As we addressed in our report this past Spring, the use of Section 1115 Medicaid Waivers to address rising drug costs was a notable feature of the Federal administration’s recent drug proposal, and is an emerging policy trend. The Federal administration’s 2019 budget proposes providing five states with Medicaid demonstration authority to test “drug coverage and financing reforms.” The administration indicated that it would allow selected states to create state-specific prescription drug formularies, as long as the state also institutes an appeals process to provide access to excluded drugs based on medical needs. Participating states can also negotiate drug prices.
Two states—Massachusetts and Oklahoma—recently received decisions on waiver submissions that sought to utilize the “drug coverage and financing reforms” outlined by the administration. Both states requested flexibility to limit drug coverage options in the Medicaid program from the Centers for Medicaid and Medicare Services (CMS).
Oklahoma was approved to leverage the Medicaid drug purchasing power of SoonerCare, which currently covers an estimated 800,000 people, to control drug costs via an 1115 Demonstration Waiver. The state received approval in June 2018, and has since set out to implement the provisions set forth in the waiver—specifically, negotiating supplemental rebate agreements for pharmaceuticals via value-based purchasing arrangements with drug manufacturers. Whether the manufacturers will come to the table to negotiate is still up for debate, although Oklahoma has indicated they have signed contracts related to a few drugs. One such contract is for an injectable drug for the treatment of schizophrenia. The contract sets out to induce effective medication management, with the drug cost decreasing every month the prescription is refilled. The state has indicated that not all contracts will be constructed in this manner, and contracts could be tied to other value indicators.
The state, in conjunction with the University of Oklahoma, is evaluating the potential cost savings of value-based contracts—in particular, whether the non-voluntary nature of the program will lead to real savings. Recently released updates from Oklahoma indicate that twenty companies were approached about participating in alternative payment models, with only three companies opting to engage in contract negotiations. The barriers identified to-date include both manufacturer and payer concerns including: beyond label concerns; “price” implications; data collection; cost savings/benefits; and utilization issues. The successful partnerships have been those that provide a mutual benefit to manufactures and the state.
Despite the limited traction to date with engaging drug manufacturers, other states are still rumored to be thinking about requesting the authority to implement similar programs, including Michigan and Colorado.
In September of 2017, Massachusetts submitted a Section 1115 Waiver Amendment request seeking additional flexibility to implement a demonstration program, which included provisions aimed at reducing prescription drug cost spending. The key provisions of the Massachusetts waiver request related to drug cost control measures including:
- Permission to conduct drug reviews and to exclude from its formulary prescription drugs with limited or inadequate clinical efficacy, in order to avoid high costs for ineffective treatments. This would have resulted in MassHealth having a closed formulary.
- Establishment of an exceptions process, through which beneficiaries could gain access to coverage for non-formulary drugs that are medically necessary based on the following criteria: adverse drug reactions; drug interactions; and specific clinical needs.
- An elective, limited-specialty pharmacy network for members in the Primary Care Clinician (PCC) Plan, Primary Care Accountable Care Organization models, and fee-for-service network.
CMS issued a decision on the Massachusetts waiver in June of 2018, denying the waiver request provisions specific to drug cost control measures. CMS stated that the waiver did not meet approval requirements due to the fact that, given the dual (State and Federal) funding nature of the MassHealth program, Massachusetts could not collect drug rebates while simultaneously excluding certain drugs. CMS did indicate they would have been inclined to approve the request for a selective network for specialty pharmacy for certain enrollees, but given that Massachusetts tied the request to a closed formulary, the waiver authority was not granted. CMS indicated it was open to continue the discussion on ways to utilize 1115 Demonstration Waivers to assist the state with drug cost containment in the future.