Department of Health and Human Services
 

OFFICE OF 

INSPECTOR GENERAL 

MEDICAID DRUG PRICING IN 

STATE MAXIMUM 

ALLOWABLE COST 

PROGRAMS
 

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 State’s 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 drugs—significantly 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 State’s 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 drugs—and spending on 

them—is 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 

State’s 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 State’s 

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 provider’s 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 Medicaid—Full 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 State’s 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 

State—Quarter Ending September 2012. Accessed at http://www.medicaid.gov on 

January 29, 2013. 

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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. 

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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 drug’s 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 Iowa’s Department of Human 

Services Web site. Accessed at http://www.mslciowa.com on January 25, 2012. 18 The State’s 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 Iowa’s 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 CMS’s Web site, it appears that this State does not 

have a MAC program. See CMS, Medicaid Prescription Reimbursement Information by 

State—Quarter Ending December 2011. Accessed at http://www.medicaid.gov on 

February 22, 2012. 

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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. 

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(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 DataBank’s 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 

Data Collected from States Number of 

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 

Matched With GCNs 

32 

State MAC Spreadsheet Did Not Contain Drug Codes or Codes Could Not Be 

Matched With GCNs 

13 

Source: OIG analysis of States’ MAC survey responses, 2012. 

First DataBank Drug Compendium. Using First DataBank’s 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 CMS’s 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 

CMS’s 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 drug’s 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. 

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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 CMS’s 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 State’s MAC program and the median covered by all 

States. We defined the number of drugs as the number of GCN codes 

represented on the State’s 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). 

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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 State’s 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 CMS’s 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 CMS’s Medicaid reimbursement data and First 

DataBank’s drug compendium, we identified the NDCs for generic drugs 

and matched these to the drug’s 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 State’s 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 State’s 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. 

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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 drug’s dollar difference by the drug’s 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 1–3 until State A’s 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 A’s 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 State’s total. To do so, 

we multiplied the State’s dispensing fee by the total number of prescriptions per GCN 

and then subtracted this amount from that GCN’s total expenditures. We obtained the 

State’s 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 tier’s average price. 

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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 State’s MAC program. 

We did not verify the completeness or accuracy of CMS’s FUL amounts. 

The post-ACA FUL amounts provided on CMS’s 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 DataBank’s 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 State’s MAC program; this estimate does not take into account the 

effect that replacing a MAC program may have on the State’s prices for all 

drugs. In addition, the first and second quarter of 2011 Medicaid 

reimbursement data we obtained from CMS’s 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 

Benchmark(s) Used To Set MAC Prices Number of 

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 State’s 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 CMS’s 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 (Hawaii’s 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 

Comparison of Pre-ACA FUL and MAC Prices* Number 

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 preACA 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

Percentage Comparison of Post-ACA FUL and MAC Prices* 

Number of 

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 State’s 

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 

0 

2 

4 

6 

8 

10 

12 

14 

1,000 drugs or 

fewer 

1,001 to 1,500 

drugs 

1,501 to 2,000 

drugs 

2,001 to 2,500 

drugs 

2,501 drugs or 

more 

Number of 

States 

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, Ohio’s 

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 

Number of Drugs in MAC 

Program Number of States 

Average Number 

of Drugs Not 

Covered Under 

Pre-ACA FUL 

Average 

Percentage of 

Drugs Not 

Covered Under 

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 

Number of Drugs in MAC 

Program Number of States 

Average Number 

of Drugs Not 

Covered Under 

Post-ACA FUL 

Average 

Percentage of 

Drugs Not Covered 

Under Post-ACA 

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 Wyoming’s 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 

Wyoming’s 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 Wyoming’s MAC 

program 

We estimated that using Wyoming’s 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 Wyoming’s 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. Alaska’s 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 Wyoming’s 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 Wyoming’s MAC program resulted in the greatest aggregate savings,
 

six States would have spent an additional $18 million on generic drugs had they used
 

Wyoming’s 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, Michigan’s reimbursement
 

formula would have resulted in the greatest savings. Michigan’s 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 Wyoming’s MAC program 

in the first half of 2011. 

Table 7: Percentage Reduction or Increase in State Spending on Generic 

Drugs by Using Wyoming’s MAC Program 

Range of Reduction or Increase 

Number of 

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 CMS’s 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 State’s 

inclusion criteria and/or to the State’s 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 CMS’s comments. 

