Potential Implications of Policy Changes in Medicaid Drug Purchasing

Executive Summary
    Issue Brief
    1. Because these policy changes do not affect federal rules limiting Medicaid cost-sharing to nominal amounts, we did not separately examine how each policy change would affect enrollee costs.

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    2. Best price only applies to brand drugs, generic drug rebates are 13% of AMP

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    3. MACPAC, Medicaid Drug Spending Trends, December 2020. Analysis of CMS State Drug Utilization Data https://www.macpac.gov/publication/medicaid-gross-spending-and-rebates-for-drugs-by-delivery-system/

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    4. CBO analysis of 176 top-selling brand-name drugs in Medicare Part D. CBO computed the average price of those drugs per standardized prescription—a measure that roughly corresponds to a 30-day supply of medication. Congressional Budget Office, A Comparison of Brand-Name Drug Prices Among Selected Federal Programs (CBO, February 2021), https://www.cbo.gov/system/files/2021-02/56978-Drug-Prices.pdf

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    5. CMS, State Medicaid Director Letter #10-019, Medicaid Prescription Drugs, (September 2010) https://www.medicaid.gov/medicaid-chip-program-information/by-topics/prescription-drugs/downloads/smdl10019.pdf

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    6. State supplemental rebate agreements often decrease proportionally with federal rebate increases. Department of Health and Human Services Office Of Inspector General,  States’ Collection Of Offset And Supplemental Medicaid Rebates, (HHS 2014),  https://oig.hhs.gov/oei/reports/oei-03-12-00520.pdf; Congressional Research Service, Medicaid Prescription Drug Pricing and Policy (CRS 2014), https://www.everycrsreport.com/reports/R43778.html#_Ref395445519

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    7. Congressional Budget Office, The Effect of the March Health Legislation on Prescription Drug Prices (CBO, November 2010), https://www.cbo.gov/sites/default/files/111th-congress-2009-2010/reports/11-04-drug_pricing.pdf

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    8. P. 19. Congressional Budget Office, A Comparison of Brand-Name Drug Prices Among Selected Federal Programs (CBO, February 2021), https://www.cbo.gov/system/files/2021-02/56978-Drug-Prices.pdf

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    9. CBO estimated that the increased Medicaid rebates in the ACA would lead to increased prices paid by retail pharmacies, but employer plans and others who negotiate with manufacturers would likely see no net increase. Congressional Budget Office, The Effect of the March Health Legislation on Prescription Drug Prices (CBO, November 2010), https://www.cbo.gov/sites/default/files/111th-congress-2009-2010/reports/11-04-drug_pricing.pdf

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    10. PhRMA, Comments Of The Pharmaceutical Research And Manufacturers Of America, (PhRMA 2018), https://www.phrma.org/-/media/Project/PhRMA/PhRMA-Org/PhRMA-Org/PDF/P-R/PhRMA-RFI-Comments-on-HHS-Blueprint-to-Lower-Drug-Prices-and-Reduce-Out-of-Pocket-Costs5.pdf

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    11. KFF analysis of Urban Institute estimates based on data from CMS (Form 64), as of August 2020.

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    12. Executive Order N-01-19, January 7, 2019. https://www.gov.ca.gov/wp-content/uploads/2019/01/EO-N-01-19-Attested-01.07.19.pdf

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    13. Horvath, Jane. State Initiatives Using Purchasing Power to Achieve Drug Cost Containment (NASHP 2019), https://www.nashp.org/wp-content/uploads/2019/04/Rx-Purchasing-Paper-Jane-Horvath-FINAL-4_9_2019.pdf

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    14. Gee, Rebecca. “Louisiana’s Journey Toward Eliminating Hepatitis C” Health Affairs Blog (April 2019). https://www.healthaffairs.org/do/10.1377/hblog20190327.603623/full/

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    15. CMS, “CMS Approves Louisiana State Plan Amendment for Supplemental Rebate Agreements Using a Modified Subscription Model for Hepatitis C Therapies in Medicaid”, (June 2019). https://www.cms.gov/newsroom/press-releases/cms-approves-louisiana-state-plan-amendment-supplemental-rebate-agreements-using-modified

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    16. Average annual growth in state sidebar rebates from 2000-2010 was 21%. KFF analysis of Urban Institute estimates based on data from CMS (Form 64), as of August 2020.

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    17. Following average annual growth of -2% from 2010-2017, state sidebar rebates grew by 10% in 2018 and 19% in 2019. KFF analysis of Urban Institute estimates based on data from CMS (Form 64), as of August 2020.

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    18. Magellan Rx Management, Magellan Rx Management 2018 Medical Pharmacy Trend Report, (Magellan Rx Management, 2018), https://www1.magellanrx.com/documents/2019/03/medical-pharmacy-trend-report_2018.pdf/.

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    19. Magellan Rx Management, Magellan Rx Management 2020 Medicaid Pharmacy Trend Report, (Magellan Rx Management, 2020), https://issuu.com/magellanrx/docs/mtr20_final_v2?fr=sNTNiODE4MzMzMDk

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    20. Pamela Hyde, “State Mental Health Policy: A Unique Approach to Designing a Comprehensive Behavioral Health System in New Mexico.” Psychiatric Services (September 2004), https://ps.psychiatryonline.org/doi/10.1176/appi.ps.55.9.983

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    21. 81 Federal Register 5169-5357, (February 1, 2016).

