Management and Delivery of the Medicaid Pharmacy Benefit

Issue Brief
  1. For individuals with incomes above 150% of the FPL, rules allow states to establish higher cost-sharing, including coinsurance of up to 20% of the cost of the drug, for non-preferred drugs. See 78 Federal Register 42159-42322 (July 15, 2013), and Laura Snyder and Robin Rudowitz, Premiums and Cost-sharing in Medicaid (Kaiser Family Foundation, February 2013), https://www.kff.org/medicaid/issue-brief/premiums-and-cost-sharing-in-medicaid-a-review-of-research-findings/.

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  2. State Health Facts, “Medicaid Benefits: Prescription Drugs, 2018,” KFF, https://www.kff.org/medicaid/state-indicator/prescription-drugs.

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  3. Kathleen Gifford, Eileen Ellis, Barbara Coulter Edwards, Aimee Lashbrook, Elizabeth Hinton, Larisa Antonisse, and Robin Rudowitz, States Focus on Quality and Outcomes Amid Waiver Changes: Results from a 50-State Medicaid Budget Survey for State Fiscal Years 2018 and 2019 (KFF, October 2018), https://www.kff.org/medicaid/report/states-focus-on-quality-and-outcomes-amid-waiver-changes-results-from-a-50-state-medicaid-budget-survey-for-state-fiscal-years-2018-and-2019/.

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  4. As of 2015, 45 states reported using a PDL, and none have reported removing it in subsequent years. See Vernon Smith, Kathleen Gifford, Eileen Ellis, Robin Rudowitz, Laura Snyder, and Elizabeth Hinton, Medicaid Reforms to Expand Coverage, Control Costs and Improve Care: Results from a 50-State Medicaid Budget Survey for State Fiscal Years 2015 and 2016 (KFF, October 2015), http://files.kff.org/attachment/report-medicaid-reforms-to-expand-coverage-control-costs-and-improve-care-results-from-a-50-state-medicaid-budget-survey-for-state-fiscal-years-2015-and-2016.

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  5. Jane Tilly and Linda Elam, Prior Authorization for Medicaid Prescription Drugs in Five States: Lessons for Policy Makers (KFF, April 2003), http://files.kff.org/attachment/report-prior-authorization-for-medicaid-prescription-drugs-in.

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  6. N. Pinson, A. Thielke, V. King, J. Beyer, and R. Driver, Medicaid and Specialty Drugs: Current Policy Options (Center for Evidence-based Policy, Oregon Health & Science University), http://centerforevidencebasedpolicy.org/wp-content/uploads/2018/12/MED_Medicaid_and_Specialty_Drugs_Current_Policy_Options_Final_Sept-9-2016.pdf

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  7. 42 U.S.C. § 1396r-8 (d) (5)

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  8. Gifford, Ellis, Edwards, Lashbrook, Hinton, Antonisse, and Rudowitz, States Focus on Quality and Outcomes Amid Waiver Changes: Results from a 50-State Medicaid Budget Survey for State Fiscal Years 2018 and 2019 (KFF, October 2018), https://www.kff.org/medicaid/report/states-focus-on-quality-and-outcomes-amid-waiver-changes-results-from-a-50-state-medicaid-budget-survey-for-state-fiscal-years-2018-and-2019/.

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  9. Kathleen Gifford, Eileen Ellis, Aimee Lashbrook, Mike Nardone, Elizabeth Hinton, Robin Rudowitz, Maria Diaz, and Marina Tian, A View from the States: Key Medicaid Policy Changes: Results from a 50-State Medicaid Budget Survey for State Fiscal Years 2019 and 2020 (KFF, October 2019), https://www.kff.org/medicaid/report/a-view-from-the-states-key-medicaid-policy-changes-results-from-a-50-state-medicaid-budget-survey-for-state-fiscal-years-2019-and-2020/.

