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Medicaid in an Era of Health & Delivery System Reform: Results from a 50-State Medicaid Budget Survey for State Fiscal Years 2014 and 2015

Prescription Drug Utilization and Cost Control Initiatives

Almost all state Medicaid programs employ a sophisticated array of pharmacy management tools including preferred drug lists (PDLs), supplemental rebate programs, prior authorization programs, state maximum allowable cost (“state MAC”) programs, generic incentives and other utilization management controls. This year’s survey finds that a little over half of the states continue to take steps to refine their pharmacy programs, but that almost all states are concerned about the potential future fiscal impact of new and emerging specialty drug therapies.

Pharmacy Management Policies in Place

In FY 2014, a total of 46 states indicated that they had adopted a Preferred Drug List (PDL) and 45 were obtaining supplemental rebates. Of the remaining five states that have not adopted a PDL or implemented a supplemental rebate program, three (Arizona, Hawaii, and New Jersey) have less of an incentive to do so because they rely heavily or completely on capitated managed care organizations (MCOs) to administer the Medicaid pharmacy benefit. The number of states with limits on the number of prescriptions that Medicaid will pay for each month decreased slightly to 16 states in FY 2014 from 18 in FY 2013.

Summary of FY 2014 and FY 2015 Pharmacy Policy Changes and Cost Containment Efforts

Twenty-eight states in FY 2014 and 20 states in FY 2015 implemented cost-containment initiatives in the area of prescription drugs, comparable to the number of states taking action in FY 2013 (24) but fewer than the number of states taking such actions in FY 2012 (33), FY 2011 (31 states) or FY 2010 (38 states). As PDL and related supplemental rebate programs have matured in most states and as more states have carved the pharmacy benefit into capitated managed care arrangements, the number of states reporting PDL or supplemental rebate changes (e.g., adding new PDL drug classes or joining a multi-state rebate pool) has dropped significantly to (3 to 5 states) compared to 24 to 28 states in FY 2009. A small number of states reported reductions in ingredient cost reimbursement (3 states in FY 2014 and 5 states in FY 2014), often associated with the adoption of an actual acquisition cost methodology (discussed further below), and an even smaller number reported dispensing reductions (1 state in FY 2014 and 1 state in FY 2015) or imposing new limits on the number of monthly prescriptions (1 state in FY 2014 and no states in FY 2015). The most significant type of reduction reported (included under “Other Pharmacy Changes”) related to the application of clinical management protocols for Sovaldi, a recently approved specialty drug for the treatment of hepatitis C.

NADAC Ingredient Cost Pricing
State Medicaid programs reimburse pharmacies for the “ingredient cost” of each prescription, plus a dispensing fee.1 Responding to the urging of a number of states2, in June 2012 CMS launched its outpatient drug acquisition cost survey of retail community pharmacies3 for the purpose of developing a database of National Average Drug Acquisition Costs (NADACs) that states could then use for Medicaid pharmacy pricing. Effective November 27, 2013, CMS began posting final NADAC files for state use. In this year’s survey, one state in FY 2014 (Delaware) and four states in FY 2015 (Alaska, Mississippi, Nevada and Wyoming) reported adopting, or plans to adopt, a NADAC ingredient cost methodology.4

Sovaldi and Other High-Cost Specialty Drugs

While specialty drugs accounted for less than one percent of all U.S. prescriptions in 2013, they comprised more than a quarter (27.7%) of the country’s total pharmacy expenditures for the first time.5 U.S. spending on specialty medications increased by 14.1 percent in 2013; however, the forecasts call for more dramatic increases between 2014 and 2016 driven in large part by a new specialty medication to treat hepatitis C costing more than $80,000 for a 12-week course of treatment (Sovaldi). In its 2013 Drug Trend Report, pharmacy benefit manager Express Scripts forecasted that U.S. spending on hepatitis C medications would increase 1,800 percent between 2014 and 2016 stating: “[n]o major therapy class has experienced this high of a rate increase in the 21 years Express Scripts has recorded drug trend data.6” While all payers are expected to be affected, public payers such as Medicaid (and Medicare) are expected to be disproportionately affected as many of the estimated 3.2 million Americans infected with hepatitis C are elderly, poor or imprisoned.7

In this year’s survey, virtually every state indicated concern regarding recently approved high-cost specialty drugs, especially Sovaldi. States were asked to comment on the whether their state had adopted or planned to adopt new coverage and reimbursement policies to address Sovaldi in FY 2014 or FY 2015. Twenty-two states commented that new clinical prior authorization criteria were already in place or under development. One state (New Jersey) noted that it was exploring clinical protocols to restrict Sovaldi utilization – an unusual step for a state with no Medicaid PDL and only minimal pharmacy prior authorization requirements. Seven states indicated that they were standardizing the clinical criteria across both fee-for-service and managed care and seven states reported plans to carve-out Sovaldi and/or related drugs or partially supplement and/or provide pass-through payments to managed care plans for some of the costs of Solvadi, some on a temporary basis. Vermont also expressed the concern that the coverage of high cost drugs like Sovaldi could put its Global Commitment waiver budget neutrality ceiling at risk.

