States Take Action Against Prescription Drug Spending in Medicaid

Medicaid drug spending is finally slowing down after a dramatic increase over the past few years, according to an issue brief from the Kaiser Family Foundation. To further drive down spending, states are increasingly implementing cost control strategies well into the future.

Medicaid spending on outpatient drug costs jumped from $22.4 billion in 2013 to $28 billion in 2014, a 25% increase; however, prescription drug spending only increased 13% in 2015 to $31.7 billion, according to the study.

New specialty medications, such as antivirals approved in 2013 and 2014 to treat hepatitis C virus (HCV), resulted in skyrocketing drug costs along with the increase of generic drug prices, according to the study.

Prescription drugs only account for 6% of overall Medicaid spending, but the high cost of specialty medications is raising concerns among policymakers and other stakeholders who want to control spending.

Medicare policy requires states to provide drugs to its beneficiaries without excluding high cost therapies, such as specialty drugs. Prescription management programs that were implemented to control costs have become outdated in the face of newer, costly treatments, according to the study.

Some methods of cost control have already been implemented by states, including prescription limits, rebates, prior authorization, and the use of state Maximum Allowance Cost programs.

Creating a preferred drug list encourages physicians to only prescribe therapies on that list, which are often more affordable and have supplemental rebates provided, according to the brief. Although prior authorization may be required for drugs not in a preferred tier, states are almost always required to provide drugs from manufacturers that have signed a rebate agreement.

The study authors noted that costly treatments, such as sofosbuvir (Sovaldi) for HCV, may create financial concerns for Medicaid. Because many patients with HCV are enrolled in Medicare or Medicaid, the government pays for a large portion of treatment.

When novel HCV drugs first hit the market, some states tried to control spending by requiring prior authorization; however, this limits treatment to patients with severe liver damage and subsequently raises ethical concerns.

Medicaid plans to implement new policies that require larger supplemental rebates from manufacturers in an effort to lower government spending on prescription drugs. Other strategies include a maximum spending amount for states and the proposal of a closed formulary, according to the study.

Another cost-control strategy—currently used in New York—is to implement a state cap on drug spending to prevent unnecessary costs. If spending is projected to exceed this cap, a Drug Utilization Review Board will renegotiate the rebate with the manufacturer.

Additionally, allowing states to create a closed formulary would permit certain drugs to be covered, while excluding others. Currently, both Medicare and Medicaid have open formularies, meaning that all drugs are covered. The closed formulary approach used by private health plans would give manufacturers an incentive to negotiate greater rebates to keep coverage of their product included, according to the brief.

Generic drug cost inflation has also been a major contributor to skyrocketing drug spending, according to the brief. Thus far, states have been attempting to control drug spending by promoting lower cost generics and biosimilars. Both treatments have the potential to not only reduce out-of-pocket costs for patients, but also drive down overall costs due to increased competition.

On the legislative front, some states are pushing price transparency laws to prevent manufacturers and pharmacy benefit managers from hiding the list price of a drug, according to the brief. The complexity of the pharmaceutical supply chain and the lack of transparency among each player has been thought to contribute to unnecessary price hikes, something that has been targeted by state and federal legislators.

Utilizing resources from the federal government is another option for states to reduce drug costs, according to the brief.

The authors concluded that as more states adopt cost controlling measures, they are likely to need federal approval or oversight to ensure that patients are able to access necessary treatments. States will likely have to individualize their approaches, as these strategies may not be appropriate for all.

In the future, specialty drugs will continue to be a focus of prescription drug spending, according to the study.

“States continue to cite the cost of prescription drugs, and in particular high-cost specialty drugs, as a budgetary concern,” the authors wrote.

It is likely that many more strategies will emerge surrounding these concerns.