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  10. 42 U.S.C. §1396r-8 (g)

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  11. 42 U.S.C. §1396r-8 (g)

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  12. Centers for Medicare and Medicaid Services, “Drug Utilization Review,” https://www.medicaid.gov/medicaid/prescription-drugs/drug-utilization-review/index.html.

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  13. 42 U.S.C. §1396r-8 (g) (3)

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  14. CMS, “Drug Utilization Review,” https://www.medicaid.gov/medicaid/prescription-drugs/drug-utilization-review/index.html.

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  15. Sergio Prada and Johan Loaiza, “Comparing the Medicaid Prospective Drug Utilization Review Program Cost-Savings Methods Used by State Agencies in 2015 and 2016,” American Health & Drug Benefits 12, no. 1 (February 2019): 7-12, https://www.ncbi.nlm.nih.gov/pmc/articles/PMC6404806/.

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  16. 42 U.S.C. §1396r-8 (d) (4)

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  17. 42 U.S.C. §1396r-8 (d) (4) (A)

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  18. 42 U.S.C. §1396r-8 (d) (4)

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  19. Medicaid and CHIP Payment and Access Commission, Next Steps in Improving Medicaid Prescription Drug Policy (MACPAC, June 2019), https://www.macpac.gov/wp-content/uploads/2019/06/Next-Steps-in-Improving-Medicaid-Prescription-Drug-Policy.pdf.

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  20. MACPAC, Next Steps in Improving Medicaid Prescription Drug Policy (MACPAC, June 2019), https://www.macpac.gov/wp-content/uploads/2019/06/Next-Steps-in-Improving-Medicaid-Prescription-Drug-Policy.pdf.

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  21. State Health Facts, “Medicaid Benefits: Prescription Drugs, 2018,” KFF, https://www.kff.org/medicaid/state-indicator/prescription-drugs.

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  22. States may also charge up to 20% of the amount Medicaid pays for people with income above 150% FPL. See MACPAC, “Cost sharing and premiums,” https://www.macpac.gov/subtopic/cost-sharing-and-premiums/.

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  23. 42 U.S.C. §1396r-8 (d) (6)

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  24. 42 U.S.C. §1396r-8 (d) (1)

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  25. CMS, TennCare II Section 1115 Demonstration Fact Sheet (CMS, February 2016), https://www.medicaid.gov/Medicaid-CHIP-Program-Information/By-Topics/Waivers/1115/downloads/tn/tn-tenncare-ii-fs.pdf.

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  26. Division of TennCare, “Pharmacy,” https://www.tn.gov/tenncare/members-applicants/pharmacy.html.

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  27. Gifford, Ellis, Lashbrook, Nardone, Hinton, Rudowitz, Diaz, and Tian, A View from the States: Key Medicaid Policy Changes: Results from a 50-State Medicaid Budget Survey for State Fiscal Years 2019 and 2020 (KFF, October 2019), https://www.kff.org/medicaid/report/a-view-from-the-states-key-medicaid-policy-changes-results-from-a-50-state-medicaid-budget-survey-for-state-fiscal-years-2019-and-2020/.

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  28. Vernon Smith, Kathleen Gifford, Eileen Ellis, Robin Rudowitz, and Laura Snyder, Moving Ahead Amid Fiscal Challenges: A Look at Medicaid Spending, Coverage and Policy Trends: Results from a 50-State Medicaid Budget Survey for State Fiscal Years 2011 and 2012 (KFF, October 2011), https://www.kff.org/wp-content/uploads/2013/01/8248.pdf.

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  29. Gifford, Ellis, Edwards, Lashbrook, Hinton, Antonisse, and Rudowitz, States Focus on Quality and Outcomes Amid Waiver Changes: Results from a 50-State Medicaid Budget Survey for State Fiscal Years 2018 and 2019 (KFF, October 2018), https://www.kff.org/medicaid/report/states-focus-on-quality-and-outcomes-amid-waiver-changes-results-from-a-50-state-medicaid-budget-survey-for-state-fiscal-years-2018-and-2019/.

