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

Challenges and Priorities in FY 2020 and Beyond

Impact of Federal Reforms
CMS Medical Loss Ratio (MLR) Bulletin

Recent MLR guidance will have implications for states that cover drugs through managed care. CMS issued sub-regulatory guidance in May 2019 on Medical Loss Ratio (MLR) reporting for managed care contracts when the managed care entity uses a third-party vendor in a subcontracted arrangement, including PBM subcontracts.1 States’ responses on whether there would be a fiscal impact with implementing the MLR bulletin varied: states that required PBM transparency reporting and/or contracting as of July 2019 reported no fiscal impact because the actual drug ingredient costs and dispensing fees were factored into capitation rates. States with no PBM reporting requirements or that allowed spread pricing reported that capitation rates were likely overstated and would be adjusted in future rate setting periods.2

The 21st Century Cures Act

A number of states cited the 2016 21st Century Cures Act’s expansion of drugs eligible for the FDA expedited review process as a concern. New drugs eligible for an expedited review include cell and gene therapies that are typically high cost and other medications for rare diseases. There are reduced efficacy study requirements for expedited review, which means that a new drug that may not be more effective than a preexisting therapy may be priced many times more. Some of the states commenting on the Cures Act expressed a desire for more flexibility on covering these drugs — even with the MDRP in place — when clinical trials and independent efficacy studies do not support increased effectiveness or equivalent effectiveness at the higher price.

The Substance Use-Disorder Prevention that Promotes Opioid Recovery and Treatment (SUPPORT) for Patients and Communities Act

Several states reported that implementation of the 2018 SUPPORT Act could affect Medicaid drug spending in their state. In particular, states reported that open access to substance use disorder (SUD) agents without prior authorization and without respect to PDL and supplemental rebate strategies has the potential to increase costs for SUD agents considerably.

The Prescription Drug Pricing Reduction Act of 2019

Several areas of this Act were noted as consequential for states, especially reforms to the MDRP, including increasing the amount of the rebate to exceed 100% of the Average Manufacturer Price (AMP). A number of states welcomed this reform, particularly for drugs that increase prices beyond the Consumer Price Index for All Urban Consumers (CPI-U) and those that come with very expensive launch prices. As of February 2020, the legislation has been passed out of committee but has not been voted on by the Senate. There remains significant interest at the federal level to address drug prices and the President has signaled his support for bipartisan legislation.

Other Potential Federal Reform Areas

Other potential federal reform areas that states reported watching include repeal efforts of the entire Accountable Care Act, drug reimportation, CMS guidance on CAR-T therapies, modifications to DUR requirements, and PBM contracting reforms.

State Priorities for the Next Two Years

Over two-thirds of the responding states reported that developing policies and strategies related to new high-cost therapies was a top priority. Significant advancements in gene and cellular therapies like CAR-T3 to treat cancer and rare diseases in recent years come with high price tags but are often curative. With more of these costly therapies in the drug development pipeline, states are struggling to adequately budget for current and future therapies. Twenty-three of the 45 states responding to an open-ended question about gene and cell therapies reported that their medical and pharmacy teams have put risk mitigation policies in place, such as PA, risk corridors, or MCO carve-outs, or that an exploration of policy options was underway. Twelve states also reported pursuing or considering State Plan Amendments to enter into value-based arrangements.4

Nearly one-third of the MCO states that carve-in the pharmacy benefit reported that MCO pharmacy policy reforms were a high priority. This included increasing oversight controls, implementing uniform PDLs, and carving the benefit out of managed care. States also reported that they are focusing on improving data collection, implementing new managed care programs, and improving managing medical benefit drugs.

Several states stated that addressing the opioid epidemic, including implementing the SUPPORT Act, is a priority. As noted above, some states are concerned that the SUPPORT Act restrictions on imposing PA on SUD medications will raise costs in those classes of drugs.

State Strategies to Manage 340B Programs Conclusion