States Focus on Quality and Outcomes Amid Waiver Changes: Results from a 50-State Medicaid Budget Survey for State Fiscal Years 2018 and 2019
Pharmacy and Opioid Strategies
Key Section Findings
|Most states identified specialty and high-cost drugs (individually or in general) as the most significant cost driver of Medicaid pharmacy spending. Twenty-two states in FY 2018 and 19 states in FY 2019 reported new or enhanced pharmacy cost containment initiatives, especially initiatives to generate greater rebate revenue and implementation of new utilization controls (e.g., prior authorization requirements, step therapy, other clinical criteria, or dose optimization). Thirty-five of 39 MCO states reported that the pharmacy benefit was “generally carved-in,” unchanged from 2017. Of these 35 states, the majority reported requirements that MCOs have uniform clinical protocols (31 states) or uniform preferred drug lists (PDLs) (17 states) in place for one or more drugs as of the end of FY 2019.
In FY 2018, all states report FFS pharmacy management strategies targeted at opioid harm reduction including quantity limits (50 states); clinical criteria claim system edits (48 states); step therapy (39 states), and other prior authorization requirements (44 states). Somewhat fewer states (32) reported requirements in place for Medicaid prescribers to check their states’ Prescription Drug Monitoring Program (PDMP) before prescribing opioids to a Medicaid patient. Of the 35 states that used MCOs to deliver pharmacy benefits, 26 reported that they required MCOs to follow some or all of their FFS pharmacy management policies for opioids.
What to watch:
Table 17 provides additional details on Medicaid FFS pharmacy benefit management strategies for opioids.
Prescription Drug Utilization and Cost Control Initiatives
Under federal law, once a manufacturer enters into a rebate agreement with the Secretary of HHS, states must generally cover (with limited exceptions) all drugs produced by that manufacturer. Because approximately 600 manufacturers currently have rebate agreements,1 states cover nearly all FDA-approved drugs. As pharmacy expenditure growth became a greater Medicaid budget concern in the late 1990’s and early 2000’s, most states implemented aggressive pharmacy cost containment strategies, including preferred drug lists (PDLs), supplemental rebate programs, state maximum allowable cost programs, and prior authorization policies linked to clinical criteria. While these programs have matured, they are also subject to ongoing updates and refinements as states respond to changes, especially new product offerings, in the pharmaceutical marketplace. In recent years, however, a disproportionate increase in prescription drug costs relative to overall spending has heightened state attention on pharmacy reimbursement and coverage policies. In this year’s survey, states reported a variety of actions in FY 2018 and FY 2019 to refine and enhance their pharmacy programs, including actions to react to new and emerging specialty and high-cost drug therapies.
PHARMACY COST DRIVERS
Specialty and high-cost drugs remain the biggest cost driver of pharmacy spending growth in most states. This year’s survey asked states to identify the biggest cost drivers that affected growth in total pharmacy spending2 (federal and state) in FY 2018 and projected for FY 2019. Consistent with the results of prior surveys in recent years, most states again identified specialty and high-cost drugs (individually or in general) as the most significant pharmacy cost driver. While several states noted that the cost of hepatitis C antivirals had recently come down due to the market entry of a competitor drug, a significant number of states specifically identified this drug class as a major cost driver. Other drug classes frequently cited as major cost drivers include hemophilia factor and oncology, mental health, and HIV/AIDS drugs. For FY 2019, several states also noted the emerging cost challenge posed by gene therapies and immunotherapies like “CAR-T” (Chimeric Antigen Receptor-T cell) therapies,3 designated by CMS as covered outpatient drugs. For example, the first gene therapy approved by the Food and Drug Administration in 2017 to treat congenital blindness was priced at $850,000 ($425,000 per eye).4 One state noted that gene therapies and CAR-T cell therapies currently under development could have a “huge” impact on states in coming years.
