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No. 4
June 9, 1998
By Mark Schiller, MD

It is rare when a week passes without hearing a criticism of Medi-Cal, California’s Medicaid program for the poor. Many of these criticisms center on rising cost and declining quality of care. The reasons behind these problems are complex, but one reform proposal addresses both concerns.

In an effort to control costs, Medi-Cal excludes many FDA-approved drugs from being prescribed by doctors without prior state approval, though newly approved medications don’t require approval in their first six months of availability. This system, called the drug treatment authorization request (TAR) system, is designed to reduce the use of higher-priced, generally newer medications, in favor of lower-priced, older medications.

While aimed at cutting costs, TAR imposes higher costs on taxpayers in three ways: (1) higher prescription costs, (2) higher total medical costs, and (3) unnecessary human suffering.

The pre-approval process is essentially nothing more than a rubber stamp. In fact, only about 12 percent of requests were rejected during the last audit period. Further, more restrictive prescription policies often mean that patients don’t immediately obtain the best medications. This often requires additional medical visits for continued symptoms or unpleasant side effects, which can lead to additional prescriptions. A recent study of health-plan prescription restrictions published in The American Journal of Managed Care found higher medication costs in plans with stricter prescription restrictions than those without such restrictions. (fig. 1.)

Medi-Cal has the most restrictive prescription policy of any state Medicaid program, and additional medical costs may be costing taxpayers close to half a billion dollars – about one-third of the total Medi-Cal budget. But increased medication costs don’t tell the whole financial picture. Total medical costs may also increase because of higher utilization of other medical services.

This same study showed increases in physician visits, emergency visits, and hospitalizations with more restrictive prescription policies (fig. 2). Given the average daily hospitalization costs in California of about $1,300, it’s clear that the higher costs of increased medical utilization overshadow the relatively minor savings possible from use of less expensive medications. Other studies examining Medicaid medication restrictions confirm this picture of higher total medical costs.

California is one of a number of states imposing monthly caps on the number of prescriptions per patient. As one study found, such states observed immediate increases in nursing home admissions and hospitalizations among the elderly.¹ A related study found that a prescription cap increased total costs among patients with schizophrenia by an amount equal to a staggering 17 times the savings in drug costs.² The true costs of the prescription pre-approval program, however, are more than financial.

The unspoken truth about the Medi-Cal TAR system is that it prevents many patients from obtaining the most appropriate medications. This causes unnecessary patient suffering through more numerous or distressing side effects and the exacerbation of illness. When forced to choose between spending the same amount of time seeking permission from bureaucrats to prescribe a state-restricted medication versus seeing an additional patient, many doctors will choose to treat additional patients. And since approval for some medications requires that cheaper medications are used first, physicians are forced to test various less desirable medications before even attempting to obtain pre-approval.

While there are no current legislative proposals to do away with the drug restrictions entirely, legislators in Sacramento should consider such an option.

Doctors are in a better position to assess the needs of their patients than bureaucrats employed by state government. Allowing bureaucrats to control patients’ medications both costs the California taxpayer money and harms the quality of patient care.

Reforming Medi-Cal to give doctors more flexibility in prescribing would be a step in the right direction.

1 Soumerai SB, et al., “Effects of Medicaid Drug-Payment Limits on Admission to Hospitals and Nursing Homes,” New England Journal of Medicine, 325:1072-7, 1991.

2 Soumerai SB, et al., “Effects of Limiting Medicaid Drug-Reimbursement Benefits on the Use of Psychotropic Agents and Acute Mental Health Services by Patients with Schizophrenia,” New England Journal of Medicine, 331:650-5, 1994.

For additional information, contact Naomi Lopez at (415) 989-0833.