Other Pharmacy Policy Changes

Other pharmacy actions counted as cost containment measures for FY 2014 and FY 2015 included: implementing or expanding a 340B initiative (Minnesota, Oklahoma, Texas, Utah); expanded step therapy or prior authorization programs (Connecticut, New York and Washington); changes to pricing or rebate collection policies for physician administered drugs (District of Columbia, Rhode Island); imposing a mandatory 3 month supply requirement for maintenance drugs (Alabama); application of a 10 percent payment reduction to pharmacy claim reimbursement for select prescription drug claims in FY 2014 (California); implementation of new specialty drug adherence monitoring measures (Massachusetts); initiatives to control behavioral health drug utilization (Maryland); new strategies to address opioid overuse (South Carolina); implementation of a closed pharmacy network and added application limits on ADHD drugs for children (Washington), and revised reimbursement policies for blood clotting factor (Wisconsin).

In addition, several states reported other pharmacy-related actions that were not included in the count of cost containment actions. Delaware reported plans to transition the pharmacy benefit to MCOs, Indiana reported implementing e-prescribing technology and a new pharmacy benefit manager contract; Kansas reported moving the diabetic testing supplies benefit to its pharmacy program; Mississippi reported plans to move to a uniform PDL for MCOs in October 2014 and Washington reported requiring MCOs to use a uniform PDL for antipsychotics effective January 1, 2014; and Montana reported new administrative rules regarding prescription drug fraud and abuse and plans to allow pharmacies to bill for vaccine administration.
Finally, a few states reported pharmacy-related expansions or reversals of previous pharmacy cost containment actions. Six states increased dispensing fees in FY 2014 (Alaska, Delaware, Iowa, Indiana, Montana and Utah) and four states planned to increase dispensing fees in FY 2015 (Mississippi, Montana, Nevada and Wyoming). In four of these states (Delaware, Mississippi, Nevada and Wyoming), dispensing fee increases were expected to partially offset reimbursement decreases resulting from the adoption of the NADAC ingredient cost reimbursement methodology. South Carolina reported exempting some chronic medications from its monthly prescription cap in FY 2014 but expects this change to generate medical savings that will offset increased pharmacy costs. West Virginia reported that the elimination of the Mountain Health Choices benchmark plan in January 2014 resulted in the elimination of the related monthly prescription cap.

See Tables 13 and 14 for more detail on pharmacy cost containment actions.

TABLE 13: PHARMACY COST CONTAINMENT POLICIES IN PLACE IN THE 50 STATES AND DC AT THE START OF FY 2014

States Preferred Drug List Supplemental Rebates Script Limits
Alabama X X X
Alaska X X
Arizona
Arkansas X X X
California X X X
Colorado X X
Connecticut X X
Delaware X X
DC X X
Florida X X
Georgia X X
Hawaii
Idaho X X
Illinois X X X
Indiana X X
Iowa X X
Kansas X X X
Kentucky X X X
Louisiana X X X
Maine X X X
Maryland X X
Massachusetts X
Michigan X X
Minnesota X X
Mississippi X X X
Missouri X X
Montana X X
Nebraska X X
Nevada X X
New Hampshire X X
New Jersey
New Mexico X X
New York X X
North Carolina X X
North Dakota
Ohio X X
Oklahoma X X X
Oregon X X
Pennsylvania X X X
Rhode Island X X
South Carolina X X X
South Dakota
Tennessee X X X
Texas X X X
Utah X X X
Vermont X X
Virginia X X
Washington X X
West Virginia X X X
Wisconsin X X
Wyoming X X
Totals 46 45 16
NOTES: These are cost containment initiatives in place at the start of FY 2014.
SOURCE: Kaiser Commission on Medicaid and the Uninsured Survey of Medicaid Officials in 50 states and DC conducted by Health Management Associates, October 2014.

TABLE 14: PHARMACY COST CONTAINMENT ACTIONS TAKEN IN THE 50 STATES AND DC, FY 2014 AND 2015

States Impose Script Limits Reduce Dispensing Fee Reduce Ingredient Costs Preferred Drug List Changes Supplemental Rebate Changes Other Pharmacy Actions Total Pharmacy Actions Taken
2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015
Alabama X X X X X
Alaska X X X
Arizona X X
Arkansas
California X X X X
Colorado X X
Connecticut X X
Delaware X X
DC X X
Florida X X
Georgia X X
Hawaii
Idaho X X
Illinois X X
Indiana X X X X X X X
Iowa X X
Kansas
Kentucky
Louisiana X X
Maine
Maryland X X
Massachusetts X X X X
Michigan X X X X X
Minnesota X X
Mississippi X X X
Missouri
Montana
Nebraska
Nevada X X
New Hampshire X X
New Jersey X X
New Mexico
New York X X X X X
North Carolina X X X X
North Dakota
Ohio X X
Oklahoma X X X
Oregon
Pennsylvania
Rhode Island X X
South Carolina X X
South Dakota
Tennessee X X X
Texas X X X X X
Utah X X
Vermont
Virginia X X X X
Washington X X X X X X X
West Virginia X X X
Wisconsin X X X X
Wyoming X X X X
Totals 1 0 1 1 3 5 4 5 4 3 25 13 28 20
SOURCE: Kaiser Commission on Medicaid and the Uninsured Survey of Medicaid Officials in 50 states and DC conducted by Health Management Associates, October 2014.
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