States also reported facing a variety of challenges in controlling pharmacy costs. A majority of states noted the burden of covering high-cost drugs (including gene therapies and CAR-T cell therapies) or increasing drug prices generally. Other challenges cited by several states include:
- The federal requirement to cover all rebateable drugs – despite the cost and even when evidence of clinical effectiveness or safety is poor
- State law limitations, including those that shield certain drugs or drug classes from utilization management efforts
Other challenges mentioned include limited administrative resources to provide clinical oversight to implement evidence-based coverage policies; the difficulty of appropriately accounting for the cost of new and emerging drugs within actuarially sound capitation rates; claims system constraints that make it difficult to add clinical utilization edits; and a lack of transparency related to PBM pricing policies and rebate collections.
Pharmacy Cost Containment Actions in FY 2018 and FY 2019
Almost all states had prescription drug cost containment policies (including prior authorization requirements and PDLs) in place prior to FY 2018, and most are constantly refining and updating these policies. While states were not asked to report every refinement or routine change in this year’s survey, 22 states in FY 2018 and 19 states in FY 2019 reported newly implementing or making changes to a wide variety of cost containment initiatives in the area of prescription drugs. The most frequently cited action was new or expanded initiatives to generate greater rebate revenue (including PDL expansions) (eight states in both FY 2018 and FY 2019). These initiatives include the following notable actions in three states:
- New York implemented a new state law in FY 2018 that applies a cap on Medicaid drug expenditures as a separate component of the global state Medicaid spending cap that the state has had in place since 2011. If the state determines that drug spending will exceed the annual growth limit, the Commissioner of the Department of Health may identify and refer drugs to the Drug Utilization Review (DUR) Board for additional review and recommendations regarding appropriated supplemental rebates. At the time of the survey, the DUR Board had taken action to recommend a supplemental rebate target amount for one drug,5 and negotiations between the state and the drug’s manufacturer were ongoing.
- Oklahoma became the first state in the nation to receive CMS approval to pursue value-based supplemental rebate agreements with pharmaceutical manufacturers. The first contract took effect in August 2018 and relates to adherence and persistency for an injectable atypical anti-psychotic.
- West Virginia reported that its July 1, 2017 MCO pharmacy carve-out (applicable to point-of-sale pharmacy benefits but not drugs covered as a medical benefit in an inpatient or outpatient setting), resulted in lower administration costs and increased federal and supplemental rebate collections. West Virginia also reported plans to expand supplemental rebates to certain additional diabetic supplies in FY 2019.
Seven states in both FY 2018 and FY 2019 also reported the application of new or expanded utilization controls (e.g., prior authorization requirements, step therapy, other clinical criteria, or dose optimization). Other frequently cited newly implemented or expanded pharmacy cost containment actions were:
- Ingredient cost reductions: six states in FY 2018 and one state in FY 2019 reported reductions in certain ingredient cost reimbursements, and one state ended reimbursement for non-rebatable products and implemented system changes to recognize 340B pricing. Conversely, in FY 2019, Arizona reported plans to negotiate with CMS to obtain better reimbursement for high-cost specialty drugs for Medicaid enrollees utilizing Indian Health Service (IHS) facilities.
- Medication therapy management, case management, or adherence programs: these programs were implemented or expanded by five states in FY 2018 and four in FY 2019.
Managed Care’s Role in Delivering Pharmacy Benefits
Since the passage of the ACA, states have been able to collect rebates on prescriptions purchased by managed care organizations (MCOs) operating under capitated arrangements. As a result, many states have chosen to “carve-in” the pharmacy benefit to their managed care benefits. As more states have enrolled additional Medicaid populations into managed care arrangements over time, MCOs have played an increasingly significant role in administering the Medicaid pharmacy benefit. In this year’s survey, states with MCO contracts were asked whether pharmacy benefits were covered under those contracts as of July 1, 2018. Of the 39 states contracting with comprehensive risk-based MCOs, 35 states reported that the pharmacy benefit was “generally carved-in (with possible exceptions),” unchanged from FY 2017.
