How State Medicaid Programs are Managing Prescription Drug Costs: Results from a State Medicaid Pharmacy Survey for State Fiscal Years 2019 and 2020

Pharmacy Benefit Administration
  1. 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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  2. The ACA extended federal statutory rebates to prescription drugs provided under Medicaid managed care arrangements. Prior to the ACA, manufacturers only had to pay rebates for outpatient drugs purchased on a fee-for-service basis, not those purchased through managed care.

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  3. Elizabeth Hinton, Robin Rudowitz, Maria Diaz, and Natalie Singer, 10 Things to Know about Medicaid Managed Care (KFF, December 2019), https://www.kff.org/medicaid/issue-brief/10-things-to-know-about-medicaid-managed-care/.

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  4. Wisconsin reported that pharmacy services are carved out for most MCO enrollees with the exception of a small population in the Family Care Partnership program which delivers long term care and acute care benefits, including pharmacy benefits.

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  5. California Department of Health Care Services, “Request for Proposal #19-96125, Medi-Cal Rx,” https://www.dhcs.ca.gov/provgovpart/rfa_rfp/Pages/CSBmcrxHome.aspx.

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

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  7. Chimeric antigen receptor T-cell (CAR-T) therapy is a type of immunotherapy that uses a patient’s own genetically modified T-cells to find and kill cancer.

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  8. The state has likely determined that the risk pool is no longer needed as the cost for these agents has decreased significantly since their introduction and these costs are also now adequately reflected in capitation rates.

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  9. 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.pdfSee 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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  10. Since California responded to the survey, the state has awarded a multi-year contract to Magellan for claims processing, utilization management, and rebate administration. See California Department of Health Care Services, “Notice of Intent to Award,” (November 7, 2019), https://www.dhcs.ca.gov/provgovpart/rfa_rfp/Documents/MCRx-NOIA.pdf.

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  11. Actual Acquisition Cost (AAC): The state Medicaid agency’s determination of the actual price pharmacies paid for an outpatient prescription drug.

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  12. Maximum Allowable Cost (MAC): The maximum reimbursement rates, set by the state Medicaid agency, for generic drugs and brand name drugs with generic versions available.

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  13. This is based upon a review of 2018-2019 Medicaid pharmacy benefit administration RFPs (CA, IN, MI, and TN) and RFIs (NE, NV, and OH).

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  14. States that reported that their fiscal intermediary (generally, Conduent, DXC, or Wipro) processes claims: AK, AL, CT, DE, HI, KS, LA, MA, MD, MO, MS, MT, NC, ND, NJ, NM, OR, PA, RI, TX, WI, and WV. Florida reported that its PBM is subcontractor of DXC.

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  15. Colorado and Utah did not respond.

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  16. According to CMS, “spread pricing occurs when health plans contract with pharmacy benefit managers (PBMs) to manage their prescription drug benefits, and PBMs keep a portion of the amount paid to them by the health plans for prescription drugs instead of passing the full payments on to pharmacies.” See Centers for Medicare and Medicaid Services, “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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  17. Percentage is out of 50 responding states, Arizona did not respond. See CMS, National Medicaid Fee-for-Service (FFS) 2018 Drug Utilization Review (DUR) (CMS, 2019), https://www.medicaid.gov/medicaid/prescription-drugs/drug-utilization-review/drug-utilization-review-annual-report/index.html.

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  18. States that reported not having a P&T Committee: CA, GA, HI, MA, ND, NJ, NM, NY, OK, TX, and VT.

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  19. CMS, National Medicaid Managed Care Organization (MCO) 2018 Drug Utilization Review (DUR) (CMS, 2019), https://www.medicaid.gov/medicaid/prescription-drugs/downloads/drug-utilization-review/2018-dur-mco-summary-report.pdf.

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  20. States that reported having no DUR Board conflict of interest policy: AZ, HI, ID, KY, LA, MO, NC, NJ, OK, and RI.

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  21. Hawaii, New Jersey, and Oklahoma reported that there was no conflict-of-interest policy for their DUR boards and that they did not have a P&T committee.

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Cost Containment and Utilization Control Strategies
  1. Vernon K. Smith, Kathleen Gifford, Eileen Ellis, Barbara Edwards, Robin Rudowitz, Elizabeth Hinton, Larisa Antonisse, and Allison Valentine, Implementing Coverage and Payment Initiatives: Results from a 50-State Medicaid Budget Survey for State Fiscal Years 2016 and 2017 (KFF, October 2016), https://www.kff.org/report-section/implementing-coverage-and-payment-initiatives-benefits-and-pharmacy/.

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  2. A few states reported changes to the statutory limits in FY 2020: three states (Arkansas, Iowa, and Oregon) added PA prohibitions or limits on Medication Assisted Treatment (MAT) drugs or drugs used to treat substance use disorders; Arkansas will also prohibit PA on cancer therapies; and North Dakota’s statutory limit will be eased by allowing Medicaid to place PA on drugs prescribed by severe outlier prescribers.

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  3. Arizona and Utah did not respond.

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  4. 42 U.S.C. §1396r-8 (d) (1)

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  5. Utah did not respond.

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  6. Mississippi does not allow the prescription limit for adults to be overridden, but does allow overrides for children.

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  7. Maryland, Maine, and Utah did not respond.

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  8. States that reported that MCOs were required to follow the state’s FFS generic policies: AZ, DE, FL, IA, KS, LA, MA, MS, ND, NE, NM, and TX.

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Payment, Supplemental Rebates and Rebate Management
  1. Louisiana reported entering into an agreement with Asegua Therapeutics, as of July 15, 2019, for the state’s hepatitis C subscription model project.

