
the following criteria for the drug: (1) FDA approval rating (e.g., A rated, 
AB rated), (2) number of therapeutically equivalent versions (e.g., two 
versions, three versions), (3) availability to pharmacies (e.g., excludes 
drugs with shortages), and (4) utilization (e.g., number of claims submitted 
per quarter). See Table D-1 in Appendix D for individual State details. 
The Number of Drugs Included in States MAC Programs Ranged From 
494 to 5,355. In January 2012, the 32 States with GCN codes covered 
between 494 drugs in Montana to 5,355 drugs in Massachusetts (median 
of 1,675 drugs; see Figure 1 and Table D-2 in Appendix D).  Montana 
reported that it would include A-rated therapeutically equivalent drugs 
with at least three rebate-eligible manufacturers (e.g., two generic and one 
brand manufacturer) in its MAC program.49  The criteria set by 
Massachusetts, the State with the most drugs in its MAC program, was not 
 
45 Additionally, three States specifically excluded certain drug  groups, such  as HIV 
drugs, vaccines, or blood clotting factors from  the MAC program, regardless of whether 
the drug met the States criteria.   
46 Instead, one State required that the drug have an active, rebateable NDC; one States 
criteria depended on and varied as to  whether the drug  was new to the MAC program or 
already included; and one State did not have criteria for selecting  drugs included in its 
MAC program.     
47 Some of these States specified that these manufacturers must be rebate eligible or  
generic manufacturers.  For example, a State requiring two rebate-eligible manufacturers 
specified that it could be one brand and one generic manufacturer or  no  brand 
manufacturer and two generic manufacturers.   
48 These criteria may overlap somewhat with the manufacturer supply criteria.  For 
example, 10 States did not require a specific number of generic versions but did require a  
specific number of drug  manufacturers.     
49 In addition, Montana reported that its contractor monitors drug shortages to ensure that  
the MAC drug  is readily available.  Montana also assesses the net cost of the MAC price 
to determine if its use is financially advantageous.  
Medicaid Drug Pricing in State Maximum Allowable Cost Programs (OEI-03-11-00640)   16       
   
as restrictive and required only that the drug have at least four claims in 
the prior 90 days. 
Figure 1. Number of MAC Drugs Covered in the 32 States  
14 
12 
10 
8 
Number of 
States 
6 
4 
2 
0 
1,000 drugs or  1,001 to 1,500  1,501 to 2,000  2,001 to 2,500  2,501 drugs or 
fewer  drugs  drugs  drugs  more 
 
Source:  OIG analysis of State MAC spreadsheets, 2012. 
 
State MAC programs covered significantly more 
drugs than the FUL program    
Unlike the FUL program, which selects covered drugs on the basis of 
Federal law and regulation, States are afforded flexibility in selecting 
which drugs to cover under their MAC programs.  This enables States to 
cover substantially more drugs than both the pre- and post-ACA FUL 
programs. 
On average, 60 percent of the drugs covered by 32 States  
MAC programs were not covered by the pre-ACA FUL program 
All of these 32 States MAC programs included drugs covered and drugs 
not covered under the pre-ACA FUL program in January 2012 (i.e., the 
FUL amounts in effect that were based on published prices).50  On average, 
the majority (60 percent) of drugs that States included in their MAC 
programs were not covered under the pre-ACA FUL program as of 
January 2012.  States MAC programs covered an additional 203 to     
4,607 drugs that were not included in the pre-ACA FUL program.  See 
Table 5 for the numbers of States and their percentages and average 
numbers of MAC drugs not covered under the pre-ACA FUL program. 
 
 
 
50  The  pre-ACA FUL program  covered 760 drugs  in  January 2012.  
Medicaid Drug Pricing in State Maximum Allowable Cost Programs (OEI-03-11-00640)   17       
   
Massachusetts MAC program covered the highest percentage of drugs not 
included in the pre-ACA FUL program (86 percent).  Conversely, Ohios  
MAC program, which included 926 drugs, covered the lowest percentage 
(36 percent) of drugs not included in the pre-ACA FUL program.   
Table 5: Percentage of States MAC Drugs Not Covered Under the Pre-ACA 
FUL Program    
Average 
Average Number  
Percentage of  
Number of Drugs in MAC   of Drugs Not 
Number of States  Drugs Not 
Program   Covered Under   
Covered Under  
Pre-ACA FUL  
Pre-ACA FUL  
1,000 drugs or fewer   2  268  39%  
1,001 to 1,500 drugs  12  724  53%  
1,501 to 2,000 drugs  7  1,021   59%  
2,001 to 2,500 drugs  7  1,430   66%  
2,501 drugs or more   4  3,046   79%  
Source:  OIG analysis of State MAC prices and pre-ACA FUL amounts, 2012. 
On average, 53 percent of the drugs covered by States MAC 
programs were not covered by the post-ACA FUL program 
Although the post-ACA FUL amounts were less than the States MAC 
prices for the majority of the drugs covered under both programs, States 
still covered a significantly higher number of drugs in their MAC 
programs.  On average, States set MAC prices for 1,089 more drugs than 
were covered under the post-ACA FUL program.51   This means that States 
would need to continue to rely on their MAC program to set prices for 
these drugs.  See Table 6 for the percentage and average number of MAC 
drugs not covered under the post-ACA FUL program.  
Table 6: Percentage of States MAC Drugs Not Covered Under the         
Post-ACA FUL Program  
Average 
 NPruomgbraemr o  f Drugs in MAC   Number of States   AvCeorovafeg Dreer Ndu guUsmn Nbdeeorrt     DruUgnsPd eNerroc Pte Constoatv-gAeerC eoAdf     
Post-ACA FUL 
FUL  
1,000 drugs or fewer   2  244  33%  
1,001 to 1,500 drugs  12  616  46%  
1,501 to 2,000 drugs  7  897  52%  
2,001 to 2,500 drugs  7  1,290   60%  
2,501 drugs or more   4  2,912   75%  
Source:  OIG analysis of State MAC prices and post-ACA FUL amounts, 2012. 
 