Among the states that carved drugs into MCOs, several reported carve-outs for selected drug classes. The most commonly reported carved-out drugs were hemophilia clotting factor reported by at least eight states, hepatitis C antivirals reported by at least six states, mental health drugs reported by at least five states, HIV drugs reported by at least three states, and selected substance use disorder (SUD) treatment drugs reported by at least three states. At least nine states noted carve-outs for other selected high-cost drugs, and some of these states cited the challenge of accurately developing capitation rates when new high-cost drugs enter the market with no available historical utilization data. Washington reported that a state workgroup was currently working to define “high-cost drugs” and establish consistent policies (that would begin in FY 2020) for drug carve-ins and carve-outs that would also include policies for pass-through payments for drugs that are carved-out.
Consistent with last year’s survey results, four states (Missouri, Tennessee, West Virginia, and Wisconsin) reported that the pharmacy benefit was “generally carved-out.” While Wisconsin noted that pharmacy was carved into its Family Care Partnership program (an integrated health and long-term care program for frail elderly and people with disabilities), the state noted that this program had a very small enrollment (approximately 3,300 as of June 20186) and that all other Wisconsin Medicaid enrollees received their pharmacy benefit through the FFS delivery system.
States with MCOs are moving to align MCO pharmacy policies with FFS policies. Prior reports show that nearly all states use prior authorization and PDLs in FFS programs. This year’s survey asked whether MCOs were required (in FY 2018) or would be required (in FY 2019) to adhere to uniform clinical protocols (state prescribed medical necessity criteria) for one or more drugs or a uniform PDL (state prescribed requirements for designating a specified drug product as either preferred, meaning covered without the need to obtain prior authorization, or non-preferred). This means that to the extent states impose these policies in FFS, the same policies would apply in managed care. The survey also asked whether MCO contracts included risk-sharing provisions for one or more drugs (e.g., risk corridors, risk pools, reinsurance, etc.) (Exhibit 18).
|Exhibit 18: Managed Care Pharmacy Policies|
|Policy||In Place in FY 2018||FY 2019 Changes|
|Uniform Clinical Protocols
(1 or more drugs)
|30 States||AZ, CA, DC, DE, GA, HI, IA, IL, IN, KS, KY, LA, MA, MD, MI, MN, MS, ND, NE, NJ, NM, NY, OH, OR, PA, RI, SC, TX, VA, WA||1 States||UT||6 States||KY, LA, OH, SC, VA, WA|
(1 or more drug classes)
|14 States||AZ, DE, FL, IA, KS, MA, MN, MS, ND, NE, OR, TX, VA, WA||3 States||LA, OH, UT||2 States||VA, WA|
(for 1 or more drugs)
|14 States||AZ, DE, HI, IN, KS, MA, NM, NV, OH, OR, PA, RI, VA, WV||2 States||FL, UT||2* States||IN, VA|
|*Delaware reported plans to remove hepatitis C antivirals from its risk pool in CY 2019.|
Uniform clinical protocols and PDL requirements for MCOs reported by states were often limited to one or a few specific drug classes. Hepatitis C antivirals were the most commonly mentioned drug class targeted by uniform clinical protocols (reported by California, DC, Georgia, Hawaii, Illinois, Kentucky, Maryland, Minnesota, New Mexico, Oregon, Rhode Island, and Virginia) and were also reported as a specific focus of uniform PDL requirements in Massachusetts, Minnesota and Oregon. Four states also reported uniform protocols in place or planned for opioids and/or Medication Assisted Treatment drugs (Kentucky, New York, South Carolina and Virginia). Of the five states that reported plans to implement or expand a uniform PDL in FY 2019, one state (Washington) specifically noted plans to phase-in a comprehensive uniform PDL while two states (Louisiana and Virginia) reported that their uniform PDLs would be limited to certain therapeutic classes.
