Governments need to change how they account for national health spending: The Center for Medicare & Medicaid Services accounts for health spending in a largely meaningless way, and these measurements motivate popular demands that Medicaid and other government health plans “control” costs.

Previous policies to contain Medicaid prescription spending have put low-income patients at risk of poor health outcomes and increased use of physician and hospital services – likely costing taxpayers more – but states are not measuring these outcomes.

Less than five percent of Medicaid beneficiaries account for half of Medicaid costs – and these patients spend proportionately less on prescription drugs than the other 95 percent of patients.

Legislation such as the Medicare Modernization Act of 2003 (which transfers about half of Medicaid prescription spending to Medicare Part D), and the Deficit Reduction Act of 2005 (which authorizes Health Opportunity Accounts for Medicaid beneficiaries and allows states more freedom to levy co-payments on Medicaid beneficiaries), give states the opportunity to improve their Medicaid pharmaceutical policies.

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