The full text of CMS’s 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 DataBank’s 

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 State’s 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 State’s 

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 State’s MAC 

program. For example, if State A set a MAC price for GCN 00001, we 

calculated the difference between State A’s MAC price and State B’s 

average volume-weighted reimbursement amount and then multiplied this 

difference by State B’s total utilization for GCN 00001. We completed 

this comparison for all of State B’s drugs that were also covered by State 

A’s MAC program. We summed the total estimated difference in State B’s 

Medicaid spending had it used State A’s MAC program. We continued our 

comparison of State A’s MAC prices to the average volume-weighted 

reimbursement amounts in State C, State D, and so forth until State A’s 

MAC prices were compared to each State with data in CMS’s 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 

State Benchmark Used For 

MAC Prices 

Dispensing Fee in First Quarter 

2012* 

Alabama WAC,1

 AAC2 $10.64 

Alaska AWP,3

 WAC 

Multiple dispensing fees ranging 

from $12.12 to $26.74 for 

in-state pharmacies 

Arkansas AAC $5.51 for MAC generics 

Colorado AAC $4.00 for retail pharmacies; $1.89 

for institutional pharmacies 

Connecticut AWP $2.00 

District of Columbia WAC $4.50 

Delaware AWP, WAC $3.65 

Florida Proprietary $3.73 

Georgia AWP, WAC, AAC $4.63 for profit pharmacies; $4.33 

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 

Maine AAC $3.35 for retail pharmacies; $1.00 

for mail-order pharmacies 

Maryland AAC $3.51 

Massachusetts AWP, WAC $3.00 

Michigan WAC, AAC $2.75 

Minnesota WAC, AAC4 $3.65 

Missouri AAC Multiple dispensing fees ranging 

from $9.66 to $13.66 

Montana AAC Multiple dispensing fees ranging 

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 

State Benchmark Used For 

MAC Prices 

Dispensing Fee in First Quarter 

2012* 

New Hampshire WAC, AAC $1.75 

New Jersey AAC $3.73 

New Mexico WAC Multiple dispensing fees ranging 

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 

Utah AWP, WAC, AAC6 

$1.00 for over-the-counter drugs; 

$3.90 for urban pharmacies; 

$4.40 for rural pharmacies 

Vermont AWP, WAC, AAC $4.75 for in-state pharmacies 

Virginia WAC $3.75 

Washington AAC Multiple dispensing fees ranging 

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 

State 

Percentage of 

MAC Drugs with 

Prices Less 

Than Pre-ACA 

FUL* 

Percentage 

Difference 

Between Pre-ACA 

FUL Amount and 

MAC Prices 

Percentage of 

MAC Drugs with 

Prices Less Than 

Post-ACA FUL** 

Percentage 

Difference 

Between 

Post-ACA FUL 

Amount and MAC 

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) 

State 

Percentage of 

MAC Drugs with 

Prices Less 

Than Pre-ACA 

FUL* 

Percentage 

Difference 

Between Pre-ACA 

FUL Amount and 

MAC Prices 

Percentage of 

MAC Drugs with 

Prices Less Than 

Post-ACA FUL** 

Percentage 

Difference 

Between 

Post-ACA FUL 

Amount and MAC 

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 State’s applicable criteria. Table D-2 provides the 

number of drug codes covered under each State’s 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 

State 

Criteria 

Approval 

Rating 

Therapeutic 

Equivalence 

(TE) 

Minimum 

Number of 

Available 

Generics 

Manufacturer 

Supply 

Pharmacy 

Availability Drug Cost 

Alabama 

One generic 

version 

Alaska 

A-rated 

generics1 Two TE versions 

Two generic 

versions 

Two 

manufacturers On market 

Significant 

cost 

difference 

(thresholds 

are 

proprietary) 

Arkansas 

AB rated; 

case-by-case 

evaluation 

Two generic 

versions 

Two 

manufacturers 

Available by 

multiple 

wholesalers 

and 

pharmacies 

Colorado A rated 

Two 

manufacturers 

Connecticut AB rated 

Two generic 

versions 

Two 

manufacturers 

District of Columbia2 AB rated 

Number of TE 

versions not 

specified 

Three generic 

versions 

Three or more 

pharmacies 

submit claims 

in prior quarter 

Delaware3 A rated 

Three TE 

versions 

Number of 

generic 

versions not 

provided 

Three 

rebate-eligible 

manufacturers 

Florida 

Number of 

generic 

versions not 

provided 

Georgia A rated 

All versions are 

TE 

Two generic 

versions 

Two 

rebate-eligible 

generic 

manufacturers 

Readily 

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) 