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  2. Five states (Illinois, Louisiana, New Hampshire, Ohio, and Pennsylvania) reported that a planned move to a single, unified PDL across FFS and managed care was expected to increase rebate collections; two states (Connecticut and Washington) reported plans to add additional therapeutic classes to their PDLs; two states (North Carolina and Washington) mentioned enhanced collections attributable to hepatitis C antiviral drugs; Massachusetts reported new direct negotiation state authority and CMS approval to enter into value-based agreements with manufacturers; Missouri indicated that grandfathering will be eliminated for most PDL classes; and West Virginia reported that the recent managed care pharmacy carve-out was expected to improve rebate collections.

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  3. Colorado and Utah did not respond.

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  4. Centers for Disease Control, Community Pharmacists and Medication Therapy Management (CDC, May 2019), https://www.cdc.gov/dhdsp/pubs/guides/best-practices/pharmacist-mtm.htm.

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  5. North Carolina, and Utah did not respond.

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  6. Oklahoma’s VBAs relate to financial outcomes, including adherence, costs and hospitalizations. If the drug fails to meet certain benchmarks, the manufacturer will make additional payments to the state in the form of a supplemental rebate.

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  7. Under Washington’s VBA, the state has negotiated a guaranteed net unit price up to a certain threshold after which the cost to the state of the drug is nominal.

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  8. Louisiana is also implementing a modified subscription model for hepatitis C antiviral drugs in FY 2020 in which the state pays the manufacturer a set amount for drugs, beyond which the state will continue to receive drugs at no additional cost. The state considers this policy to be an intrastate purchasing pool and did not report it as a VBA.

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  9. Ohio Department of Medicaid, “Increasing the Accountability of Ohio’s Medicaid Pharmacy Program: Strengthening Medicaid Managed Care Contracts,” https://medicaid.ohio.gov/Portals/0/Resources/PharmacyTransparency/Strengthening-Medicaid-Managed-Care-Contracts.pdf.

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  10. 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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  11. “White bagging” refers to the practice of physicians ordering specialty drugs from a pharmacy to administer and billing the drugs under the pharmacy benefit rather than the medical benefit.

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State Strategies to Manage 340B Programs
  1. Eligible covered entities include the following: federally qualified health centers (FQHCs), federally qualified health center look-alikes, native Hawaiian health centers, tribal/urban Indian health centers, Ryan White HIV/AIDS Program grantees, children’s hospitals, critical access hospitals, disproportionate share hospitals, freestanding cancer hospitals, rural referral centers, sole community hospitals, black lung clinics, comprehensive hemophilia diagnostic treatment centers, Title X family planning clinics, sexually transmitted disease clinics, and tuberculosis clinics. See 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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  2. Health Resources & Services Administration, “340B Drug Pricing Program,” https://www.hrsa.gov/opa/index.html.

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  3. Office of the Inspector General, Contract Pharmacy Arrangements in the 340B Program (HHS, 2014), https://oig.hhs.gov/oei/reports/oei-05-13-00431.pdf.

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  4. CMS, “CMCS Informational Bulletin: Best Practices for Avoiding 340B Duplicate Discounts in Medicaid,” https://www.medicaid.gov/sites/default/files/Federal-Policy-Guidance/Downloads/cib010820.pdf.

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  5. Several states reported additional strategies to help remove 340B claims from files submitted to manufacturers for rebates: Kansas cross-references CE National Provider Identifiers (NPIs) and addresses to provide added assurance of billing accuracy along with performing batch invoice testing; Maryland requires 340B entities to notify the Medicaid agency finance division of their 340B status; entities are then confirmed on the HRSA file and the NPI is hard-coded into the MMIS to prevent rebate claims extraction; Massachusetts requires separate NPI numbers for 340B providers; Vermont performs a monthly manual claims reconciliation with CEs; Oklahoma invoices the CEs on a quarterly basis for the amount of rebates that would have been received.

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  6. National Council for Prescription Drug Programs, 340B Information Exchange Reference Guide (NCPDP, June 2019), https://www.ncpdp.org/NCPDP/media/pdf/340B_Information_Exchange_Reference_Guide.pdf.

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  7. States are challenged by this requirement as the ceiling price is not available to them for claims processing, although it can be approximated through CMS rebate files. See 42 CFR § 447.502.

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Challenges and Priorities in FY 2020 and Beyond
  1. CMS, “Medical Loss Ratio (MLR) Requirements Related to Third-Party Vendors,” (May 15, 2019), https://www.medicaid.gov/sites/default/files/Federal-Policy-Guidance/Downloads/cib051519.pdf.

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  2. As of July 1, 2019, only 11 of 34 non-carve-out MCO states responding to the survey prohibited spread pricing. (Colorado and Utah did not respond.) Of the states that allow spread pricing, only California, DC, Hawaii, Nevada, and Rhode Island did not have reporting requirements to identify the amount of the spread in their FY 2020 MCO contracts. California will be carving the pharmacy benefit out of MCOs in 2021; therefore, the requirement will not impact them in the future.

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  3. Chimeric antigen receptor T-cell (CAR-T) therapy is a type of immunotherapy that uses a patient’s own genetically modified T-cells to find and kill cancer.

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  4. Twelve states reported considering outcomes-based value-based arrangements (VBAs), though they also report challenges with VBAs (DC, IL, LA, ME, MI, MS, NC, NV, OK, OR, VA, and VT.) Other state strategies include MCO carve-outs (IN, TX), risk corridors (NJ), paying at invoice price (MA), and establishing a rare disease council, P&T subcommittee, or emerging therapies workgroup (MO, WA, and WY.)

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