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    22. Inmaculada Hernandez and Walid Gellad, “Differences Between Managed Care and Fee-for-Service Medicaid in the Use of Generics for High-Rebate Drugs: The Cases of Insulin Glargine and Glatiramer,” Journal of Managed Care + Specialty Pharmacy (February 2020), https://www.jmcp.org/doi/10.18553/jmcp.2020.26.2.154

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    23. Robert Langreth, David Ingold and Jackie Gu, The Secret Drug Pricing System Middlemen Use to Rake in Millions (Bloomberg 2018), https://www.bloomberg.com/graphics/2018-drug-spread-pricing/

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    24. 46brooklyn, New drug pricing analysis reveals where PBMs and pharmacies make their money, https://www.46brooklyn.com/research/2019/4/21/new-pricing-data-reveals-where-pbms-and-pharmacies-make-their-money

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    25. CMS, CMS Issues New Guidance Addressing Spread Pricing in Medicaid, Ensures Pharmacy Benefit Managers are not Up-Charging Taxpayers, (CMS 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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    26. Katherine L. Gudiksen, , Samuel M. Chang, and Jaime S. King, Navigating Legal Challenges to State Efforts to Control Drug Prices: PBM Regulation, Price Gouging, and Price Transparency, (NASHP 2019), https://www.nashp.org/legal-challenges-to-state-rx-laws/

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    27. Allyn, Bobby, “Judge Blocks Trump Rule Requiring Pharma Companies To Disclose Drug Prices In TV Ads” (NPR, July 2019), https://www.npr.org/2019/07/09/739770699/judge-blocks-trump-rule-requiring-pharma-companies-to-say-price-of-drugs-in-tv-a

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    28. Martha Ryan and Neeraj Sood, State Drug Pricing Transparency Laws: Numerous Efforts, Most Fall Short, (USC Schaeffer Center for Health Policy & Economics, September 2019), https://healthpolicy.usc.edu/research/state-drug-pricing-transparency-laws-numerous-efforts-most-fall-short/.

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    29. Ge Bai, Mariana Socal, Michael Sharp, and Eric Pachman, “Medicaid Managed Care Programs’ Contracts For Generic Drugs Are Inefficient,” Health Affairs Blog, (May 2019), https://www.healthaffairs.org/do/10.1377/hblog20190426.775617/full/.

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    30. Government Accountability Office, 340B Drug Discount Program: Oversight of the Intersection with the Medicaid Drug Rebate Program Needs Improvement, (GAO, January 2020), https://www.gao.gov/assets/710/703966.pdf

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    31. Government Accountability Office, Drug Discount Program: Federal Oversight of Compliance at 340B Contract Pharmacies Needs Improvement (GAO, June 2018). https://www.gao.gov/products/gao-18-480

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    32. Department of Health and Human Services, Advisory Opinion 20-06 On Contract Pharmacies Under The 340B Program, (HHS, December 2020), https://www.hhs.gov/guidance/sites/default/files/hhs-guidance-documents/340B-AO-FINAL-12-30-2020_0.pdf

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    33. Government Accountability Office, Drug Discount Program: Federal Oversight of Compliance at 340B Contract Pharmacies Needs Improvement (GAO, June 2018). https://www.gao.gov/products/gao-18-480

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    34. CMS, Medicaid Covered Outpatient Prescription Drug Reimbursement Information by State, https://www.medicaid.gov/medicaid/prescription-drugs/downloads/medicaid-covered-outpatient-prescription-drug-reimbursement-information-state.pdf

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    35. MACPAC, The 340B Drug Pricing Program and Medicaid Drug Rebate Program: How They Interact, (MACPAC, May 2018), https://www.macpac.gov/wp-content/uploads/2018/05/340B-Drug-Pricing-Program-and-Medicaid-Drug-Rebate-Program-How-They-Interact.pdf.

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    36. HRSA, 340B Ceiling Price Calculation, https://www.hrsa.gov/opa/updates/2015/may.html

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    37. The federal government establishes maximum payment amounts for about 700 multiple-source drugs including both generics and originator brands for which generic versions are now available. The Affordable Care Act and subsequent rules set reimbursement at 175% of the weighted average of the most recently reported average manufacturer prices (AMP) for that drug. For more, see https://www.kff.org/medicaid/issue-brief/pricing-and-payment-for-medicaid-prescription-drugs/

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    38. After moving to average acquisition cost (AAC), most states increased dispensing fees while ingredient costs decreased. For more discussion, KFF, Pricing and Payment for Medicaid Prescription Drugs, (KFF 2020) https://www.kff.org/report-section/pricing-and-payment-for-medicaid-prescription-drugs-issue-brief

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    39. Best price only applies to brand drugs, generic drug rebates are 13% of AMP

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    40. Medicaid statute defines Best Price as “the lowest price available from the manufacturer during the rebate period to any wholesaler, retailer, provider, health maintenance organization, nonprofit entity, or government entity within the United States.” There are many important exclusions, including the Department of Veterans Affairs, the 340B program, the Department of Defense, the Public Health Service, the Indian Health Service. The Best Price includes rebates in general, but not Medicaid supplemental rebates or rebates provided through the Medicaid Drug Rebate Program. 42 U.S.C. 1396r-8 (c)(1)(C).

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    41. Congressional Budget Office, A Comparison of Brand-Name Drug Prices Among Selected Federal Programs (CBO, February 2021), https://www.cbo.gov/system/files/2021-02/56978-Drug-Prices.pdf

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    42. Strengthening Medicaid and the Affordable Care Act, 86 Fed. Reg. 7793 (Feb. 2, 2020). https://www.federalregister.gov/documents/2021/02/02/2021-02252/strengthening-medicaid-and-the-affordable-care-act

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