Federal inspectors made a splash this week with a report showing that Medicaid spends fewer taxpayer dollars for prescription drugs than Medicare.

The study may bode changes for older Americans who get their drugs through Medicare's drug benefit as a congressional supercommittee looks to tame deficit spending and control health care costs.

It may also prod states like Utah to more aggressively pursue drug rebates available to cover the expense of drugs for low-income and disabled residents using Medicaid. Utah is among four states with lasting weaknesses in their rebate programs, according to a separate report released on Wednesday.

Utah's Medicaid program spent $170 million in fiscal 2010 on prescription drugs and collected $68 million in rebates.

The two government health insurance programs pay about the same retail price for drugs. But Medicaid is able to claw back more if its money through rebates from drug makers, according to the inspector general of the Department of Health and Human Services.

Medicaid, a joint federal-state program, recaptures 45 percent of its spending on common brand-name drugs, compared to Medicare's 19 percent, Inspector General Daniel Levinson found.

The study was mandated by the new federal health reform law.

The difference has to do with federal law, which requires drug companies to pay a minimum 23 percent rebate to Medicaid, and more if the prices rise above inflation.

Medicare is barred from negotiating discounts directly. Its prices are brokered by private insurance companies, which began providing Medicare's drug benefits under a Bush-era policy change.

Precisely how Utah's Medicaid program stacks up on drug pricing isn't clear, since the report looked at national, not state-level data. But a separate review of the state's rebate program highlights weaknesses identified in a 2005 audit that the state had not fixed as of 2008.

Investigators fault Utah for failing to collect interest on all late rebate payments, and to quickly resolve rebate disputes. They say the state's accounting of rebates isn't up to snuff.

And they recommend that Utah refund the federal government its share of $389,203 in rebates for physician administered drugs (mostly injectable drugs) that were collected in fiscal 2007 but not reported.

Inspectors last reviewed Utah's rebates in 2008 and state health officials say sweeping improvements have since been made.

Among the most significant: a new claims processing system to replace an outdated model that was more than 30 years old.

The system should be up and running in four months and will make it possible to keep closer tabs on billings for the more than 30,000 different drugs that Medicaid covers, said Utah Medicaid Director Michael Hales.

"Some of these you're trying to track down for three to five years before you get a [rebate] payment," Hales said.

Creation of a state inspector general to scrutinize Medicaid for fraud, waste and abuse is also under way.

And the state has applied for a federal waiver to turn Medicaid over to Acountable Care Organizations (ACOs), managed care groups with the incentive to deliver quality care, not just more care. The ACO's will also oversee pharmacy benefits, which should reap more savings through better prescribing practices, said Hales.

Even without these improvements, Hales stressed, "for the most part, we still have an effective rebate system."

kstewart@sltrib.com —

By the numbers

The cost of Medicare's drug benefit is projected to grow 10 percent per year and reach $175 billion by 2021.

Medicaid spending on drugs totaled nearly $26 billion in 2009, about $8 billion of which was recouped through rebates.