Medicaid

Medicaid is the joint federal–state program covering low-income Americans — and the single largest purchaser of prescription drugs in the country. Its pricing runs on a rebate machine unlike anything else in US healthcare.

The Medicaid Drug Rebate Program (the core deal)

The bargain is simple: if a manufacturer wants its drugs covered by Medicaid at all, it must sign a national rebate agreement and pay every state a rebate on each unit dispensed. In exchange, its whole catalog gets covered.

The statutory rebate a manufacturer owes is roughly:

Brand-name drugs: the greater of 23.1% of AMP or (AMP − Best Price), plus an extra penalty if the drug's price has risen faster than inflation.
Generic drugs: 13% of AMP.

(AMP and Best Price are the confidential manufacturer prices behind this.) The inflation penalty is the teeth: raise a drug's price faster than inflation and you owe the difference back to Medicaid. The IRA extended a similar inflation penalty to Medicare.

How the pharmacy actually gets paid

Rebates flow from manufacturers to states. Separately, the state pays the pharmacy for dispensing. Federal rules push states toward paying actual acquisition cost — and in practice that means NADAC plus a professional dispensing fee:

The pharmacy's Medicaid payment

NADAC (real drug cost) + a dispensing fee — often $9–$12 per prescription, set by each state. This is the model most states moved to after 2016, and it's why NADAC is the backbone of this site.

Fee-for-service vs managed care

Two delivery models sit side by side, and pricing differs between them:

Fee-for-service (FFS): the state pays pharmacies directly, usually NADAC + dispensing fee. Transparent.
Managed care (MCOs): the state pays a private plan a per-member fee, and that plan (through its PBM) handles drug pricing — reintroducing the same rebate-and-spread opacity as commercial plans. Most Medicaid enrollees are now in managed care.

Every state is different — and that's the opportunity

There is no one “Medicaid drug price.” Each state sets its own dispensing fee, its own MAC list, its own managed-care contracts, and its own preferred drug list. A generic can be reimbursed very differently in Texas than in Oregon on the same day.

See it in the data

CMS publishes State Drug Utilization Data (SDUD) — public, quarterly, showing for every drug (by NDC) in every state how many prescriptions Medicaid paid for and how much it reimbursed. We've aggregated it: explore what Medicaid actually spends on, by drug and by state →. Every drug's page also shows its national Medicaid spend.

Next: the 340B discount program that funds safety-net care →