Fiscal Fitness: How States Cope
The Deficit Reduction Act: States see few fiscal benefits to changes in pharmacy
State Medicaid directors say they don't see much financial benefit to some recent major changes in state pharmacy programs, including changes authorized by the Deficit Reduction Act of 2005 (DRA) and use of the Medicare Part D drug benefit.
Medicaid directors from almost all states and the District of Columbia responded to a survey sponsored by the National Association of State Medicaid Directors and conducted by Avalere Health.
Officials in two-thirds of the states said they don't expect the DRA to reduce their spending on pharmacy benefits. While DRA supporters said it would give states greater flexibility to achieve savings by adjusting some health benefits, most states have voiced skepticism that the changes will reduce their costs.
Near the end of 2006, the Centers for Medicare & Medicaid Services (CMS) released a proposed rule implementing Congress' requirements in the DRA by making sweeping reductions in payments to pharmacies as a way of saving $8.4 billion over the next five years. Officials said that would be a 5.6% reduction in total projected Medicaid spending on prescription drugs in the five years. The Bush administration estimated the federal government would save $4.9 billion, while states would save $3.5 billion.
Avalere Health vice president Jon Blum, who conducted the survey and released the results, tells State Health Watch the proposed rule contains no surprises and only codifies what Congress had ordered in the DRA. He says states are likely to face pressure from pharmacies to increase their dispensing rates to help offset the cuts in the amounts paid for drugs.
CMS officials said the goal is to ensure that Medicaid can get drug discounts similar to those provided to large customers in the private market. Congressional investigators found that Medicaid pays 35% more than the lowest price available in the private market for some commonly used brand-name drugs. States make the final decision on how much pharmacies are paid, subject to federal limits.
CMS estimated that 90% of savings would come from pharmacies, with the remaining 10% from drug companies, which would be required, among other things, to give price concessions on certain drugs administered in doctors' offices.
Annual snapshot
Mr. Blum says the report, which will be updated annually, was intended to give a snapshot of state pharmacy practices and state officials' perspectives on key policy changes during the summer of 2006.
In addition to expressing caution about the value of DRA flexibility and the shift of dual-eligibles to Medicare Part D, state Medicaid directors also said:
- Managed care organizations are given considerable flexibility to develop drug formularies for individuals and classes of drugs covered by the managed care plans. However, nearly 25% of states carve out a portion of their pharmacy program to retain state control of pharmacy benefits for specific beneficiary groups and classes of drugs.
- Several states participate in bulk purchasing pools and the option is being considered by others. But some states have found their interests are better served by developing their own Medicaid pharmacy policies rather than joining a pool.
- States continue to use a variety of mechanisms, such as medication management programs, drug comparative effectiveness information, and pay-for-performance initiatives, to manage both cost and use of prescription drugs, while coordinating such efforts with evidence-based pharmacy quality programs.
- States are developing strategies to comply with the DRA requirement that Medicaid programs collect rebates on all physician-administered drugs by Jan. 1, 2008.
The report says the average Medicaid beneficiary uses 3.3 prescription drugs per month, while the average dually eligible individual uses 5.8 drugs and the average institutionalized individual uses 7.2 drugs.
Medicaid programs constituted 19% of national prescription drug spending in 2003. In 2004, Medicaid programs spent $36.6 billion on prescription drugs, 12.5% of total Medicaid spending. Prescription drugs for individuals dually eligible for both Medicare and Medicaid cost the program $15.2 billion in 2003.
Many different approaches used
In terms of pharmacy benefit design, 44 programs have implemented preferred drug lists; a significant majority of states require prior authorization for certain drugs; 47 programs impose prescribing or dispensing limits; 10 programs do not charge copayments; and nine programs do not require pharmacists to dispense generic multisource drugs.
"State pharmacy policies and practices bear a direct impact on the health care provided to Medicaid beneficiaries, overall state finances, and the health care industry" Mr. Blum says. "This report provides an indication of how states are shaping their pharmacy policies to balance the tension between providing high-quality benefits and managing costs."
Mr. Blum tells State Health Watch that although control of the House and Senate is to shift to the Democrats in 2008, pharmacy changes have been a bipartisan issue, with a heavy emphasis on giving states more tools they can use to contain drug costs.
"Differences between the parties develop over beneficiary cost-sharing," he tells SHW. "Republicans tend to support cost-sharing as a means of promoting personal responsibility, while Democrats often believe cost-sharing puts a heavy burden on those with low incomes and forces them to avoid seeking care."
According to Mr. Blum, pharmacy policy continues to be a top priority for states and new innovations are starting to emerge, such as matching pharmacy claims to patients' health records, promoting evidence-based clinical value of drugs, and bring more information technology to bear for better prescribing.
Download the report at www.avalerehealth.net/research/docs/Emerging_Medicaid_Pharmacy_Policies_and_Practices.pdf. Contact Mr. Blum at (202) 207-1300 or e-mail [email protected].
State Medicaid directors say they don't see much financial benefit to some recent major changes in state pharmacy programs, including changes authorized by the Deficit Reduction Act of 2005 (DRA) and use of the Medicare Part D drug benefit.You have reached your article limit for the month. Subscribe now to access this article plus other member-only content.
- Award-winning Medical Content
- Latest Advances & Development in Medicine
- Unbiased Content