Strategies reported by states to mitigate or share financial risk with MCOs for certain high cost drugs included selected drug carve-outs (mentioned above), “kick payments,”7 risk corridors, and risk pools, and were most commonly applied to hepatitis C antivirals and hemophilia clotting factor, but in some cases were applied to other high cost drugs (Indiana and Kansas), drugs above a certain dollar threshold (Hawaii), and cystic fibrosis drugs (Pennsylvania). Florida, for example, reported plans to add a new prescribed high-risk drug pool to its CY 2019 MCO contracts. While the pool parameters were still under negotiation at the time of the survey, the state indicated that it is planning to withhold a portion of the capitation payment to fund the pool, which will be paid out to the MCOs at a later date based on utilization. Two states also reported interest in value-based purchasing approaches for drugs: Virginia reported plans to explore value-based purchasing agreements (and other risk-sharing opportunities for high-cost drugs), and West Virginia reported that payments for certain physician-administered cancer treatments are made only if the patient is in remission 30 days after treatment.
Opioid Harm Reduction Strategies
According to the U.S. Department of Health and Human Services, 2.1 million people in the United States have an opioid use disorder and 11.5 million people misuse prescription opioids as of 2016.8 The Centers for Disease Control and Prevention (CDC) indicates the number of drug overdose deaths continues to increase, and the majority (around 66%) involve an opioid (prescription opioids, synthetic opioids, and heroin).9 The number of opioid overdose deaths is five times higher than it was in 1999, with 115 people dying from opioid-related drug overdoses each day.10 The opioid epidemic was declared a nationwide public health emergency on October 26, 2017.11
Medicaid plays an important role in addressing the epidemic, covering 4 in 10 people with opioid use disorder in 2016 and providing access to a range of treatment services.12 These expansions include states responding to July 2015 CMS guidance13 stating that states can request federal funding for substance use disorder services delivered to nonelderly adults in Institutions for Mental Disease (IMDs) through Section 1115 demonstration waivers, as well as revised November 2017 guidance14 that continues to allow states to seek Section 1115 waivers to pay for SUD services provided in IMDs. Both state Medicaid director letters set out parameters for states to obtain Section 1115 waivers to test using federal Medicaid funds to provide short-term inpatient and residential SUD treatment services in IMDs.15
As this report was being finalized, the Substance Use Disorder Prevention that Promotes Opioid Recovery and Treatment for Patients and Communities (SUPPORT) Act was expected to be signed into law. While very broad in scope, the SUPPORT Act16 contains a number of provisions related to Medicaid’s role17 in helping states provide coverage and services to people who need SUD treatment, particularly those needing opioid use disorder (OUD) treatment. These provisions include new authority to cover services in IMDs for up to 30 days in a year for non-elderly adults with a SUD from October 2019 through September 2023, a requirement that state Medicaid programs cover all FDA-approved MAT drugs as well as counseling and behavioral therapy services from October 2020 through September 2025, authority for new demonstrations to help states increase Medicaid SUD provider capacity, and a prohibition on states terminating Medicaid eligibility for individuals under age 21 or former foster care youth up to age 26 while incarcerated.
Medicaid Pharmacy Benefit Management Strategies
This year’s survey asked states to report Medicaid pharmacy benefit management strategies for preventing opioid-related harms that were in place in FY 2018 for FFS and changes to these strategies planned for FY 2019. Specifically, the survey asked about the following strategies: opioid quantity limits,18 clinical criteria claim system edits19 (subject to prior authorization (PA) override), step therapy PA criteria,20 other PA requirements for opioids, and requirements that prescribers check the state’s Prescription Drug Monitoring Program (PDMP) before prescribing opioids.21 All states and DC reported having at least one of these opioid-focused pharmacy management policies in FFS in place in FY 2018, and more than three-fourths of states (40 states) plan to take at least one action in FY 2019 to newly implement or increase opioid controls through one of these strategies. Some states also identified early successes in their current initiatives, such as reducing the number of opioids prescribed. See Exhibit 19 and Table 17 for details on states implementing or expanding these controls.