51 The post-ACA FUL program covered 924 drugs in January 2012.  
Medicaid Drug Pricing in State Maximum Allowable Cost Programs (OEI-03-11-00640)   18       
   
States may achieve additional cost savings by using 
different MAC pricing formulas and inclusion criteria 
Until the post-ACA FUL amounts are implemented, certain States could 
significantly reduce drug expenditures by changing to the structure of their 
MAC programs.  Once the post-ACA FUL amounts are implemented, 
States can still achieve significant savings because they have the 
opportunity to cover a significantly larger number of drugs in the MAC 
programs than in the FUL program.  
We identified Wyomings MAC program  as the one that could produce the 
greatest savings had all other States considered using it as a model.52,  53   
We found that 39 of 45 States would have saved $483 million in the first 
half of 2011 (this estimate excludes dispensing fees) had they used 
Wyomings MAC program.54,  55   Wyoming set MAC prices for its 
1,592 drugs by comparing and using prices on the basis of (1) acquisition 
cost plus a markup, (2) WAC minus a percentage, (3) AWP minus a 
percentage, or (4) AMP plus a markup.   
Fourteen States could have reduced spending on generic 
drugs by more than 20 percent had they used Wyomings MAC 
program 
We estimated that using Wyomings MAC program (excluding dispensing 
fees) would have resulted in the greatest percentage reduction in Medicaid 
generic-drug spending for Alaska. Had Alaska reimbursed for generic 
drugs using Wyomings MAC prices, it would have reduced expenditures 
for generic drugs from $43 million to $22 million (50 percent decrease) in 
the first half of 2011.  Alaskas higher expenditures are most likely caused 
by its lack of a MAC program in the first half of 2011 and its use of AWPs 
as the basis for reimbursement.56  See Table 7 for the percentage reduction 
 
52  This  savings estimate is based on the prices for the drugs included in  Wyomings MAC  
program.
    
53 We were able to  use only the data from the 32 States with  MAC programs that 

provided  GCNs or  provided drug codes we crosswalked to  a GCN.   This  means that the 
 
13 other States may or may not have had a more aggressive MAC  program. 
   
54 Although  Wyomings MAC  program resulted in the greatest aggregate savings,
             
six States would  have spent an additional $18 million  on generic drugs had they used 
 
Wyomings MAC program.  All six  States used acquisition cost data (among other 

benchmarks) in setting reimbursement prices.  In fact, one of these States had eliminated 
 
its MAC programs because, according to the State, reimbursement based on actual 

acquisition cost was lower than  previous MAC prices.   
 
55  We also  determined which State had the most advantageous combination of MAC 

pricing and dispensing fees.  Including dispensing  fees, Michigans reimbursement 
 
formula would have resulted in the greatest savings.  Michigans standard  dispensing  fee 

per  prescription was $2.75,  compared to $5.00  in Wyoming.  

56 Alaska implemented a MAC program in September 2011.  
Medicaid Drug Pricing in State Maximum Allowable Cost Programs (OEI-03-11-00640)   19       
   
in generic-drug spending if States had applied Wyomings MAC program  
in the first half of 2011. 
Table 7: Percentage Reduction or Increase in State Spending on Generic 
Drugs by Using Wyomings MAC Program  
Number of  
Range of Reduction or Increase     States  
Spending reduction between 40.01% and 50%   2 
Spending reduction between 30.01% and 40%   3 
Spending reduction between 20.01% and 30%   9 
Spending reduction between 10.01% and 20%   18 
Spending reduction between 0.01% and 10%   7 
Spending Increase  6 
     Total Number of States   45 
Source:  OIG analysis of State MAC data, 2012. 
 
   
Medicaid Drug Pricing in State Maximum Allowable Cost Programs (OEI-03-11-00640)   20       
   
CONCLUSION AND RECOMMENDATIONS 
As a result of expansions set forth in the ACA, it is estimated that an 
additional 10 million people will enroll in Medicaid by 2016 and that use 
of and spending on generic drugs will increase.  In preparation for this 
increase in Medicaid use and expenditures, it is in the States best financial 
interest to reevaluate and for CMS to implement cost-containment 
strategies. Our findings demonstrate the significant value MAC programs 
have in containing Medicaid drug costs.  This is because States can 
develop MAC programs that:  (1) set drug prices lower than FUL amounts  
and (2) cover substantially more drugs than the FUL program does.  
To maximize Medicaid drug cost-containment strategies, we recommend 
that CMS: 
Complete Implementation of Post-ACA AMP-Based FUL 
Amounts 
Consistent with previous OIG work, our findings show that FUL amounts 
based on published prices greatly exceed other price points, in this case 
the State MAC prices. Although the post-ACA FUL amounts were to take 
effect in October 2010, as of May 2013, CMS had yet to implement these 
amounts.  This means that FUL amounts are still based on prices that 
result in inflated payments for many multiple-source drugs.  Our findings 
highlight the necessity for States to use a MAC program as a tool for 
containing Medicaid drug costs, especially when the pre-ACA FULs 
remain in effect.   
Although we found that, on average, post-ACA FUL amounts were lower 
than the MAC prices in the aggregate, this does not necessarily mean that 
the post-ACA FUL amounts will reimburse States below their acquisition 
costs. Many of the States that based MAC pricing on acquisition cost did 
not reimburse at acquisition cost but applied a markup to set the price.  In 
addition, a prior OIG report had found that sampled pharmacy acquisition 
costs are still lower than the post-ACA FUL amounts, in the aggregate.57      
CMS is also developing price points for States to use to ensure that 
Medicaid payment amounts do not over- or underestimate the costs 
pharmacies pay for drugs.  For example, States may compare their MAC 
prices to the acquisition costs collected through CMSs NADAC surveys 
(published in draft form as of May 2013).  In addition, CMS is developing  
3-month rolling average post-ACA FUL amounts that States can use in 
place of the monthly post-ACA FUL amounts we used in our analysis.  
 
