Medicaid Drug Spending: Trends, Trump Initiatives & Future Outlook

Recent shifts in Medicaid prescription drug spending, coupled with fresh federal initiatives from the Trump administration, are reshaping access and affordability for millions of Americans. Net spending on these medications has risen substantially in recent years, driven by the increasing use of high-cost specialty drugs – including those for rare diseases and, notably, GLP-1s used for weight loss and diabetes management. While rebates help offset costs, the landscape is complex, and recent policy changes introduce both potential benefits and uncertainties for state Medicaid programs and enrollees.

From fiscal year 2019 to 2024, net Medicaid prescription drug spending grew from $31 billion to $46 billion, a 46% increase. This growth, but, showed signs of slowing in the most recent fiscal year, with net spending decreasing by 10% from 2023 to 2024, largely due to increased rebates. Spending per prescription similarly rose, increasing 42% over the same period, while spending per enrollee grew by 25%.

A significant factor in these rising costs is the increasing prevalence of high-cost specialty drugs. These medications, often used to treat complex conditions like cancer and rare diseases, represent a growing portion of overall drug expenditure. GLP-1 drugs, while effective for conditions like type 2 diabetes and obesity, also contribute to the upward trend due to their high price point. However, it’s important to note that prescription drug spending still accounts for only around 6% of total Medicaid spending, a figure that has remained relatively stable for the past two decades.

The Role of Rebates and Supplemental Negotiations

Rebates play a crucial role in mitigating Medicaid drug costs, reducing gross spending by over half. Both federally mandated rebates and state-negotiated supplemental rebates contribute to these savings. Increasingly, states are leveraging their purchasing power to negotiate more favorable terms with manufacturers, expanding the scope of supplemental rebates. The recently announced federal models aim to build on this trend by negotiating additional rebates, but the extent to which these will compare to existing state negotiations remains unclear.

The Trump administration has introduced several initiatives aimed at lowering drug prices, including the “Most Favored Nation” (MFN) drug pricing model and new Innovation Center (CMMI) models. The MFN model seeks to align U.S. Drug prices with those paid in other comparable nations, while the GENEROUS and BALANCE models aim to negotiate supplemental rebates and standardize coverage criteria. Details of these agreements remain largely confidential, making it challenging to fully assess their potential impact. You can find more information about the BALANCE model here.

Prescription Volume and Enrollment Trends

While spending has increased, the number of prescriptions filled by Medicaid has only seen a modest rise, increasing from 734 million in FY 2019 to 751 million in FY 2024 – a 2% increase. Interestingly, the number of prescriptions per enrollee actually decreased by 12% over the same period. This decline may be attributed to several factors, including changes in enrollment due to the COVID-19 pandemic and potentially an increase in the average days’ supply per prescription.

More recent quarterly data reveals a continuing trend of declining Medicaid enrollment and prescription volume, even as gross spending remains elevated. This suggests that fewer people are covered by Medicaid, and those who are may be facing higher healthcare needs, potentially driving up costs. The implementation of provisions within the 2025 reconciliation law, leading to coverage losses, is likely contributing to these trends.

Impact of the 2025 Reconciliation Law and TrumpRx

The 2025 reconciliation law, signed by President Trump, is expected to result in significant cuts to Medicaid funding and coverage. This could develop it more difficult for individuals to access the prescription drugs they need, even with the availability of programs like TrumpRx. While TrumpRx offers discounted prices for cash-paying patients, these costs may still be prohibitive for low-income individuals who have lost Medicaid coverage. Details about the law can be found on the White House website.

It’s important to note that Medicaid enrollees are generally protected from high out-of-pocket costs for prescription drugs, meaning the direct impact of federal price negotiations may not be felt by individuals with Medicaid coverage. However, the potential loss of coverage altogether poses a significant risk to access.

Looking Ahead: What to Expect in Medicaid Drug Spending

Early indicators suggest that Medicaid prescription drug spending will continue to be a complex issue. Declining enrollment and prescription volume, coupled with elevated gross spending, point to a shifting landscape. The ultimate impact of the new federal initiatives – the MFN model, GENEROUS, and BALANCE – remains to be seen. The voluntary nature of these models means that their success will depend on the participation of both states and drug manufacturers.

the long-term effects of the 2025 reconciliation law on Medicaid coverage and access to prescription drugs are still unfolding. Ongoing monitoring of enrollment trends, prescription volume, and spending patterns will be crucial to understanding the full implications of these changes. The KFF provides ongoing analysis of Medicaid trends, available here.

What’s next for federal oversight? CMS will continue to monitor the implementation of the new models and assess their impact on drug prices and access. Further analysis of rebate data and enrollment trends will be essential to inform future policy decisions. The agency will also likely continue to explore opportunities to leverage its purchasing power and negotiate lower drug prices for Medicaid beneficiaries.