|Exhibit 19: States Implementing Opioid-Focused Pharmacy Benefit Management Strategies in FFS|
In Place in FY 2018
|FY 2019 (# of states)|
|Clinical criteria claim system edits (subject to Prior Authorization override)||48||0||30|
|Step Therapy PA criteria||39||1||5|
|Other Prior Authorization||44||2||15|
|Required Use of Prescription Drug Monitoring Programs By Prescribers||32||4||4|
Many states reported changes in clinical criteria claims system edits, limits on days supply, and/or cumulative morphine milligram equivalent (MME) limits and utilization controls for FY 2019. At least four states reported changes targeted to a narrow population, such as more restrictive quantity limits for children or when the opioid prescription is written by a dentist. Thirty-six states reported that they either have a legislative mandate or other policy that requires prescribers to check the state PDMP prior to prescribing opioids in place or will be implementing this type of policy by the end of FY 2019. To strengthen the effectiveness of a PDMP requirement, Oklahoma reports the ability to impose sanctions for non-compliance and New Mexico will be establishing recoupment authority for prescribers who do not check the database.
Specific trends in pharmacy management strategies recently adopted or planned include but are not limited to the following:
- Prior authorization, step therapy, and/or other requirements/utilization controls for long acting opioids
- Prior authorization, claims system edits, and/or other utilization controls related to co-prescribing or concurrent use of benzodiazepines
- Expanded pharmacy and/or prescriber profiling, alerts or education
- Policies to encourage or require non-opioid or non-pharmacologic treatment for pain prior to prescribing an opioid
- Pain management contract for chronic pain patients
- SBIRT screening, patient education regarding risks, and contraception counseling for women of childbearing age
A majority of states that use MCOs to deliver pharmacy benefits require or partially require MCOs to follow the state’s FFS pharmacy benefit management policies for opioids. Of the 35 states with MCOs that deliver pharmacy benefits, 17 states responded “yes” to a survey question asking whether MCOs were required to follow the state’s FFS pharmacy benefit management policies for opioids as of July 1, 2018, and 9 states responded “yes, in part.”22 Of the nine states answering “yes in part,” most reported some level of flexibility for MCOs to establish their own PDL and/or coverage criteria. At least two states require that MCOs be no more restrictive in their prior authorization or other criteria than FFS, while other states reported ongoing efforts to develop a more uniform, comprehensive strategy across their FFS and managed care delivery systems.
Looking ahead, beginning in October 2019 the SUPPORT Act23 would require states to have drug utilization review safety edits in place for opioid refills and monitor concurrent prescribing of opioids and other drugs. Medicaid MCOs would be required to have these processes in place as well. The SUPPORT Act also requires each state to have Medicaid providers check the state’s PDMP before prescribing controlled substances and offers enhanced federal matching funds for implementation activities if states have agreements with contiguous states for providers to access these programs.
Medication-Assisted Treatment coverage and access
The ACA requires state Medicaid programs to provide SUD treatment coverage for their ACA expansion populations, but does not specify which SUD services must be included. This requirement, however, has bolstered states’ work to respond to the opioid epidemic. The standard of care for opioid use disorder is medication-assisted treatment (MAT), which combines psychosocial treatment with medication.24 Compared to psychosocial treatment alone, MAT is associated with greater adherence to treatment, decreased opioid use, and reduced likelihood of overdose fatalities.25 There are three medications used as part of MAT for opioid use disorder: methadone, buprenorphine, and both oral and extended-release injectable naltrexone.26 All state Medicaid programs cover at least one MAT medication, and most cover all three.27,28
About three-quarters of states reported coverage of methadone in FY 2018. State Medicaid programs are less likely to cover methadone than buprenorphine or naltrexone.29,30 In this year’s survey, thirty-eight states reported coverage of methadone in FY 2018.31 Two states reported plans to add coverage for methadone in FY 2019 (Kentucky and Louisiana) and three states reported that methadone coverage was under consideration (Nebraska, North Dakota, and South Carolina). Six states (Alabama, Idaho, Kansas, Oklahoma, Tennessee, and Wyoming) reported no coverage or plans to add coverage for methadone.
