Pricing and Payment for Medicaid Prescription Drugs

Issue Brief
  1. Kaiser Family Foundation Health Tracking Poll, “Public opinion on prescription drugs and their prices: Poll findings from 2015-2019 KFF Health Tracking Polls,” KFF, https://www.kff.org/slideshow/public-opinion-on-prescription-drugs-and-their-prices/.

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  2. Juliette Cubanski, Meredith Freed, and Tricia Neuman, “Ten Charts on Proposals to Lower Prescription Drug Costs,” KFF, https://www.kff.org/slideshow/ten-charts-on-proposals-to-lower-prescription-drug-costs/.

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  3. 42 U.S.C. 1396a (a) (30)(A) and 42 CFR § 447

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  4. 81 Federal Register 5169-5357, (February 1, 2016).

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  5. 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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  6. Prior to 2016, federal rules required states to use “estimated acquisition cost” (EAC) to set reimbursement for the ingredient costs. States used a variety of formulas to estimate EAC, such as average wholesale price (AWP) minus 15% or WAC plus 3%. The AWP is the published list price for a drug sold by wholesalers to retail pharmacies and nonretail providers. The WAC represents manufacturers’ published catalog, or list, price for sales of a drug (brand-name or generic) to wholesalers. Concerns about the accuracy of drug pricing benchmarks commonly used, particularly AWP and WAC, led states and the federal government to change how they determine payment levels and to move to an AAC benchmark.

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  7. Centers for Medicare and Medicaid Services, Methodology for Calculating the National Average Drug Acquisition Cost (NADAC) for Medicaid Covered Outpatient Drugs (CMS, November 2013), https://www.medicaid.gov/medicaid-chip-program-information/by-topics/prescription-drugs/ful-nadac-downloads/nadacmethodology.pdf.

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  8. This refers to generic drugs and brand drugs with generic equivalents. See 42 U.S.C. §1396r-9 (e) (4)

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  9. Brian Bruen and Katherine Young, Paying for Prescribed Drugs in Medicaid: Current Policy and Upcoming Changes (KFF, May 2014), https://www.kff.org/report-section/paying-for-prescribed-drugs-in-medicaid-current-policy-and-upcoming-changes-comparing-pricing-under-different-measures-8593/.

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  10. The “average” used to compute the FUL is a utilization-weighted average of the AMPs reported by each manufacturer of the drug. See 42 U.S.C. §1396r-9 (k) (1), as amended by § 2503 of the Affordable Care Act, P.L. 111-148.

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  11. 81 Federal Register 5169-5357, (February 1, 2016).

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  12. This refers to generic drugs and brand drugs with generic equivalents.

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  13. “Twenty-nine of the forty-one states reported using pharmacy acquisition cost as either the sole basis for setting MAC prices or in conjunction with other benchmarks.  Specifically, 14 of the 29 States used only acquisition cost, and the other 15 used a combination of acquisition cost and WAC, AWP and/or AMP.” See U.S. Department of Health and Human Services — Office of Inspector General, Medicaid Drug Pricing in State Maximum Allowable Cost Programs (HHS, August 2013), https://oig.hhs.gov/oei/reports/oei-03-11-00640.pdf.

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  14. CMS, “Medicaid Covered Outpatient Prescription Drug Reimbursement Information by State, Quarter Ending September 2019,” https://www.medicaid.gov/medicaid/prescription-drugs/state-prescription-drug-resources/drug-reimbursement-information/index.html.

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  15. Kathleen Gifford, Eileen Ellis, Barbara Coulter Edwards, Aimee Lashbrook, Elizabeth Hinton, Larisa Antonisse, Allison Valentine, and Robin Rudowitz, Medicaid Moving Ahead in Uncertain Times: Results from a 50-State Medicaid Budget Survey for State Fiscal Years 2017 and 2018 (KFF, October 2017), https://www.kff.org/report-section/medicaid-moving-ahead-in-uncertain-times-benefits-copayments-pharmacy-and-opioid-strategies/.

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

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  18. Rachel Dolan and Marina Tian, Management and Delivery of the Medicaid Pharmacy Benefit (KFF, December 2019), https://www.kff.org/medicaid/issue-brief/management-and-delivery-of-the-medicaid-pharmacy-benefit/.

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

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  20. 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 Rx Management, Magellan Rx Management 2017 Medical Pharmacy Trend Report, (Magellan Rx Management, 2017), https://www1.magellanrx.com/documents/2019/03/medical-pharmacy-trend-report_2017.pdf/. See also Ellen Schneiter, States and Prescription Drugs: An Overview of State Programs to Rein in Costs (National Academy for State Health Policy, April 2016), https://nashp.org/wp-content/uploads/2016/04/Drug-Brief1.pdf.

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  21. Medicaid and CHIP Payment and Access Commission, 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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  22. 81 Federal Register 5169-5357, (February 1, 2016).

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

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  25. MACPAC, MACStats: Medicaid and CHIP Data Book (MACPAC, December 2019), https://www.macpac.gov/wp-content/uploads/2020/01/MACStats-Medicaid-and-CHIP-Data-Book-December-2019.pdf.

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  26. 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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  27. New York Department of Health, “Medicaid Fee-for-Service Providers Dispense Brand Name Drug when Less Expensive than Generic Program,” NYS Medicaid Pharmacy Programs (September 18, 2019), https://newyork.fhsc.com/downloads/providers/NYRx_BLTGP_recent_news_20190918.pdf.

