The Impact of 1990 Medicaid Drug Rebates Policy on Access to Prescriptions

The U.S. Congress passed a new law (PL 101-508) in 1990 requiring the pharmaceutical manufacturers to grant rebates on prescription drugs sold at retail under the federal Medicaid program. The goals include containing Medicaid program costs and expanding access of the indigent to ethical drug treatments. This paper evaluates the impact of HCFA's mandatory federal upper limit (FUL) prices on the retail sales volume of prescription drugs during 1994. Data of the most frequently dispensed drugs, as measured by the National Prescription Audit of IMS America, are used. Regression model results suggest that the competing drug prices impact sales significantly, and Medicaid drug rebates expand access to drug interventions by stimulating retail transactions. Prescription sales are also own-price insensitive (inelastic) in Medicaid and non-Medicaid market segments. The implications of extending Medicaid prescription drug rebates policy to enrollees in the traditional Medicare program are examined.