DRUG PRICING REFORM AND THE HIDDEN COST OF UNKNOWN COMMERCIAL COVERAGE
Drug pricing reform has become a central focus in the effort to control Medicaid spending. As states confront rising healthcare costs, growing enrollment, increased utilization of specialty medications, and mounting program complexity, policymakers continue searching for strategies that can reduce expenditures while preserving access to care. Federal initiatives such as CMS's GENEROUS Model reflect this growing emphasis on pharmaceutical cost containment, but they also underscore a larger reality: meaningful Medicaid savings require a broader approach that extends beyond drug pricing alone.
For Medicaid agencies and managed care organizations, some of the most significant savings opportunities are not tied to future legislation, manufacturer negotiations, or demonstration projects. They stem from improving payment accuracy before claims are paid.
The Problem Isn't Always What Medicaid Pays—It's When Medicaid Pays
Much of the national conversation centers on reducing the price of healthcare services and prescription drugs. Yet a considerable portion of Medicaid's financial leakage occurs for a different reason entirely.
Claims are often paid using incomplete, outdated, or inaccurate coverage information. When Medicaid lacks visibility into a beneficiary's current insurance status, the program may incorrectly pay claims that should have been billed to another payer first.
In these situations, the issue is not necessarily the cost of the service itself. The issue is that Medicaid paid when another insurer had primary responsibility. As long as these coverage gaps exist, payment errors will continue regardless of future pricing reforms.
Unknown Coverage Remains a Persistent Challenge
Medicaid operates within one of the most dynamic eligibility environments in healthcare. Beneficiaries routinely experience changes that can affect insurance status throughout the year, including:
New employment
Employer-sponsored coverage enrollment
Marriage or dependent coverage changes
Loss of commercial insurance
Medicaid redeterminations
Movement between public and private coverage
These changes often occur faster than eligibility systems can capture them.
As a result, there is frequently a disconnect between a beneficiary's actual coverage status and the information available to Medicaid when a claim is adjudicated. During this period, claims may be processed without identifying existing commercial coverage or other third-party liability resources.
The outcome is avoidable spending that accumulates claim by claim across the program.
Why Recovery Alone Cannot Solve the Problem
Historically, many organizations have relied heavily on post-payment recovery activities to identify and recoup funds after improper payments occur.
Recovery efforts remain valuable and should continue to play an important role in a comprehensive program integrity strategy. However, recovering dollars after payment is fundamentally different from preventing those payments in the first place.
Once a claim has been paid incorrectly, administrative resources must be devoted to identifying the error, pursuing repayment, managing provider communications, and reconciling financial records.
More importantly, the improper payment has already occurred.
From a program integrity perspective, prevention delivers benefits that recovery simply cannot replicate. Stopping an incorrect payment before adjudication eliminates the need for downstream recovery activity while improving overall payment accuracy.
The Value of Better Eligibility and TPL Data
Effective cost avoidance begins with visibility. When Medicaid programs have access to more timely and accurate eligibility information, they can identify commercial coverage sooner, maintain more reliable third-party liability records, and coordinate benefits more effectively. This allows claims to be routed correctly before payment occurs rather than being corrected afterward.
Improved eligibility and TPL data support:
Earlier identification of commercial insurance
Stronger coordination of benefits processes
Reduced improper payments
Lower administrative recovery costs
Improved payment accuracy
Enhanced compliance and program integrity performance
Unlike many large-scale policy initiatives, these improvements can be implemented today and can begin generating results immediately.
Drug Pricing Reform and Payment Prevention Serve Different Purposes
Drug pricing reform and payment prevention should not be viewed as competing approaches. Both have value. Programs such as the GENEROUS Model seek to reduce the amount Medicaid pays for certain medications. Payment prevention focuses on ensuring Medicaid only pays claims for which it is actually responsible. One strategy addresses price. The other addresses payment accuracy.
Even substantial reductions in pharmaceutical costs cannot eliminate spending associated with unidentified commercial coverage, coordination of benefits failures, or inaccurate eligibility information. Likewise, improving payment accuracy does not diminish the importance of pursuing lower healthcare costs.
The strongest financial outcomes occur when both approaches operate together.
A More Immediate Path to Savings
While policymakers continue evaluating long-term reforms, Medicaid agencies and managed care organizations already possess an opportunity to improve financial performance through better data, stronger eligibility processes, and proactive identification of third-party liability.
The technology, analytics, and operational tools necessary to support these efforts are available today.
Rather than waiting years for policy changes to mature, organizations can begin reducing avoidable expenditures immediately by improving visibility into coverage and preventing claims from being paid incorrectly.
Drug pricing reform may ultimately reduce spending in certain areas of Medicaid, but it cannot address every source of financial leakage within the program. Some of the largest and most immediate savings opportunities stem from improving eligibility accuracy, identifying third-party liability sooner, strengthening coordination of benefits, and preventing improper payments before they occur. While policymakers continue pursuing long-term pricing initiatives, Medicaid agencies and managed care organizations can improve program integrity and generate measurable savings today by ensuring claims are paid the first time correctly.
Learn more.