57 OIG, Analyzing Changes to  Medicaid Federal Upper Limit Amounts                        
(OEI-03-11-00650), October 2012. 
Medicaid Drug Pricing in State Maximum Allowable Cost Programs (OEI-03-11-00640)   21       
   
Once the rolling average FUL amounts are finalized, States may use these 
to develop a pharmacy reimbursement methodology that will allow their 
pharmacy payments to remain within the post-ACA FUL, in the aggregate 
(pending CMS review and approval of their respective State Medicaid 
plans). 
Encourage States To Reevaluate Their MAC Programs To 
Identify Additional Cost-Saving Opportunities 
States may also have the opportunity to strengthen the cost-effectiveness 
of their MAC programs.  States varied in the structure and aggressiveness 
of their MAC programs, giving certain States the potential to further 
reduce their drug spending if they model their MAC program after that of 
another State.  This can be achieved through changes to the States 
inclusion criteria and/or to the States methodology to set the MAC prices. 
In addition, the flexibility States have when determining covered MAC 
drugs enabled them to cover significantly more drugs than the pre-ACA 
FUL program. This allowed States to further optimize their cost 
containment by limiting reimbursement for a greater number of drugs than 
the FUL program does.  The need for a MAC program to maximize drug 
cost containment will remain even after the post-ACA FULs are 
implemented.  The latitude that States have to develop MAC criteria that 
are less restrictive than those of the FUL program allows States to 
continue to set reimbursement limits on considerably more 
multiple-source drugs, in addition to still setting MAC prices lower than 
FULs for a number of drugs covered under both programs.    
 
 
 
 
 
 
 
 
 
 
Medicaid Drug Pricing in State Maximum Allowable Cost Programs (OEI-03-11-00640)   22       
   
AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL  
RESPONSE 
CMS concurred with both recommendations.  In response to our first 
recommendation, CMS stated that it plans to finalize the post-ACA 
AMP-based FUL amounts in the near future.  CMS also stated that it plans 
to release an informational bulletin that encourages States to reevaluate 
their MAC programs for cost-saving opportunities in the near future. 
We did not make any changes to the report based on CMSs comments.  
The full text of CMSs comments is provided in Appendix E. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Medicaid Drug Pricing in State Maximum Allowable Cost Programs (OEI-03-11-00640)   23       
   
APPENDIX A 
Methodology Used To Compare State Maximum Allowable  
Cost (MAC) Programs 
Review of State MAC Lists. Each of the 45 States with MAC programs 
provided a spreadsheet of MAC prices.  We reviewed each MAC 
spreadsheet and kept prices that were current as of January 1, 2012.  To do 
so, we removed any MAC prices for which the State provided an end date 
of December 31, 2011, or earlier.   We also verified that the MAC 
spreadsheets did not contain duplicate drug prices and followed up with 
States for clarification when necessary. 
All States did not use the same drug code to identify and set MAC prices 
for drugs. Eight of the forty-five States reported that drug codes were 
proprietary information and did not provide any drug codes.  Among the   
37 States that provided drug codes: 
   21 used Generic Code Numbers (GCN),  
   10 used Generic Sequence Numbers (GSN),  
   4 used Group Product Identifiers (GPI),  
   1 used Generic Formulation Codes (GFC), and 
   1 used National Drug Codes (NDC).58  
The GCN, GSN, GPI, and GFC are similar in that they are used to group  
pharmaceutically equivalent drugs marketed by multiple manufacturers 
and are specific to the active ingredient, route of administration, dosage 
form and drug strength.  These drug codes vary in digit length and/or 
publishing company.    
Crosswalking Drug Codes. Using information in First DataBanks 
National Drug Data File, we matched the GSNs, GCNs, and NDCs to 
create a database crosswalking all three types of drugs codes.  Because 
NDCs are manufacturer-specific and GCNs are not, one GCN often 
matched to multiple NDCs.  In general, most GSNs had one-to-one 
matches to GCNs.  There were a few instances in which GSN-to-GCN 
crosswalking resulted in a slightly lower count of covered drug codes.  For 
example, 1 State covered 2,082 GSN codes, but when crosswalked it 
translated to 2,080 GCN codes. We were unable to crosswalk State 
spreadsheets with GFC, GPI, or no drug codes.  As a result, portions of the 
 
58 One State used  GCN codes for most of its  drugs, but set MAC prices by  NDC  for  
certain  drug types.  In this count, we have classified this State as using GCNs.  
Medicaid Drug Pricing in State Maximum Allowable Cost Programs (OEI-03-11-00640)   24       
   