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  30. Gifford, Ellis, Edwards, Lashbrook, Hinton, Antonisse, and Rudowitz, States Focus on Quality and Outcomes Amid Waiver Changes: Results from a 50-State Medicaid Budget Survey for State Fiscal Years 2018 and 2019 (KFF, October 2018), https://www.kff.org/medicaid/report/states-focus-on-quality-and-outcomes-amid-waiver-changes-results-from-a-50-state-medicaid-budget-survey-for-state-fiscal-years-2018-and-2019/.

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  31. Uniform PDL requirements are state-prescribed requirements for designating a specific drug product as preferred or non-preferred. Uniform clinical protocols are state-prescribed medical necessity criteria for a specific drug product.

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  32. Gifford, Ellis, Edwards, Lashbrook, Hinton, Antonisse, and Rudowitz, States Focus on Quality and Outcomes Amid Waiver Changes: Results from a 50-State Medicaid Budget Survey for State Fiscal Years 2018 and 2019 (KFF, October 2018), https://www.kff.org/medicaid/report/states-focus-on-quality-and-outcomes-amid-waiver-changes-results-from-a-50-state-medicaid-budget-survey-for-state-fiscal-years-2018-and-2019/.

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  33. Gifford, Ellis, Lashbrook, Nardone, Hinton, Rudowitz, Diaz, and Tian, A View from the States: Key Medicaid Policy Changes: Results from a 50-State Medicaid Budget Survey for State Fiscal Years 2019 and 2020 (KFF, October 2019), https://www.kff.org/medicaid/report/a-view-from-the-states-key-medicaid-policy-changes-results-from-a-50-state-medicaid-budget-survey-for-state-fiscal-years-2019-and-2020/.

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  34. Gifford, Ellis, Edwards, Lashbrook, Hinton, Antonisse, and Rudowitz, States Focus on Quality and Outcomes Amid Waiver Changes: Results from a 50-State Medicaid Budget Survey for State Fiscal Years 2018 and 2019 (KFF, October 2018), https://www.kff.org/medicaid/report/states-focus-on-quality-and-outcomes-amid-waiver-changes-results-from-a-50-state-medicaid-budget-survey-for-state-fiscal-years-2018-and-2019/.

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  35. Jenny Gaffney, Marielle Kress, Caroline Pearson, Tanisha Carino, John Connolly, and Robin Rudowitz, The Role of Clinical and Cost Information in Medicaid Pharmacy Benefit Decisions: Experience in Seven States (KFF, September 2011), https://www.kff.org/wp-content/uploads/2013/01/8233.pdf.

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  36. States that use PBMs in administering the prescription drug benefit in a fee-for-service setting pay the PBM administrative fees for these services. See Magellan Health, Medicaid Pharmacy Trend Report, Second Edition (Magellan Rx Management, 2017), https://www1.magellanrx.com/media/671872/2017-mrx-medicaid-pharmacy-trend-report.pdf. See also https://nashp.org/wp-content/uploads/2016/04/Drug-Brief1.pdf.

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  37. 81 Federal Register 5169-5357, (February 1, 2016).

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  38. MACPAC, Medicaid Payment for Outpatient Prescription Drugs (MACPAC, May 2018), https://www.macpac.gov/wp-content/uploads/2015/09/Medicaid-Payment-for-Outpatient-Prescription-Drugs.pdf.

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  39. Sarah Lanford and Maureen Hensley-Quinn, New PBM Laws Reflect States’ Targeted Approaches to Curb Prescription Drug Costs (National Academy for State Health Policy, August 2019), https://nashp.org/new-pbm-laws-reflect-states-targeted-approaches-to-curb-prescription-drug-costs/.

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  40. Ohio Auditor of State, Ohio’s Medicaid Managed Care Pharmacy Services (Ohio Auditor of State, August 2018), https://audits.ohioauditor.gov/Reports/AuditReports/2018/Medicaid_Pharmacy_Services_2018_Franklin.pdf.