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  28. Most states require prior authorization for drugs until they are reviewed by the P&T committee and coverage criteria is developed. See 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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  29. Robin Rudowitz, Elizabeth Hinton, Maria Diaz, Madeline Guth, and Marina Tian, Medicaid Enrollment & Spending Growth: FY 2019 & 2020 (KFF, October 2019), https://www.kff.org/medicaid/issue-brief/medicaid-enrollment-spending-growth-fy-2019-2020/.

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  30. Special Committee on Aging, Sudden Price Spikes in Off-Patent Prescription Drugs: The Monopoly Business Model that Harms Patients, Taxpayers, and the U.S. Healthcare System (U.S. Senate, December 2016), https://www.aging.senate.gov/imo/media/doc/Drug%20Pricing%20Report.pdf.

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  31. Rachel Garfield and Robin Rudowitz, Medicaid’s Prescription Drug Benefit: Key Facts (KFF, May 2019), https://www.kff.org/medicaid/fact-sheet/medicaids-prescription-drug-benefit-key-facts/.

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  32. 83 Federal Register 54546-54561, (October 30, 2018).

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  33. Office of the Actuary, Financial Impact of Titles I and II of H.R. 3, “Lower Drug Costs Now Act of 2019 (CMS, October 2019), https://www.cms.gov/Research-Statistics-Data-and-Systems/Research/ActuarialStudies/Downloads/HR3-Titles-I-II.pdf

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  34. CMS and Myers and Stauffer, CMS Retail Price Survey National Average Drug Acquisition Cost (NADAC) Overview and Help Desk Operations (CMS, August 2017), https://www.medicaid.gov/medicaid/prescription-drugs/downloads/retail-price-survey/nadac-overview-operations.pdf.

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  35. NASHP’s Pharmacy Costs Work Group, States and the Rising Cost of Pharmaceuticals: A Call to Action (NASHP, October 2016), https://nashp.org/wp-content/uploads/2016/10/Rx-Paper.pdf.

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  36. Pfizer, Inc. v. Texas Health and Human Services Commission, and Charles Smith, Executive Commissioner, in his official capacity, N.A., Case No. 1:16-cv-1228 (U.S. District Court for the Western District of Texas, Austin Division, 2016), http://tsi.brooklaw.edu/sites/tsi.brooklaw.edu/files/filings/pfizer-inc-v-texas-health-and-human-services-commission-et-al/20161117pfizer-inc-v-texas-health-and-human-services-commission-et-al.pdf.

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  37. KFF Health Tracking Poll, “Public opinion on prescription drugs and their prices: Poll findings from 2015-2019 KFF Health Tracking Polls,” KFF, https://www.kff.org/slideshow/public-opinion-on-prescription-drugs-and-their-prices/.

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  38. Aaron Berman, Theodore Lee, Adam Pan, Zain Rizvi, and Arielle Thomas, Curbing Unfair Drug Prices: A Primer for States (Global Health Justice Partnership of the Yale Law School and the Yale School of Public Health, August 2017), https://law.yale.edu/sites/default/files/area/center/ghjp/documents/curbing_unfair_drug_prices-policy_paper-080717.pdf.

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  39. Lori Reilly, Testimony of Lori M. Reilly, Executive Vice President, Policy, Research, and Membership, Pharmaceutical Research and Manufacturers of America Before the U.S. Senate Health, Education, Labor and Pensions Committee (Senate HELP, October 2017), https://www.help.senate.gov/imo/media/doc/Reilly2.pdf.

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  40. 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%20Mar

    k%20for%20the%20Prescription%20Drug%20Pricing%20Reduction%20Act%20of%202019.pdf

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  41. Vermont S. 216, “An act relating to prescription drugs,” 2015-2016 Session (2016), https://custom.statenet.com/public/resources.cgi?id=ID:bill:VT2015000S216&ciq=ncsldc3&client_md=5c9a42de573d05e6b51cc374a6c53a4a&mode=current_text.

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  42. Sarah Lanford and Maureen Hensley-Quinn, Maine Forges New Ground and Enacts Comprehensive Drug Package (NASHP, July 2019), https://nashp.org/maine-forges-new-ground-and-enacts-comprehensive-drug-package/.

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  43. Maine L.D. 1406 / S.P. 484, “An act to promote prescription drug price transparency,” 128th Maine Legislature, Second Regular Session (2018), http://www.mainelegislature.org/legis/bills/bills_128th/chapters/PUBLIC406.asp.

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  44. Center for State Rx Drug Pricing, Comparison of State Transparency Laws: What They Require and What Enforcement Action States Can — or Can’t — Take (NASHP, June 2018), https://nashp.org/wp-content/uploads/2018/06/TransparencyChart_-6_29_2018.pdf.

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  45. Martha Ryan and Neeraj Sood, State Drug Pricing Transparency Laws: Numerous Efforts, Most Fall Short (USC Sceffer 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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  46. Bruen and Young, Paying for Prescribed Drugs in Medicaid: Current Policy and Upcoming Changes (KFF, May 2014), https://www.kff.org/report-section/paying-for-prescribed-drugs-in-medicaid-current-policy-and-upcoming-changes-comparing-pricing-under-different-measures-8593/.

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

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  48. Myers and Stauffer LC, “NADAC Equivalency Metrics,” (CMS, September 2019), https://www.medicaid.gov/medicaid/prescription-drugs/downloads/retail-price-survey/nadac-equiv-metrics.pdf/

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  49. 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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  50. Spread pricing refers to the practice of charging the MCO more than is paid to the pharmacy in reimbursement. See: 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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  51. 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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  52. 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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  53. 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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  54. 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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  55. 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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  56. 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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  57. 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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  58. 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_667227_7.pdf.

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  59. 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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  60. 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%20
    Mark%20for%20the%20Prescription%20Drug%20Pricing%20Reduction%20Act%20of%202019.pdf
    .

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