Some states moving to 'carve out' model for pharmacy services
Should states include the drug benefit in the set of services for which their capitated health plans are at risk (the "carve-in" model)? Or should they pay for those medications directly (the "carve-out" model)? This is a question that many Medicaid managed care programs are asking.
"Due to the large and growing size of the rebates which are available to states when they pay for the drugs directly, but not to health plans when they pay for the medications, an increasing number of states are moving to the carve-out approach, or seriously considering doing so," says Joel Menges, a managing director at The Lewin Group in Falls Church, VA. "The recession and corresponding fiscal crisis for states has forced many state policy-makers to consider moving to a carve-out in the near term." Mr. Menges consults on the design and improvement of Medicaid and other programs involving high-need populations.
Missouri is among the states that moved to a pharmacy "carve out" model for Medicaid managed care pharmacy services. A single Missouri HealthNet medication access policy for participants, providers, and advocates "will dispel the perception of inconsistency of coverage," according to George L. Oestreich, PharmD, MPA, deputy division director of clinical services for the Missouri HealthNet Division of the Department of Social Services.
He says this change was made after conducting a thorough analysis with stakeholder input, while being mindful of the importance of medication management, utilization, and delivery.
"The division determined that the best way to manage the pharmacy benefit is centrally, by using a uniform decision process and by providing uniform coverage derived from the most current medical evidence, consistent with positive clinical outcomes and cost savings," says Dr. Oestreich.
The state utilizes the federally mandated rebate program, along with the state-negotiated supplemental rebate program, which will garner a higher level of program savings. The carve-out is expected to generate $13 million in increased rebates and pharmacy tax collections in FY2011 and beyond.
"We have had a highly favorable experience with the two managed care plans in the western region of the state [following] their pharmacy carve-outs. Other states have had similar positive experiences," says Mr. Oestreich.
Brian Osberg, Minnesota's Medicaid director, says that the state currently uses a carve-in model for the pharmacy benefit and has no plans to change. Recipients enrolled in managed care plans have their pharmacy benefits administered by the managed care plan. "The carve-in model allows the managed care organization to better coordinate care, care information, and treatment options between the medical and the pharmacy benefit," says Mr. Osberg. "We have no plans at this time to propose a pharmacy carve-out."
Through its HealthChoice Program, Maryland Medicaid uses managed care organizations to "carve in" the health and prescription benefits for Medicaid recipients. "However, HIV and mental health drugs have been carved out and are covered services of Medicaid fee for service," says Athos Alexandrou, director of Maryland's Medicaid pharmacy program.
A related issue involves a currently proposed federal bill, the Drug Rebate Equalization Act (DRE). If enacted, the DRE would extend the large Medicaid fee-for-service setting rebates to all medications provided to Medicaid health plan enrollees, regardless of whether the state or the health plan paid for the medication.
"This bill would combine the benefits management acumen of the health plans with the rebate-driven price advantage that is now available in the Medicaid fee-for-service setting," says Mr. Menges. A September 2008 report from The Lewin Group, "Analysis of Drug Rebate Equalization Act's Savings to the Medicaid Program," estimated a total Medicaid savings of $12.6 billion over a five-year time frame of 2009-2013.
"Medicaid directors are well advised to support the federal DRE legislation, as this bill best serves states' short-term and long-term fiscal and programmatic interests regarding the handling of the pharmacy benefit in their Medicaid managed care programs," he says.
Mr. Menges says that in the absence of passage of the DRE, state Medicaid directors will need to look at the carve-out option as the next-best approach to garnering fiscal savings, "even though this weakens their Medicaid integrated care programs programmatically."
The DRE has been included in the president's budget and in the health care reform bill passed in the House of Representatives. "If enacted, the DRE will create large savings in most states' Medicaid programs," says Mr. Menges. "Our studies indicate that through using the carve-in model, states access the most optimal benefits management with regard to the mix and volume of the medications being prescribed."
However, the carve-in model forces the states to live with much smaller rebates, and thus higher unit prices, for the medications prescribed to Medicaid managed care enrollees.
"Conversely, under a carve-out, the states get the greatest level of unit price savings but must sacrifice on the benefits management side," says Mr. Menges. "The DRE gets states out of this 'unwelcome choice' situation. Medicaid programs are offered the best of both worlds, with the most efficient management of the pharmacy benefit via the carve-in, while still accessing full Medicaid rebates."
Contact Mr. Alexandrou at [email protected], Mr. Menges at (703) 269-5598 or [email protected], and Dr. Oestreich at [email protected].
Should states include the drug benefit in the set of services for which their capitated health plans are at risk (the "carve-in" model)? Or should they pay for those medications directly (the "carve-out" model)? This is a question that many Medicaid managed care programs are asking.You have reached your article limit for the month. Subscribe now to access this article plus other member-only content.
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