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  41. Massachusetts Health Policy Commission, “Cracking Open the Black Box of Pharmacy Benefit Managers: PBM Pricing for Generic Drugs in Massachusetts Medicaid Programs and the Commercial Market,” HPC Datapoints 12 (June 2019): 1-8, https://www.mass.gov/doc/datapoints-issue-12-printable-version/download.

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  42. Michigan similarly found that PBMs had collected spread of more than 30% on generic drugs and a report found that the state had been overcharged $64 million. The state has since decided to no longer use PBMs and to use FFS to pay for its prescription drugs. See 3 Axis Advisors, Analysis of PBM Spread Pricing in Michigan Medicaid Managed Care (Michigan Pharmacists Association, April 2019), https://www.michiganpharmacists.org/Portals/0/resources/3AA%20MI%20Medicaid%20managed%20care%20analysis
    %20-%20Final%2004.10.19.pdf?ver=2019-04-30-064856-343&ver=2019-04-30-064856-343
    .

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  43. A report sponsored by Pharmacists Society of the State of New York found that in Q4 of 2017, the managed care PBM spread was 39% of the state’s overall generic spend, and that between 4/1/17 and 3/30/18, the spread was 24% of the overall generic spend. The report suggested that “managed care PBMs are pricing most generic drugs below a pharmacy’s cost to dispense and potentially using these savings to subsidize spread pricing on the remaining generic drugs.” A report prepared in response to Kentucky Senate Bill 5 found that PBMs in the state reported a spread of 12.9% ($123.5 million not paid to pharmacies and kept by the PBMs. See 3 Axis Advisors, Analysis of PBM Spread Pricing in New York Medicaid Managed Care (Pharmacists Society of the State of New York, January 2019), https://files.constantcontact.com/599cc597301/971bd1aa-2a80-464b-a85c-e3afaa8a577a.pdf; Office of Health Data Analytics, Medicaid Pharmacy Pricing: Opening the Black Box (Kentucky Cabinet for Health and Family Services, February 2019), https://chfs.ky.gov/agencies/ohda/Documents1/CHFSMedicaidPharmacyPricing.pdf.

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  44. CMS, “CMS Issues New Guidance Addressing Spread Pricing in Medicaid, Ensures Pharmacy Benefit Managers are not Up-Charging Taxpayers,” CMS Newsroom (May 15, 2019), https://www.cms.gov/newsroom/press-releases/cms-issues-new-guidance-addressing-spread-pricing-medicaid-ensures-pharmacy-benefit-managers-are-not

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  45. Ohio Department of Medicaid, “Guidance for Managed Care Plans, August 14, 2018,” https://issuu.com/thecolumbusdispatch/docs/mco_pass_through_ltr_8.14.18.

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  46. Ohio H.B. 166, “Creates FY 2020-2021 operating budget,” 133rd General Assembly (2019), https://www.legislature.ohio.gov/legislation/legislation-summary?id=GA133-HB-166.

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  47. Michigan Department of Health and Human Services, “Proposed Policy Draft: Medicaid Health Plan Pharmacy Drug Coverage Transition,” https://www.michigan.gov/documents/mdhhs/1936-Pharmacy-P_673863_7.pdf

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  48. Nevada S.B. 539, “Revises provisions relating to prescription drugs,” 79th Session (2017), https://www.leg.state.nv.us/App/NELIS/REL/79th2017/Bill/5822/Overview.

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  49. New York A. 2836 / S. 6531, “An act to amend the public health law,” 2019-2020 Legislative Session (2019), https://www.nysenate.gov/legislation/bills/2019/a2836/amendment/a.