analysis involving MAC price comparisons (i.e., MAC and FUL price 
comparisons and State savings estimates) include 32 States.       
Comparison of MAC and FUL  Amounts. We obtained the pre-Affordable 
Care Act (ACA) FUL amounts from First DataBank for the first quarter of 
2012, which are listed by NDC. We matched the NDC to the 
corresponding GCN and GSN (this eliminated the need to crosswalk State 
MAC data for this analysis).  Depending on whether the State used a GCN 
or GSN, we matched the FUL amounts to the 32 States MAC data and 
identified the drugs covered under both programs.   
Sixteen of the thirty-two States had multiple MAC prices for certain drugs.   
This may have occurred when, for example, the State set a different price 
for each package size of the drug. If the MAC price variation was $0.10 
or less, we selected the highest MAC  price for this comparison.  However,  
if the MAC price varied by more than $0.10 for the same drug code, we 
removed that code from this portion of the analysis.  Less than 3 percent 
of drug codes were removed for most (12) of the 16 States.  However, the 
remaining 4 States had between 6 and 28 percent of their drug codes 
removed for the following analyses involving State MAC drug prices. 
We calculated the percentage difference between each States aggregate 
MAC price and the aggregate pre-ACA FUL amount (based on published 
prices), on average.59   We determined the percentage of drugs with MAC 
prices that were lower than the pre-ACA FUL amounts for each State and 
on average for all States.   We also reviewed the 32 States survey 
responses and determined the number of States that, when the drug was 
covered under both programs, (1) reimburse using the lower of the MAC 
price or FUL amount; (2) defer to the MAC price; or (3) defer to the FUL  
amount.          
Finally, we calculated the percentage difference between each States 
aggregate MAC price and the aggregate post-ACA FUL amount for 
January 2012 (based on average manufacturer price).  We also determined 
the average number of additional drugs State MAC programs covered than 
the post-ACA FUL program.   
Savings Estimate. We had to use the same drug code to make MAC prices 
comparable among States.  This means that we could compare only the 
MAC programs among the 21 States that provided GCNs and the 11 States 
where we could crosswalk the GSN or NDC to a GCN. We applied the 
same method described above (i.e., $0.10 method) to select or remove the 
MAC price when the State set more than one price for a drug code.     
 
59  We did not include dispensing fees.  
Medicaid Drug Pricing in State Maximum Allowable Cost Programs (OEI-03-11-00640)   25       
   
We substituted MAC prices used in each of these 32 States and determined 
the difference in reimbursement had each State used another States MAC 
program.  For example, if State A set a MAC price for GCN 00001, we 
calculated the difference between State As MAC price and State Bs 
average volume-weighted reimbursement amount and then multiplied this 
difference by State Bs total utilization for GCN 00001.  We completed 
this comparison for all of State Bs drugs that were also covered by State 
As MAC program.  We summed the total estimated difference in State Bs 
Medicaid spending had it used State As MAC program.  We continued our 
comparison of State As MAC prices to the average volume-weighted 
reimbursement amounts in State C, State D, and so forth until State As 
MAC prices were compared to each State with data in CMSs Medicaid 
reimbursement and utilization file for the first and second quarters of 
2011.   
We used the first two quarters of 2011 from the Medicaid reimbursement 
file to calculate States average volume-weighted reimbursement amounts.  
By using these quarters and the January 2012 MAC prices to estimate 
savings, we assumed that spending and utilization would not change 
significantly from month to month.  This file did not contain data for all 
States; we could compute average volume-weighted reimbursement 
amounts for only 46 States.60     
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
60  This  also  contained only  one-quarter of data  for seven States.  We doubled the  
reimbursement and utilization in these States to estimate total first half of 2011 amounts.  
Medicaid Drug Pricing in State Maximum Allowable Cost Programs (OEI-03-11-00640)   26       
   
APPENDIX B 
 
Table B-1: Dispensing Fees and Benchmarks Used As the Basis For 
Setting State Maximum Allowable Cost (MAC) Prices                        
   
State Benchmark Used For  Dispensing Fee in First Quarter 
State   MAC Prices   2012* 
Alabama  WAC,1 AAC2  $10.64  
Multiple dispensing fees ranging 
Alaska   AWP,3 WAC  from $12.12  to $26.74 for 
in-state pharmacies 
Arkansas  AAC  $5.51 for MAC generics 
$4.00 for retail pharmacies; $1.89  
Colorado  AAC 
for institutional pharmacies 
Connecticut  AWP  $2.00  
District of Columbia  WAC  $4.50  
Delaware  AWP, WAC  $3.65  
Florida  Proprietary   $3.73  
$4.63 for profit pharmacies; $4.33  
Georgia  AWP, WAC, AAC 
for nonprofit pharmacies 
Hawaii  AWP  $4.67 for pharmacies 
Illinois  WAC, AAC  $4.60 for generics 
Indiana  AAC  $3.00 standard fee 
Iowa  AAC  $6.20  
Kansas  WAC  $3.40  
Kentucky  WAC, AAC  $5.00 for generics 
Louisiana  AAC  $5.77 maximum fee 
$3.35 for retail pharmacies; $1.00  
Maine  AAC 
for mail-order pharmacies 
Maryland  AAC  $3.51  
Massachusetts  AWP, WAC  $3.00  
Michigan  WAC, AAC  $2.75  
Minnesota  WAC, AAC4  $3.65  
Multiple dispensing fees ranging 
Missouri  AAC 
from $9.66 to $13.66 
Multiple dispensing fees ranging 
Montana  AAC 
from $2.00 to $6.40 
Nebraska  N/A5  Multiple dispensing fees ranging 
from $3.25 to $5.00 
    continued on next page  
Medicaid Drug Pricing in State Maximum Allowable Cost Programs (OEI-03-11-00640)   27       
   
Table B-1: Dispensing Fees and Benchmarks Used As the Basis For 
Setting State MAC Prices        
   
