Medicaid Cost-Containment Policies and OBRA

William J. Moore and Etienne E. Pracht

American Journal of Economics and Sociology, 2007, vol. 66, issue 5, pages 901-924

Abstract: Containment of Medicaid pharmaceutical drug program costs continues to be an important policy problem. Perhaps the most important policy of the past two decades with significant implications for Medicaid pharmaceutical drug programs was the Omnibus Budget Reconciliation Act (OBRA) of 1990. This study analyzes Medicaid drug spending data from 1985 to 1997 to determine how OBRA 1990 influenced the effectiveness of existing drug cost-containment policies and if the Act produced its anticipated cost savings. The descriptive evidence indicates that reductions in drug expenditure growth rates, following the passage of OBRA 1990, resulted from factors that are independent from that Act. Furthermore, the analytical evidence shows that changes in the effectiveness of major cost-containment policies (drug formularies, drug utilization review programs, and reimbursement rates) offset, at least in part, savings from the drug rebate program included in OBRA 1990. Copyright 2007 American Journal of Economics and Sociology, Inc..

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