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  50. U.S. Senate Committee on Finance, Description of the Chairman’s Mark: The Prescription Drug Pricing Reduction Act (PDPRA) of 2019 (Senate Finance, July 2019), https://www.finance.senate.gov/imo/media/doc/FINAL%20Description%20of%20the%20Chairman's%20Mark
    %20for%20the%20Prescription%20Drug%20Pricing%20Reduction%20Act%20of%202019.pdf
    .

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  51. MACPAC, Next Steps in Improving Medicaid Prescription Drug Policy (MACPAC, June 2019), https://www.macpac.gov/wp-content/uploads/2019/06/Next-Steps-in-Improving-Medicaid-Prescription-Drug-Policy.pdf.

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  52. Prada and Loaiza, “Comparing the Medicaid Prospective Drug Utilization Review Program Cost-Savings Methods Used by State Agencies in 2015 and 2016,” American Health & Drug Benefits 12, no. 1 (February 2019): 7-12, https://www.ncbi.nlm.nih.gov/pmc/articles/PMC6404806/.

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  53. Edwin Park, How to Strengthen the Medicaid Drug Rebate Program to Address Rising Medicaid Prescription Costs (Georgetown University Center for Children and Families, January 2019), https://ccf.georgetown.edu/wp-content/uploads/2019/01/Medicaid-Rx-Policy-Options-v4.pdf.

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  54. Nicole Yvonne Nguyen and Lisa Bero, “Medicaid Drug Selection Committees and Inadequate Management of Conflicts of Interest,” JAMA Internal Medicine 173, no. 5 (March 2013): 338-343, https://jamanetwork.com/journals/jamainternalmedicine/fullarticle/1570087; and Nirav Shah, “Managing Potential Conflicts of Interest in State Medicaid Pharmacy and Therapeutics Committees: Seeking Harmony,” JAMA Internal Medicine 173, no. 5 (March 2013): 344, https://jamanetwork.com/journals/jamainternalmedicine/article-abstract/1570097.

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  55. Liz Essley Whyte, Alison Fitzgerald Kodjak, and Joe Yerardi, “How Drugmakers Sway States to Profit Off of Medicaid,” Center for Public Integrity (July 18, 2018), https://publicintegrity.org/state-politics/how-drugmakers-sway-states-to-profit-off-of-medicaid; and Brenna Goth, “Arizona Medicaid Committee Must Disclose Drug-Company Ties,” Bloomberg Law (July 30, 2018), https://news.bloomberglaw.com/health-law-and-business/arizona-medicaid-committee-must-disclose-drug-company-ties.

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  56. Whyte, Kodjak, and Yerardi, “How Drugmakers Sway States to Profit Off of Medicaid,” Center for Public Integrity (July 18, 2018), https://publicintegrity.org/state-politics/how-drugmakers-sway-states-to-profit-off-of-medicaid.

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  57. Edwin Park, “Senate Finance Committee Considers Bipartisan Bill to Lower Federal and State Medicaid Drug Costs,” Say Ahhh! Georgetown CCF (July 23, 2019), https://ccf.georgetown.edu/2019/07/23/senate-finance-committee-considers-bipartisan-bill-to-lower-federal-and-state-medicaid-drug-costs/; and Whyte, Kodjak, and Yerardi, “How Drugmakers Sway States to Profit Off of Medicaid,” Center for Public Integrity (July 18, 2018), https://publicintegrity.org/state-politics/how-drugmakers-sway-states-to-profit-off-of-medicaid.

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  58. Goth, “Arizona Medicaid Committee Must Disclose Drug-Company Ties,” Bloomberg Law (July 30, 2018), https://news.bloomberglaw.com/health-law-and-business/arizona-medicaid-committee-must-disclose-drug-company-ties; and Arizona E.O 2018-06, “Increasing Transparency and Eliminating Undue Influence by Pharmaceutical and Medical Device Companies,” (2018), https://azgovernor.gov/sites/default/files/executive_order_2018-06_0_0.pdf.

