Use and Costs Under the Iowa Capitation Drug Program

This article evaluates changes in the use of drug services and the corresponding costs when the conventional fee-for-service system for reimbursement of pharmacists under Medicaid is replaced by a capitation system. The fee-for-service system usually covers ingredient costs plus a fixed professional dispensing fee. The capitation system provided a cash payment (which varied by aid category and season of the year) per Medicaid eligible the first of each month. We examined drug use and costs in two experimental rural counties during a 1-year preperiod in which the fee-for-service form of reimbursement was employed, as well as a 2-year postperiod in which the capitation system was used. We compared the results with use and cost patterns in two other rural counties which remained on the fee-for-service system during the same 3-year period. Drug use was similar among control and experimental counties with the exception of nursing home patients; use in this category decreased under capitation and increased under fee-for-service. Using three measures of drug cost: 1) average cost of a day's drug therapy; 2) average drug costs per recipient; and 3) average Medicaid expenditures for drug services per recipient, we observed significant savings under the capitation reimbursement system as compared to the fee-for-service system. We attributed savings under capitation to shifts in prescribing and dispensing behavior, as well as changes in use by nursing home patients. Based upon these findings, the total savings resulting from implementing capitation would be approximately 16 percent when compared to fee-for-service reimbursement.