State Benchmark Used For  Dispensing Fee in First Quarter 
State   MAC Prices   2012* 
New Hampshire   WAC, AAC  $1.75  
New Jersey   AAC  $3.73  
Multiple dispensing fees ranging 
New Mexico  WAC 
from $2.50 to $3.65 
New York   WAC, AAC  $3.50  
North Carolina   AAC  $5.60 for generics 
North Dakota   AAC  $5.60 for generics 
Ohio  WAC, AAC  $1.80  
Oklahoma  Proprietary   $4.02  
Pennsylvania  AAC  $4.00  
Rhode Island   AWP, WAC  $3.40 for retail pharmacies 
South Carolina   WAC, AAC  $3.00  
South Dakota   Proprietary   $4.30  
Tennessee   AWP, WAC, AAC  $2.50 for generics 
Texas  AWP, WAC  $6.50  
$1.00 for over-the-counter drugs; 
Utah   AWP, WAC, AAC6  $3.90 for urban pharmacies; 
$4.40 for rural pharmacies 
Vermont   AWP, WAC, AAC  $4.75 for in-state pharmacies 
Virginia  WAC  $3.75  
Multiple dispensing fees ranging 
Washington  AAC 
from $4.24 to $5.25 
West Virginia   WAC, AAC  $5.30 for generics 
Wisconsin  WAC  $3.94 for generics 
Wyoming  AWP, AMP,7 WAC, AAC   $5.00  
Source:  Office of  Inspector General analysis of State MAC survey responses, 2012. 
* States may have additional dispensing fees.  We excluded fees that are  specific for brand-name drugs, 

compounded drugs, intravenous solutions, out-of-State pharmacies, 340B entities, and long-term-care/nursing home 

facilities.  

1 Wholesale acquisition cost. 

 2 Average acquisition cost. 

3 Average wholesale price. 

4 Minnesota also uses other State MAC lists to assist in setting MAC prices. 

5 Not applicable.  Nebraska does not have a standard formula to  set MAC prices. 

6 Utah also uses other State MAC lists to assist in setting MAC prices. 

7 Average manufacturer price.  

Medicaid Drug Pricing in State Maximum Allowable Cost Programs (OEI-03-11-00640)   28       
   
APPENDIX C 
 
Table C-1: State Maximum Allowable Cost (MAC) Prices Compared to Federal                 
 Upper Limit (FUL) Amounts  
    Percentage 
 
Percentage of   Percentage  Difference 
  Percentage of  
MAC Drugs  with   Difference  Between  
  MAC Drugs  with  
Prices Less  Between Pre-ACA   Post-ACA FUL 
State   Prices Less Than 
Than Pre-ACA   FUL Amount  and  Amount and MAC  
Post-ACA FUL**  
FUL*   MAC Prices    Prices 
Alabama  88.1%   146.9%   59.7%   -2.5%  
Arkansas  80.5%   67.4%   13.0%   -32.8%  
Colorado  58.9%   15.5%   7.8%   -40.1%  
District of Columbia  80.4%   69.9%   20.9%   -35.0%  
Hawaii  10.0%   -55.7%   3.3%   -76.0%  
Iowa  99.8%   184.3%   40.8%   -13.2%  
Illinois  91.6%   137.9%   42.4%   -5.7%  
Indiana  88.4%   115.4%   43.5%   -10.1%  
Kansas  95.1%   111.8%   30.1%   -17.7%  
Louisiana  81.3%  71.2%   12.4%   -49.2%  
Massachusetts  76.1%   13.8%   12.4%   -45.5%  
Maryland  86.6%   132.4%   41.8%   2.2%  
Michigan  94.7%   136.1%   45.3%   0.3%  
Minnesota  94.3%   111.0%   35.9%   -7.2%  
Missouri  88.7%   122.1%   35.1%   -21.3%  
Montana  94.2%   180.1%   33.2%   -10.8%  
North Carolina   84.3%   90.4%   21.6%   -31.9%  
North Dakota   82.3%   84.5%   26.6%   -9.3%  
Nebraska  88.3%   70.4%   25.4%   -20.4%  
New Jersey   90.2%   127.9%   38.5%   -15.3%  
New Mexico  62.4%   1.4%   8.5%   -48.5%  
New York   94.0%   139.3%   40.6%   -6.1%  
continued on next page 
     
Medicaid Drug Pricing in State Maximum Allowable Cost Programs (OEI-03-11-00640)   29       
   
Table C-1: State MAC Prices Compared to FUL Amounts (Continued)  
Percentage 
Percentage of   Percentage 
Percentage of   Difference 
MAC Drugs  with   Difference 
  MAC Drugs  with   Between   
Prices Less  Between Pre-ACA  
State   Prices Less Than  Post-ACA FUL 
Than Pre-ACA   FUL Amount  and 
Post-ACA FUL**   Amount and MAC  
FUL*   MAC Prices   
Prices 
Ohio   97.0%   69.9%   24.9%   -29.2%  
Oklahoma  69.2%   91.9%   26.4%   -3.3%  
Pennsylvania  88.7%   121.6%   35.1%   -19.5%  
South Dakota   98.5%   111.1%   25.9%   -14.1%  
Texas   94.2%   46.7%   20.2%   -32.6%  
Utah   92.1%   18.3%   12.0%   -55.8%  
Washington  88.7%   128.1%   37.7%   -6.5%  
Wisconsin  88.9%   126.5%   40.2%   -13.8%  
West Virginia   93.3%   126.3%   40.5%   -10.8%  
Wyoming  96.6%   165.3%   46.0%   -5.8%  
Source:  Office of  Inspector General analysis of State survey  responses and the Centers for Medicare & Medicaid Services FUL 
amounts, 2012.  
* FUL amounts based on published prices compared to MAC prices.  

** FUL amounts set by the Affordable Care Act (ACA), which are based on average manufacturer prices, compared to MAC 

prices.  

