State Medicaid programs take control of rising pharmacy costs
Pharmacy costs may be the "low-hanging fruit" that already have been decreased as much as possible by state Medicaid programs, but many continue to search for additional cost savings.
Brian Osberg, Minnesota's Medicaid director, says a number of approaches have been implemented to decrease pharmacy costs. These include mandatory generic substitution with prior authorization required for brand-name drugs; preferred drug lists (PDL); supplemental rebates negotiated through a multistate pool; participation in the State Maximum Allowable Cost program; requirement of prior authorization for many new drugs when existing therapies are available; and Prospective Drug Utilization Review programs, including quantity limits and refill-too-soon edits.
Mr. Osberg shares the following data to illustrate the positive results of Minnesota's pharmacy benefit management approaches:
-The average cost per prescription has increased by less than 1% since 2006, not including the effect of rebates.
-Generic utilization has increased more than 10 percentage points (to 78%) since 2006.
-The Per Member Per Month (PMPM) pharmacy expense has actually decreased in the fee-for-service population since 2006, not including the effect of rebates.
-Total rebate collections increased 33% between 2006 and 2008. "As a result, the net cost per prescription has declined nearly 14%, and the net PMPM prescription benefit expense has decreased 16% since 2006," reports Dr. Osberg.
Athos Alexandrou, director of Maryland's Medicaid pharmacy program, says Maryland Medicaid has decreased pharmacy costs with PDL, prior authorization, biannual reviews, addition of new therapeutic classes, implementation of clinical criteria, quantity limits, step therapy, and dose optimization. "The state will continue to monitor drugs such as high-cost injectables, and seek strategies to ensure appropriate and safe use of medication," he says.
"We have done a lot in Illinois to address rising pharmacy costs over the last several years," says Theresa Eagleson, the state's Medicaid director. "We were third in the country for collection of supplemental rebates, which involves negotiation with the manufacturers for different classes of drugs for rebates in addition to what Medicaid gets nationally."
Medicaid also implemented a PDL, and uses preapproval edits to enforce that. Since FY2002, use of generics has increased from 60% to 75% currently. "Each 1% shift in utilization saves us about $30 million," says Ms. Eagleson. "Your average brand-name drug costs almost $200, whereas the average generic costs about $20."
Surveys are done to determine what individual pharmacies are paying for drugs, and this information is used to set limits for what Medicaid will pay. "We have saved some significant money with the combined impact of the supplemental rebates and preferred drug list," says Eagleson. "It has certainly held costs down lower than they would have been otherwise."
Changes in the marketplace, such as a new drug being approved or a generic becoming available, are continually reviewed in order to keep the savings going. "We have looked at what else we can do on this front, but we think we are already pretty aggressive," says Ms. Eagleson. "So it's not new savings to us; it's ongoing."
Jim Parker, the state's deputy Medicaid director, says, "We are constantly looking at utilization patterns to see whether there are holes we need to fill, to tamp down costs and make sure we aren't wasting any money." This may mean putting age limits on psychotropic drugs for children, duration of therapy edits so individuals don't stay on drugs long-term when the therapy should be shorter, or putting restrictions on abusable drugs.
"We have a very good data warehouse and the ability to filter through claims data in many different ways," says Mr. Parker. "We may see a change in a pattern of prior approval requests, or a spike in the cost of a particular class of drugs. Also, sometimes we get suggestions from pharmacists, especially when they are worried that our next focus might be a rate cut." For instance, duration of therapy for smoking cessation drugs was implemented after pharmacists alerted Medicaid that many patients were on the drugs longer than they needed to be.
Paul Leary, deputy administrator of Idaho's Division of Medicaid, says that by joining The Optimal PDL Solution multistate initiative in 2006, about $5 million was saved each year by collecting additional and higher supplemental rebates. Additional savings have been realized from prescribers choosing lower-cost drugs.
"In 2004, we began to expand our State Maximum Allowable Cost program for multisource drugs, which now includes over 775 drug groups," he says. "Compared to our current pricing methodology for Estimated Acquisition Costs, the program represents about $8 million of cost avoidance annually."
Contact Ms. Eagleson and Mr. Parker at (217) 782-2570 and Mr. Leary at (208) 364-1846 or [email protected].
Pharmacy costs may be the "low-hanging fruit" that already have been decreased as much as possible by state Medicaid programs, but many continue to search for additional cost savings.You have reached your article limit for the month. Subscribe now to access this article plus other member-only content.
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