In this year’s survey, states identified a range of challenges related to access to MAT. Many states reported lack of waivered physicians to prescribe buprenorphine and a need for additional opioid treatment programs, especially in rural areas. Shortages of ancillary behavioral health providers contributes to the problem, since MAT must be provided as part of a comprehensive treatment plan that includes counseling and social support services. Seven states identified cash-only methadone clinics that do not participate in Medicaid as a barrier to access, and one state noted that these clinics also pose quality concerns. A few states reported challenges related to philosophical differences among providers or populations served (such as preference for an abstinence-based approach), lack of awareness about MAT, and low reimbursement rates. Other states identified challenges when MAT medication is covered as a medical benefit versus a pharmacy benefit. For example, some clinics are hesitant to “buy and bill” for injectable MAT treatments and prefer the medication be dispensed by a pharmacy. One state cited local zoning ordinances as a barrier to increasing the number of available opioid treatment programs.
Although this year’s survey did not ask directly about initiatives to address these challenges, states identified a handful of new initiatives and strategies related to MAT. Multiple states are leveraging technology or telemedicine to increase access, including Indiana University’s Opioid ECHO project to expand the number of trained MAT prescribers in the state. Tennessee reports working in close partnership with its MCOs to develop a statewide MAT provider network and uniform clinical guidelines for effective MAT treatment. Several states mentioned using Substance Abuse and Mental Health Services Administration (SAMHSA) Opioid State Targeted Response (STR) grant funding to support their efforts to increase access to MAT treatment. For example, Arizona is using STR grant funds to establish 24/7 opioid treatment on demand Centers of Excellence and Medication Units in rural hospitals in the state. Other states identified increasing MAT reimbursement rates or removing prior authorization requirements on different MAT therapies to promote access.
The SUPPORT Act expands access to MAT drugs and includes funding to address provider capacity. Looking ahead, the SUPPORT Act,32 expected to be signed into law as this report was being finalized, would require state Medicaid programs to cover all FDA-approved MAT drugs as well as counseling and behavioral therapy services from October 2020 through September 2025, unless a state certifies to the Secretary’s satisfaction that statewide implementation is infeasible due to provider shortages. The Act also would authorize new demonstrations to help states increase Medicaid SUD provider capacity. It would allow for 18-month planning grants, totaling $50 million, for 10 states, giving preference to those with average or higher SUD prevalence, particularly opioid use disorder. Up to five of these states would receive enhanced federal matching funds for Medicaid SUD treatment services during the 36-month waiver implementation.
Table 17: Medicaid FFS Pharmacy Benefit Management Strategies for Opioids in all 50 States and DC, in Place in FY 2018 and Actions Taken in FY 2019
|States||Opioid Quantity Limits||Clinical Edits in Claim System||Opioid Step Therapy Requirements||Other Prior Authorization Requirements for Opioids||Required use of Prescription Drug Monitoring Programs||Any Opioid Management Strategies|
|In place FY 2018||New/Exp FY 2019||In place FY 2018||New/Exp FY 2019||In place FY 2018||New/Exp FY 2019||In place FY 2018||New/Exp FY 2019||In place FY 2018||New/Exp FY 2019||In place FY 2018||New/Exp FY 2019|
|NOTES: States were asked to report whether they had select pharmacy benefit management strategies in place in their FFS programs in FY 2018, and/or had plans to adopt or expand these strategies in FY 2019. “*” indicates that a policy was newly adopted in FY 2019, meaning that the state did not have any policy in that category/column in place in FY 2018.
SOURCE: Kaiser Family Foundation Survey of Medicaid Officials in 50 states and DC conducted by Health Management Associates, October 2018.