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  59. U.S. Senate Committee on Finance, Description of the Chairman’s Mark: The Prescription Drug Pricing Reduction Act (PDPRA) of 2019 (Senate Finance, July 2019), https://www.finance.senate.gov/imo/media/doc/FINAL%20Description%20of%20the%20Chairman's%20Mark
    %20for%20the%20Prescription%20Drug%20Pricing%20Reduction%20Act%20of%202019.pdf
    .

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  60. Soumitri Barua, Robert Greenwald, Jason Grebely, Gregory J. Dore, Tracy Swan, and Lynn E. Taylor, “Restrictions for Medicaid Reimbursement of Sofosbuvir for the Treatment of Hepatitis C Virus Infection in the United States,” Annals of Internal Medicine 163, no. 3 (August 2015): 215-223, https://annals.org/aim/fullarticle/2362306/restrictions-medicaid-reimbursement-sofosbuvir-treatment-hepatitis-c-virus-infection-united.

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  61. CMS, “For State Technical Contacts: Assuring Medicaid Beneficiaries Access to Hepatitis C (HCV) Drugs,” (CMS, November 2015), https://www.medicaid.gov/medicaid-chip-program-information/by-topics/prescription-drugs/downloads/rx-releases/state-releases/state-rel-172.pdf.

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  62. A settlement in April 2017 made this provision permanent. See N.C. and L.J. v. Washington State Health Care Authority, Public Employees Benefits Board, and Dorothy Teeter in her official capacity, N.A., Case No. 16-2-08002-2 SEA (King County Superior Court, 2016), https://www.hca.wa.gov/assets/ump/Hep-C-settlement-agreement.pdf.

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  63. Division of Pharmacy, “Louisiana SPA #19-0018,” CMS, https://www.medicaid.gov/State-resource-center/Medicaid-State-Plan-Amendments/Downloads/LA/LA-19-0018.pdf.

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  64. For more on VBPs in supplemental rebates, see Rachel Dolan, Understanding the Medicaid Prescription Drug Rebate Program (KFF, November 2019), https://www.kff.org/medicaid/issue-brief/understanding-the-medicaid-prescription-drug-rebate-program/

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  65. Pinson, Thielke, King, Beyer, and Driver, Medicaid and Specialty Drugs: Current Policy Options (Center for Evidence-based Policy, Oregon Health & Science University), http://centerforevidencebasedpolicy.org/wp-content/uploads/2018/12/MED_Medicaid_and_Specialty_Drugs_Current_Policy_Options_Final_Sept-9-2016.pdf

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  66. MACPAC, Next Steps in Improving Medicaid Prescription Drug Policy (MACPAC, June 2019), https://www.macpac.gov/wp-content/uploads/2019/06/Next-Steps-in-Improving-Medicaid-Prescription-Drug-Policy.pdf.

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  67. MACPAC, Next Steps in Improving Medicaid Prescription Drug Policy (MACPAC, June 2019), https://www.macpac.gov/wp-content/uploads/2019/06/Next-Steps-in-Improving-Medicaid-Prescription-Drug-Policy.pdf.

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  68. Commonwealth of Massachusetts, “MassHealth Section 1115 Demonstration Amendment Request Submitted to CMS,” (September 8, 2017), https://www.mass.gov/doc/section-1115-demonstration-amendment-request-submitted-to-cms-1/download.

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  69. Virgil Dickson, “CMS denies Massachusetts’ request to choose which drugs Medicaid covers,” Modern Healthcare (June 27, 2018), https://www.modernhealthcare.com/article/20180627/NEWS/180629925/cms-denies-massachusetts-request-to-choose-which-drugs-medicaid-covers

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  70. Division of TennCare, “TennCare II Demonstration: Amendment 42 Modified Block Grant and Accountability,” (November 20, 2019), https://www.medicaid.gov/Medicaid-CHIP-Program-Information/By-Topics/Waivers/1115/downloads/tn/tn-tenncare-ii-pa10.pdf

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