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What Drives Spending and Utilization on Medicaid Drug Benefits in States?

Executive Summary
  1. This report does not discuss ingredient cost reimbursement, except in the context of the Medicaid Drug Rebate Program.  Ingredient cost reimbursement is discussed in great detail in B. Bruen and K. Young, “Paying for Prescribed Drugs in Medicaid: Current Policy and Upcoming Changes” Kaiser Family Foundation, May 2014. Available at https://www.kff.org/medicaid/issue-brief/paying-for-prescribed-drugs-in-medicaid-current-policy-and-upcoming-changes/.

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Issue Brief
  1. “National Health Expenditures” CMS. Available at http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NationalHealthAccountsHistorical.html.

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  2. Ibid.

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  3. See V. Smith, S. Kramer, and R. Rudowitz, “Managing Medicaid Pharmacy Benefits: Current Issues and Options” Kaiser Family Foundation, September 2011. Available at https://www.kff.org/medicaid/report/managing-medicaid-pharmacy-benefits-current-issues-and-options/.

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  4. As part of the rebate program, manufacturers are required to report all covered drugs currently under their labeler code, as well the quarterly Average Manufacturer Price (AMP) for each National Drug Code (NDC). The drug rebate is calculated by statute and is based upon a lower-of formula involving AMP; what type of drug it is, including if it is a brand or a generic; the best price if it is a brand-name drug; and the Consumer Price Index-Urban. AMP is defined as the “average price paid to the manufacturer for the drug in the United States by wholesalers for drugs distributed to retail community pharmacies; and retail community pharmacies that purchase drugs directly from the manufacturer” with some exclusions (SSA Section 1927(k)(1)(A)). The NDC is a unique code that identifies each drug according to its labeler, strength, dosage form, package form, and package size. The best price is the lowest price paid by any payer.

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  5. U.S. Department of Health and Human Services- Office of Inspector General. “States Collections of Rebates for Drugs Paid Through Medicaid Managed Care Organizations” (OEI-03-11-00480), September 2012. Available at http://oig.hhs.gov/oei/reports/oei-03-11-00480.pdf.

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  6. Urban Institute estimate based on data from Medicaid Financial Management Reports (HCFA/CMS Form 64).  From K. Young, L. Clemans-Cope, E. Lawton, and J. Holahan. “Medicaid Spending Growth in the Great Recession and Its Aftermath, FY 2007-2012” Kaiser Family Foundation, July 2014. Available at https://www.kff.org/medicaid/issue-brief/medicaid-spending-growth-in-the-great-recession-and-its-aftermath-fy-2007-2012/.

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  7. Kaiser Commission on Medicaid and the Uninsured and the Urban Institute estimates based on data from FY 2007 through FY 2010 MSIS. Because 2010 data were unavailable, 2009 MSIS data were used for CO, ID, MO, NC, and WV, and then adjusted to 2010 CMS-64 spending levels. MSIS drug spending represents fee-for-service spending only.

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  8. Ibid.

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  9. See Young et al.

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  10. “National Health Expenditures”

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  11. V. Smith, K. Gifford, and R. Rudowitz, “Headed for a Crunch: An Update on Medicaid Spending Coverage and Policy Heading into an Economic Downturn Kaiser Family Foundation, September 2008; V. Smith, K. Gifford, E. Ellis, R. Rudowitz, M. Watts, C. Marks, “The Crunch Continues: Medicaid Spending, Coverage and Policy in the Midst of a Recession: Results from a 50-State Medicaid Budget Survey for State Fiscal Years 2009 and 2010 Kaiser Family Foundation, September 2009; V. Smith, K. Gifford, E. Ellis, R. Rudowitz, L. Snyder, “Hoping for Economic Recovery, Preparing for Health Reform:  A Look at Medicaid Spending, Coverage and Policy Trends Results from a 50-State Medicaid Budget Survey for State Fiscal Years 2010 and 2011 Kaiser Family Foundation, September 2010; V. Smith, K. Gifford, E. Ellis, R. Rudowitz, L. 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 Kaiser Family Foundation, October 2011; V. Smith, K. Gifford, E. Ellis, R. Rudowitz, and L. Snyder, “Medicaid Today; Preparing for Tomorrow: A Look at State Medicaid Program Spending, Enrollment and Policy Trends Results from a 50-State Medicaid Budget Survey for State Fiscal Years 2012 and 2013 Kaiser Family Foundation, October 2012; V. Smith, K. Gifford, E. Ellis, R. Rudowitz, and L. Snyder, “Medicaid in a Historic Time of Transformation: Results from a 50-State Medicaid Budget Survey for State Fiscal Years 2013 and 2014 Kaiser Family Foundation, October 2013.

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  12. See Bruen and Young.

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  13. Medicaid and Children’s Health Insurance Programs: Essential Health Benefits in Alternative Benefit Plans, Eligibility Notices, Fair Hearing and Appeal Processes, and Premiums and Cost Sharing; Exchanges: Eligibility and Enrollment; Final Rule. 78 Federal Register 135, 15 July 2013, pp. 42160-42322.

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  14. See “National Health Expenditure Projections 2012-2022” Office of the Actuary in the Centers for Medicare & Medicaid Services. Available at http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NationalHealthAccountsProjected.html.