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Medicaid Drug Pricing in State Maximum Allowable Cost Programs (OEI-03-11-00640)   30       
   
APPENDIX D 
 
Criteria States Use To Select Drugs Included in State Maximum 
Allowable Cost (MAC) Programs 
 
We asked each State about the criteria used to determine the drugs 
included in its MAC program.  We provided States with a list of criteria, 
along with examples:   
 
 	  approval rating (e.g., Orange Book or Food and Drug 

Administration (FDA) rating); 

 	  therapeutic equivalence (TE) (e.g., must have at least two TE 
versions of a drug); 
 	  generic availability (e.g., must be at least two generic versions); 
 	  manufacturer supply (e.g., must be supplied by at least three 
manufacturers); 
 	  pharmacy availability (e.g.,  must be available in at least three 
pharmacies); 
 	  drug cost (e.g., drug price increased more than 5 percent in the last 
quarter); 
 	  utilization (e.g., at least 500 beneficiaries have prescriptions for a 
drug); and 
 	  any other criteria not listed above. 
Table D-1 depicts the criteria response for each State as well as a short 
descriptor of the States applicable criteria.  Table D-2 provides the 
number of drug codes covered under each States MAC program.  It also 
includes the number of covered drug codes after crosswalking to a Generic 
Code Number (GCN).  
 
 
 
 
 
 
 
 
Medicaid Drug Pricing in State Maximum Allowable Cost Programs (OEI-03-11-00640)   31       
   
  Table D-1:  Criteria States Use To Select Drugs Included in MAC Programs  
Criteria  
Minimum 
Therapeutic  Number of  
Approval   Equivalence  Available  Manufacturer  Pharmacy  
State  Rating    (TE)  Generics   Supply   Availability    Drug Cost 
One generic 
Alabama  version 
       
Significant 
cost 
difference 
(thresholds 
A-rated  Two generic  Two   are 
Alaska   generics1   Two TE versions  versions  manufacturers  On market  proprietary)  
Available by  
multiple 
AB rated;  wholesalers 
case-by-case  Two generic  Two   and 
Arkansas  evaluation  versions  manufacturers  pharmacies 
Two  
Colorado   A rated       manufacturers     
Two generic  Two  
Connecticut  AB rated     versions  manufacturers     
Three or more 
Number of TE  pharmacies 
versions not  Three generic  submit claims 
District of Columbia2   AB rated   specified   versions  in prior quarter    
Number of 
generic  Three 
Three TE  versions not  rebate-eligible 
Delaware3   A rated   versions  provided  manufacturers       
Number of 
generic 
versions not 
Florida         provided          
Two  
rebate-eligible 
All versions are  Two generic  generic  Readily  
Georgia  A rated   TE  versions  manufacturers  available    
                                                                                                                                                                                                        continued on next page  
 
Medicaid Drug Pricing in State Maximum Allowable Cost Programs (OEI-03-11-00640)   32      
   
Table D-1: Criteria States Use To Select Drugs Included in MAC Programs (Continued)  
Criteria  
Minimum 
Number of  
Approval   Therapeutic  Available  Manufacturer  Pharmacy  
State  Rating    Equivalence    Generics   Supply   Availability    Drug Cost 
One generic  Two  
Illinois         version  manufacturers       
At least one TE  One generic  One generic 
Indiana  A rated   version  version  manufacturer       
At least one TE  One generic  Two  
Iowa  A rated   version  version  manufacturers       
Number of TE  Case-by-case 
versions not  One generic  if availability is 
Kansas  A rated  specified   version    an issue   
A rated; Z 
rated4 on a   Case-by-case 
 
case-by-case  Two generic  if availability is 
Kentucky  evaluation  Two TE versions  versions    an issue    
Number of 
generic 
Three TE  versions not  Three 
Louisiana  A rated  versions  provided  manufacturers       
Maine5  Did not use any of the above criteria  
Two generic  Two generic 
Maryland   A rated      versions  manufacturers      
Massachusetts6  Did not use any of the above criteria 
A rated; Z 
rated on a  Case-by-case 
case-by-case  Two generic  if availability is 
Michigan  evaluation  Two TE versions     manufacturers  an issue   
Available from 
One generic  major 
Minnesota        version    wholesalers     
continued on next page 
 
 
 
Medicaid Drug Pricing in State Maximum Allowable Cost Programs (OEI-03-11-00640)   33       
   
Table D-1: Criteria States Use To Select Drugs Included in MAC Programs (Continued)  
Criteria  
Minimum 
Number of  
Approval   Therapeutic  Available  Manufacturer  Pharmacy  
State  Rating    Equivalence    Generics   Supply   Availability    Drug Cost 
Readily  
Number of TE  Three  available;  Assess 
 
versions not  Two generic  rebate-eligible  monitors for  drugs net 
Montana   A rated   specified  versions  manufacturers  shortages  cost 
Assess if cost  
less than 
estimated 
Readily   acquisition 
Nebraska               available  cost 
A rated; Z 
rated on a  Case-by-case 
case-by-case  Two generic  if availability is 
New Hampshire   evaluation  Two TE versions     manufacturers  an issue    
New Jersey   A rated     
     
Two  
New Mexico  manufacturers   
          
A rated; Z 
rated on a  Case-by-case 
case-by-case  Two generic  if availability is 
New York   evaluation  Two TE versions     manufacturers  an issue 
  
Number of TE  Two   Assess 
versions not  One generic  rebate-eligible  Readily   drugs net 
North Carolina   A rated  specified   version  manufacturers  available  cost 
North Dakota   Did not use any of the above criteria 
Number of TE 
versions not  Two  
Ohio  A  rated   specified      manufacturers     
Two generic  Three generic 
Oklahoma         versions  manufacturers       
continued on next page  
 
 
Medicaid Drug Pricing in State Maximum Allowable Cost Programs (OEI-03-11-00640)   34       
   