State 

Criteria 

Approval 

Rating 

Therapeutic 

Equivalence 

Minimum 

Number of 

Available 

Generics 

Manufacturer 

Supply 

Pharmacy 

Availability Drug Cost 

Illinois 

One generic 

version 

Two 

manufacturers 

Indiana A rated 

At least one TE 

version 

One generic 

version 

One generic 

manufacturer 

Iowa A rated 

At least one TE 

version 

One generic 

version 

Two 

manufacturers 

Kansas A rated 

Number of TE 

versions not 

specified 

One generic 

version 

Case-by-case 

if availability is 

an issue 

Kentucky 

A rated; Z 

rated4

 on a 

case-by-case 

evaluation Two TE versions 

Two generic 

versions 

Case-by-case 

if availability is 

an issue 

Louisiana A rated 

Three TE 

versions 

Number of 

generic 

versions not 

provided 

Three 

manufacturers 

Maine5 Did not use any of the above criteria 

Maryland A rated 

Two generic 

versions 

Two generic 

manufacturers 

Massachusetts6 Did not use any of the above criteria 

Michigan 

A rated; Z 

rated on a 

case-by-case 

evaluation Two TE versions 

Two generic 

manufacturers 

Case-by-case 

if availability is 

an issue 

Minnesota 

One generic 

version 

Available from 

major 

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) 

State 

Criteria 

Approval 

Rating 

Therapeutic 

Equivalence 

Minimum 

Number of 

Available 

Generics 

Manufacturer 

Supply 

Pharmacy 

Availability Drug Cost 

Montana A rated 

Number of TE 

versions not 

specified 

Two generic 

versions 

Three 

rebate-eligible 

manufacturers 

Readily 

available; 

monitors for 

shortages 

Assess 

drug’s net 

cost 

Nebraska 

Readily 

available 

Assess if cost 

less than 

estimated 

acquisition 

cost 

New Hampshire 

A rated; Z 

rated on a 

case-by-case 

evaluation Two TE versions 

Two generic 

manufacturers 

Case-by-case 

if availability is 

an issue 

New Jersey A rated 

New Mexico 

Two 

manufacturers 

New York 

A rated; Z 

rated on a 

case-by-case 

evaluation Two TE versions 

Two generic 

manufacturers 

Case-by-case 

if availability is 

an issue 

North Carolina A rated 

Number of TE 

versions not 

specified 

One generic 

version 

Two 

rebate-eligible 

manufacturers 

Readily 

available 

Assess 

drug’s net 

cost 

North Dakota Did not use any of the above criteria 

Ohio A rated 

Number of TE 

versions not 

specified 

Two 

manufacturers 

Oklahoma 

Two generic 

versions 

Three generic 

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) 

State 

Criteria 

Approval 

Rating 

Therapeutic 

Equivalence 

Minimum 

Number of 

Available 

Generics 

Manufacturer 

Supply 

Pharmacy 

Availability Drug Cost 

Rhode Island 

Number of 

generic 

versions not 

provided 

Three 

manufacturers 

South Carolina 

A rated; Z 

rated on a 

case-by-case 

evaluation Two TE versions 

Two generic 

manufacturers 

Case-by-case 

if availability is 

an issue 

South Dakota 

Two generic 

manufacturers 

Tennessee A rated 

All versions are 

TE 

Two generic 

versions 

Two 

manufacturers 

Readily 

available 

Texas 

AA or AB 

rated 

Three generic 

versions 

Three generic 

manufacturers 

Available in 

wholesalers 

Utah 

One generic 

version 

Vermont A rated 

All versions are 

TE 

Two generic 

versions 

Two 

rebate-eligible 

generic 

manufacturers 

Readily 

available 

Virginia AB rated 

Three 

manufacturers 

Washington Did not use any of the above criteria 

West Virginia 

Three 

manufacturers 

Wisconsin A rated 

Number of TE 

versions not 

specified 

One generic 

version 

Two 

manufacturers 

Readily 

available; 

monitors for 

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 

State 

Approval 

Rating 

Therapeutic 

Equivalence 

Available 

Generics 

Manufacturer 

Supply 

Pharmacy 

Availability Drug Cost 

Must have at 

least two 

Wyoming7 

One generic 

version 

One 

manufacturer 

Currently 

available 

drug-cost 

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 FDA’s 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 

State Medicaid 

Agency Drug Code Used 

Number of 

Covered 

Drugs (By 

Code) 

Number of 

Covered 

GCNs 

Alabama Generic Sequence Number (GSN) 3,385 3,384 

Alaska Codes Not Provided N/A1

 N/A 

Arkansas 

GCN and National Drug Codes 

(NDC) 

1,122 GCNs 

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) 

State Medicaid 

Agency Drug Code Used 

Number of 

Covered 

Drugs (By 

Code) 

Number of 

Covered 

GCNs 

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 

,..,.......,...... 

Centers for Medicare & Medicaid Services ( DEPARTMENT OF HEALTH & HUMAN 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 OIG’s 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.