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  15. American Hospital Formulary Service drug classes are from the American Society of Health-System Pharmacists (www.ahfsdruginformation.com). We accessed them through the Wolters Kluwer Master Drug Data Base (Version 2.5). See Appendix B: Methodology for more details.

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  16. As rebates at the drug level are not available to the public, we are unable to include rebates in this analysis.

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  17. U.S. Department of Health and Human Services- Substance Abuse and Mental Health Services Administration. “Medicaid Handbook: Interface with Behavioral Health Services” 2013. Available at http://store.samhsa.gov/shin/content//SMA13-4773/SMA13-4773.pdf.

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  18. D. Blaser, A. Lewtas, et al. “How to Define Specialty Pharmaceuticals – A Systematic Review” American Journal of Pharmaceutical Benefits, 2(6), 2010. See also Academy of Managed Care Pharmacy. “AMCP Format for Formulary Submission Guidelines”, version 3.1, December 2012. Available at http://www.amcp.org/practice-resources/amcp-format-formulary-submisions.pdf.

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  19. The Academy for Managed Care Pharmacy acknowledges that price is frequently a consideration in definitions used by individual organizations, but does not include price in its definition and argues that price alone should not be used to define specialty drugs.

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  20. Due to data quality issues, we have not calculated specialty drug shares in New Mexico, Rhode Island, and Texas.

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  21. “Abbreviated New Drug Application (ANDA): Generics” Available at http://www.fda.gov/Drugs/DevelopmentApprovalProcess/HowDrugsareDevelopedandApproved/
    ApprovalApplications/AbbreviatedNewDrugApplicationANDAGenerics/

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  22. For other methods that states use to reduce drug spending see Smith, Kramer, and Rudowitz.

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  23. CVS/Caremark. “Insights 2012” Available at http://www.cvscaremarkfyi.com/2012Insights.

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  24. U.S. Department of Health and Human Services- Centers for Medicare & Medicaid Services. “Drug Diversion in the Medicaid Program: State Strategies for Reducing Prescription Drug Diversion in Medicaid” January 2012. Available at http://www.cms.gov/Medicare-Medicaid-Coordination/Fraud-Prevention/MedicaidIntegrityProgram/downloads/drugdiversion.pdf.

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  25. See, for example, Government Accountability Office. “Children’s Mental Health: Concerns Remain about Appropriate Services for Children in Medicaid and Foster Care” December 2012. Available at http://www.gao.gov/assets/660/650716.pdf.

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  26. J. Rockoff, “Sales Soar for Pricey Hepatitis Drug Sovaldi” The Wall Street Journal, March 31, 2014. Available at http://online.wsj.com/news/articles/SB10001424052702303978304579473273033614530.

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  27. Ibid.

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  28. B. Japsen, “At $1,000 a Pill, Hepatitis C Drug Sovaldi Rattles Medicaid Programs” Forbes, April 28, 2014. Available at http://www.forbes.com/sites/brucejapsen/2014/04/28/pricey-hepatitis-pill-sovaldi-rattles-medicaid-programs/.

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  29. A. Pollak, “Harvoni, a Hepatitis C Drug From Giliead, Wins F.D.A. Approval” New York Times, October 10, 2014. Available at http://www.nytimes.com/2014/10/11/business/harvoni-a-hepatitis-c-drug-from-gilead-wins-fda-approval.html.

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Appendices
  1. We pulled formulary information from Aetna Specialty CareRx, BlueCross BlueShield of Rhode Island, CVS Caremark Specialty Pharmacy Services, Express Scripts, and Wellmark.

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  2. The state drug utilization data for the following states and quarters was either missing or unreliable: Colorado 2011Q4, Hawaii 2012Q2-Q4, Indiana 2012Q3, North Dakota 2012Q4, Texas 2012Q1 and 2012Q3, Utah 2012Q1, Virginia 2010Q2-2010Q4.

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  3. See “Medicaid Drug Rebate Program Data” Available at http://www.medicaid.gov/Medicaid-CHIP-Program-Information/By-Topics/Benefits/Prescription-Drugs/Medicaid-Drug-Rebate-Program-Data.html.

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  4. U.S. Department of Health and Human Services- Office of Inspector General. “Medicaid Rebates for Physician-Administered Drugs” (OEI-03-02-00660) September 2012. Available at http://oig.hhs.gov/oei/reports/oei-03-11-00480.pdf.

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  5. U.S. Department of Health and Human Services- Office of Inspector General. “States Collection of Medicaid Rebates for Physician-Administered Drugs(OEI-03-09-00410) June 2011. Available at http://oig.hhs.gov/oei/reports/oei-03-09-00410.pdf. States continue to face challenges carrying out these requirements: Providers may not report all of the information needed to support rebate claims; state systems may not accurately capture relevant information or may accept claims without complete documentation; and manufactures may challenge claims because of concerns over the accuracy of claims information. For example, see Nebraska Department of Health and Human Services. “Medicaid Drug Rebate Program – National Drug Code (NDC) Reporting Requirement for Physician Administered Drugs New Quantity Limits” Provider Bulletin No. 13-63.  September 5, 2013. Available at http://dhhs.ne.gov/medicaid/Documents/PB1363.pdf.

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