Table D-1: Criteria States Use To Select Drugs Included in MAC Programs (Continued)  
Criteria  
Minimum 
Number of  
Approval   Therapeutic  Available  Manufacturer  Pharmacy  
State  Rating    Equivalence    Generics   Supply   Availability    Drug Cost 
Number of 
generic 
versions not  Three 
Rhode Island         provided  manufacturers       
A rated; Z   
rated on a  Case-by-case 
case-by-case  Two generic  if availability is 
South Carolina   evaluation  Two TE versions     manufacturers  an issue 
Two generic   
South Dakota           manufacturers     
All versions are  Two generic  Two   Readily    
Tennessee   A rated  TE  versions  manufacturers   available 
AA or AB  Three generic  Three generic  Available in 
Texas   rated      versions  manufacturers   wholesalers   
One generic 
Utah         version         
Two  
rebate-eligible 
All versions are  Two generic  generic  Readily  
Vermont  A rated   TE  versions  manufacturers  available   
Three 
   
Virginia  AB rated         manufacturers  
Washington   Did not use any of the above criteria 
Three 
West Virginia            manufacturers       
Readily  
Number of TE  available; 
versions not  One generic  Two   monitors for 
Wisconsin  A rated   specified   version  manufacturers  shortages    
continued on next page 
 
 
Medicaid Drug Pricing in State Maximum Allowable Cost Programs (OEI-03-11-00640)   35       
   
Table D-1: Criteria States Use To Select Drugs Included in MAC Programs (Continued)  
Criteria  
Minimum 
Number of  
Approval   Therapeutic  Available  Manufacturer  Pharmacy  
State  Rating    Equivalence    Generics   Supply   Availability    Drug Cost 
Must have at 
least two 
One generic  One  Currently   drug-cost 
Wyoming7       version  manufacturer   available   references 
    Number of States   28  21  29  32  21  7 
Source:  Office of  Inspector General (OIG) analysis of State survey responses, 2012. 

1 An A-rated drug is one that FDA considers to be therapeutically equivalent to other pharmaceutically equivalent products.  Subcategories within 

the A rating include AA and AB ratings.  

2 The District of Columbia requires that a drug have at least three claims in the prior quarter for it to be included on its MAC  list. 

3 Delaware also requires that a drug  have a least 75  claims per quarter for it to be included on its MAC list. 

4 A Z rating is not an official rating by  FDA but through First DataBank, which supports databases for drugs.  A Z rating is  generally used by drug 
 
companies  to designate drugs approved under different labels, drugs not in FDAs Orange Book, or brand drugs with no available generics. 

5 Maine requires  that a drug have an active, rebateable NDC that is  available to pharmacies  for it  to  be included on its MAC list. 

6 Massachusetts requires that a drug have at least four claims in  the past 90 days for it to be included on its MAC list. 

7 Wyoming also requires that the drug have potential use in the Medicaid outpatient population for it to be included on its MAC list. 

Medicaid Drug Pricing in State Maximum Allowable Cost Programs (OEI-03-11-00640)   36       
   
Table D-2: Number of Drugs Covered on States MAC Lists  
Number of   Number of  
State Medicaid  Drug Code Used   Covered  Covered 
Agency    Drugs (By   GCNs  
Code)  
Alabama  Generic Sequence Number (GSN)  3,385   3,384  
Alaska   Codes Not Provided  N/A1  N/A 
GCN and National Drug Codes  1,122 GCNs  
Arkansas  (NDC)   252 NDCs   1,217  
Colorado  GCN   2,684   2,684  
Connecticut  Codes Not Provided  N/A  N/A 
District of Columbia  GCN   1,479   1,479  
Delaware   Generic Formulation Code   2,170   N/A 
Florida   Codes Not Provided  N/A  N/A 
Georgia  Group Product Identifiers (GPI)   1,593   N/A 
Hawaii  GCN2  1,446   1,446  
Illinois   GCN3  1,743   1,743  
Indiana  GCN   1,658   1,658  
Iowa  GCN   1,327   1,327  
Kansas  GCN   1,325   1,325  
Kentucky  Codes Not Provided  N/A  N/A 
Louisiana  GSN   1,157   1,157  
Maine  GPI4  2,550   N/A 
Maryland  NDC   29,419   1,691  
Massachusetts  GCN   5,355   5,355  
Michigan  GSN   2,237   2,105  
Minnesota  GSN   2,082    2,080  
Missouri  GCN   1,388   1,388  
Montana  GCN   494  494 
Nebraska  GSN   3,727   3,677  
New Hampshire   Codes Not Provided  N/A  N/A 
    continued on next page  
Medicaid Drug Pricing in State Maximum Allowable Cost Programs (OEI-03-11-00640)   37       
   
Table D-2: Number of Drugs Covered on States MAC Lists (Continued)  
Number of  
Number of  
State Medicaid  Covered 
Drug Code Used   Covered 
Agency    Drugs (By  
GCNs  
Code)  
New Jersey   GCN   2,122   2,122  
New Mexico  GCN   2,442   2,442  
New York   GCN   2,090   2,090  
North Carolina   GCN   1,388   1,388  
North Dakota   GSN   2,048   2,048  
Ohio  GCN   926  926 
Oklahoma  GCN   2,017   2,017  
Pennsylvania  GCN   1,469   1,469  
Rhode Island   Codes Not Provided  N/A  N/A 
South Carolina   Codes Not Provided  N/A  N/A 
South Dakota   GCN5  1,846   1,846  
Tennessee   GPIs and Codes Not Provided   At least 1,5266  N/A 
Texas  GSN7  1,158   1,158  
Utah  GSN8  1,728   1,727  
Vermont  GPI   1,885   N/A 
Virginia  Codes Not Provided  N/A  N/A 
Washington  GCN   1,495   1,495  
West Virginia   GSN   1,349   1,349  
Wisconsin  GSN   1,870   1,864  
Wyoming  GCN9  1,592    1,592  
Source:  OIG analysis of State MAC spreadsheets, 2012. 

