Aside from the pandemic driven economic recession and the consequential surge in Medicaid enrollment, rising prescription drug costs in the Medicaid program have caused tremendous fiscal pressure on state budgets throughout the years. In 2017, prescription drugs accounted for 5.1 percent of Medicaid benefit spending, and this expenditure continues to rise. States typically utilize managed care organizations and pharmacy benefit managers (PBMs) to deliver pharmacy benefits and lower prescription drug costs. That being said, a handful of states have opted to carve-out pharmacy benefits and move to fee-for-service (FFS) models. In July, Ohio became the most recent state to shift from its managed care model and released a RFP for a single pharmacy benefit manager (SPBM).
The carve-out approach reduces drug costs by centralizing a state's purchasing power, allowing it to take advantage of the size of its population to negotiate drug prices with pharmaceutical manufacturers directly. Right now, Tennessee, West Virginia, Wisconsin, and Missouri have carved-out their pharmacy benefits. Because of the potential savings from FFS models, some other states are now considering carve-outs and other methods to drive pharmacy costs down.
OHIO RFP FOR SINGLE PHARMACY BENEFIT MANAGER
Over the last five years, there has been criticism of how Ohio Medicaid PBMs oversee the state's prescription drug program. After complaints of overcharging, double-dipping, anti-competitive practices, and transparency concerns, the state legislature mandated that the state selects a SPBM to manage prescription drugs. In addition, the SPBM would contract with the state directly to increase transparency.
Last month, the Ohio Department of Medicaid (ODM) released a request for proposal to change the agency's managed care program and carve-out pharmacy benefits. Ohio intends to improve and build on administrative efforts that will increase transparency and financial accountability. According to ODM, implementing a SPBM will help the Medicaid program by reducing costs, alleviating administrative burdens, and improving fiscal oversight.
CALIFORNIA Rx CARVE-OUT
California's governor authorized an executive order at the beginning of the year to move all of Medi-Cal's pharmacy benefits from managed care to a FFS model starting January 2021. According to the state, the carve-out is an economical way to negotiate prices and purchase medications. State officials believe that the new model will also standardize drug access for all Medicaid beneficiaries.
The state's FFS move has been controversial, and there are concerns over its possible effect on MCOs, PBMs, pharmacies, and the coordination of care. Critics contend that it will make the coordination of care difficult. While purchasing in bulk directly from manufacturers could drive down costs, it's uncertain how drugs will be dispensed and how local pharmacies will maintain profitability.
MICHIGAN CARVE-OUT TO SINGLE PDL
In October, Michigan's Department of Health and Human Services announced that outpatient prescription drug coverage would no longer be a Michigan Health Plan (MHP) benefit. MHP would change to a FFS model. The state anticipated saving $10 million in general funds under the FFS model through Rx rebates and the elimination of MHP administrative capitation costs.
At that time, healthcare payers and PBMs opposed the decision. They insisted that the move would impair the delivery of whole-person integrated care by increasing out-of-pocket costs, and members wouldn't have the proper overview of their medications.
A couple months later, the state decided against the carve-out and rather decided to implement a single Medicaid preferred drug list while also increasing MHP's dispensing fee to $3 for independent pharmacies.
State budgets are experiencing fiscal pressure from the public health crisis and skyrocketing prescription drug costs. Each year pharmacy spend accounts for a larger portion of state budgets. Because of this, some Medicaid plans are carving-out pharmacy benefits and transitioning to FFS models to lower costs. While this is one approach to save money, states should also look for opportunities to improve efficiency and cost avoid in their Medicaid plans.
