Despite widespread media coverage and public policymaker interest in prescription drug costs, until now, there has been no transparent, central source of data to identify the amount that states are spending on prescription drugs as a share of total Medicaid spending. As a result, the discussion of prescription drug costs lacks context on actual drug spending as a portion of state spending on healthcare, as researchers for Johnson & Johnson Innovative Medicine explain in a recent analysis. In fact, states are considering and advancing drug pricing legislation – including establishing Prescription Drug Affordability Boards (PDABs) and Upper Price Limits (UPLs) – without this evidence being in the public sphere.
In 2023, 92 million Americans received drug coverage from Medicaid, a joint federal-state insurance program that provides medical and drug coverage to lower-income Americans. Medicaid represents 19% of healthcare spending in the U.S. – around $1 out of every $6.
Researchers for Johnson & Johnson conducted an analysis to fill the prescription drug spending data gap in ten states using publicly available sources, including state budget documents and state- reported data submitted to the Centers for Medicare and Medicaid Services (CMS). In the analysis, researchers analyzed state Medicaid drug expenditures and drug rebate income to generate an estimate of total state spending on prescription drugs and an estimate of Medicaid drug spending as a percentage of total Medicaid expenditures in FY 2023 for the following states: CA, CO, FL, MA, MI, NY, OH, OR, PA and WA.
The researchers estimated the percentage of total Medicaid spending for prescription drugs in those states is less than, or in line with, the national healthcare average of 14%. Across the 10 states studied, the estimated percentage of state Medicaid spending was attributable to net prescription drug spending ranged from 4.7% in Florida to 14.3% in Washington. Manufacturer drug rebates back to states ranged from $83 million in Oregon to $1.9 billion in New York. A 2022 Medicaid and CHIP Payment and Access Commission (MACPAC) report found that Medicaid drug rebates across all states reduced gross drug spending by over half.
This data should help policymakers and key stakeholders have evidence-based discussions around net drug spending and proposed state drug pricing policies. While prescription drug costs make headlines and are often the focus of legislation and policymaker attention, they are not the main driver of state Medicaid spending.
Discussions around healthcare spending and drug pricing should be rooted in an evidence-based understanding of what states spend on medications and the value that spending may bring, as well as a better understanding of what is driving healthcare costs in individual states.
At Johnson & Johnson, we continue to push for greater transparency from states and CMS to understand Medicaid drug spending estimates better and support evidence-based policy decisions to balance access and spending.
This research was funded by Johnson & Johnson Innovative Medicine. For full details on the study design, methods and limitations, see: Johnson & Johnson Innovative Medicine. Understanding state Medicaid spending on prescription drugs. The Center for U.S. Healthcare Policy. 2025. Available from https://policyresearch.jnj.com/download/understanding-state-medicaid-spending-on-prescription-drugs-pdf