1 N/A indicates that we  were unable to  crosswalk the  code to a GCN or a drug code was not provided.   

2 Hawaii also provided the corresponding NDC for each GCN on its spreadsheet.  

3 Illinois also provided the corresponding GSN for each GCN on its spreadsheet. 

4 Maine also provided the corresponding NDC for a select number of GPIs on its spreadsheet. 
  
5 South Dakota also provided the  corresponding GPI for each GCN on its spreadsheet. 

6 Tennessee set MAC prices using GPIs for most drugs.  However, it also had a separate MAC list for drugs covered under  the 

$4 generic program; the State did not provide drug codes for these drugs.  

7 Texas provided GSNs on its MAC spreadsheet.  However, the State has created its own drug code to set MAC prices.  

8 Utah also provided the corresponding NDC for each GSN on its spreadsheet.  
 
9 Wyoming also  provided the corresponding GSN for each GCN and  the corresponding NDC for select  GCNs  on its spreadsheet.  

Medicaid Drug Pricing in State Maximum Allowable Cost Programs (OEI-03-11-00640)   38      APENDIX E 
Agency Comments 
,..,.......,...... 
~
(  DEPARTMENT OF HEALTH & HUMAN SERVICES  Centers for Medicare & Medicaid Services
,~"r 
Administrator 
Washington, DC 20201 
DATE:  JUL -9 2013 
TO: 	 Daniel R. Levinson 

In spector General 

FROM: 	 MaNfyiYNivenner 

Admi'ilietra\Or 

SUBJECT: 	 Oftice of Inspector Geneml (OIG) Draft Report:  "Medicaid Drug Pricing in State 
Maximum Allowable Cost Programs" (OEI-03-11-00640) 
The Centers for Medicare & Medicaid Services (CMS) appreciates the opportunity to review and 
comment on the above-referenced OIG draft report. In January 2012, OIG surveyed the 45 states 
(including the District of Columbia) with Max imum Allowable Cost (MAC) programs to identify the 
methods and criteria used to set MAC prices on multiple source drugs in the state . OIG compared 
states' criteria for selecting drugs and setting prices in their MAC programs and also calculated the 
aggregate percentage difference between each state's MAC prices and the federal upper limit (FUL) 
amounts in effect for the first quarter of2012 based on published prices, a~ well as the draft FUL 
amounts set by the Affordable Care Act (ACA) based on average manufacturer prices (AMP). 
Finally, OIG identified the state with the most aggressive MAC program and calculated the potential 
national savings had all states used this program. 
OIG Findings 
Most ofthe 45 states with MAC programs used acquisition cost to set MAC prices. OIG found the 
aggregate pre-ACA FUL amounts were, on average, nearly double state MAC prices in January 2012 . 
However, the aggregate post-ACA FUL amounts were lower, on average, than MAC prices. 
Although the new FUL amounts were required to take effect in October 2010, as of May 2013 , CMS 
had not implemented them.  Unlike the FUL program, state MAC programs provide states the 
flexibility to set their own coverage requirements.  As a result, state MAC programs cover 
significantly more drugs than are covered under the FUL program . Lastly, states could achieve 
additional cost savings by using more aggre ssive MAC pricing formulas and inclusion criteria. 
Specifically, this report found that for the study period : 
 	 Most states with MAC programs used pharmacy acquisition cost to set their MAC prices. 
 	 Aggregate pre-ACA FUL amounts, on average, were almo st double than state MAC prices; 
however, the post-ACA F UL amounts were lower than state MAC prices, in the aggregate. 
 	 Aggregate post-ACA FUL amounts were, on average, 22 percent lower than state MAC 
prices. 
Medicaid Drug Pricing in State Maximum Allowable Cost Programs (OEI-03-11-00640)  39   
   
Medicaid Drug Pricing in State Maximum Allowable Cost Programs (OEI-03-11-00640)   40       
   
ACKNOWLEDGMENTS 
This report was prepared under the direction of Robert A. Vito, Regional 
Inspector General for Evaluation and Inspections in the Philadelphia 
regional office.   
Stephanie Yeager served as the team leader for this study, and          
Stefanie Vance served as the lead analyst.  Central office staff who 
provided support include Althea Hosein, Kevin Manley, and Christine 
Moritz. Staff from the Dallas regional office who provided support 
include Leah Bostick. 
 
Medicaid Drug Pricing in State Maximum Allowable Cost Programs (OEI-03-11-00640)   41      Office of Inspector General

http://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 Office  of  Audit Services  (OAS) provides 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.  These assessments help reduce waste, abuse, and  
mismanagement and promote economy and efficiency  throughout  HHS. 
Office of Evaluation and Inspections 
The Office  of  Evaluation and Inspections (OEI)  conducts national evaluations to  provide 
HHS, Congress, and the public with timely, useful, and reliable information on significant 
issues.  These evaluations focus on preventing fraud,  waste, or abuse  and promoting  
economy, efficiency, and effectiveness of departmental programs.  To promote impact, OEI 
reports also present practical recommendations for improving program operations.  
Office of Investigations 
The Office of Investigations (OI) conducts criminal, civil, and administrative investigations  
of  fraud and misconduct  related to HHS programs, operations, and beneficiaries.  With 
investigators working in all 50 States and the District of Columbia, OI  utilizes its resources 
by actively  coordinating with the Department  of Justice  and other Federal, State, and local 
law enforcement authorities.  The investigative efforts of OI often lead to  criminal 
convictions, administrative sanctions,  and/or  civil monetary  penalties.  
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 for OIGs  internal operations.  OCIG represents  OIG in all civil and 
administrative fraud and abuse cases involving HHS programs,  including False Claims Act, 
program exclusion, and civil monetary penalty cases.  In  connection with these cases, OCIG 
also negotiates and monitors corporate integrity agreements.  OCIG renders advisory 
opinions, issues compliance program  guidance, publishes fraud alerts, and provides other  
guidance  to  the health care industry concerning the anti-kickback statute and other  OIG  
enforcement authorities.