SAFETY NET COALITION URGES NY TO RECONSIDER CARVE-OUT

 

In March 2020, under former Governor Andrew Cuomo's administration, the New York Medicaid Redesign Team recommended that the state carve-out pharmacy benefits from the Medicaid program because of concerns pertaining to pharmacy spend and provider transparency. The reform essentially changes prescription drug reimbursement from a managed care model to a fee-for-service model, making the state responsible for the Rx benefit rather than MCOs and PBMs. To date, seven other states, including California, West Virginia, Wisconsin, Missouri, Ohio, Kentucky, and Tennessee, have carved-out pharmacy benefits from their Medicaid programs.

The state's decision was instantly met by opposition from safety net providers, 340B entities, community leaders, and nonprofits. They warned legislators of the harmful impact the move would have on the Medicaid prorgam and its beneficiaries' access to care. As a result, the carve-out was postponed in April 2021.

After a two-year postponement, the New York State Department of Health announced earlier this year that it would continue with the carve-out. Beginning April 1, 2023, Medicaid members will begin receiving their pharmacy benefits under the state's new delivery model, NYRx.

In spite of the state's decision, those in opposition to the change continue to make a concentrated effort to derail the carve-out as the April start date approaches. Save New York's Safety Net is a statewide coalition of providers and community organizations that represent vulnerable populations in the state. The coalition is fighting the transition because of its potential to disrupt access to specific drugs and its repercussions for community health centers.

For example, State officials that support the move to a fee-for-service model believe that it will increase program revenue by $250 million. That being said, under the current program framework, this money goes to safety-net providers around the state as a part of the 340B drug discount program. The program provides qualifying hospitals and clinics that treat low-income and uninsured patients with pharmaceutical drugs at a significantly lower cost. These savings help to fund programs such as vaccination clinics, housing assistance, transportation, outreach, and nutrition services. If the carve-out is carried out, it will divert these funds and lead to a reduction of services, clinic closures, and disruptions to the coordination of care.

Jacqui Kilmer, CEO of Harlem United, is amongst those in opposition to the state's decision. She expects the carve-out to drive up healthcare costs and views the measure as bad government from a policy and legal standpoint. However, the former business attorney is hopeful and strongly believes there is still a chance to convince Gov. Hochul to repeal the carve-out. According to Kilmer, "she can do that on her own without legislative approval, any kind of other oversight, budgetarily, or from the Department of Health."

Among lawmakers, several representatives sponsored bills in the former legislative session to repeal the pharmacy carve-out, but they were unsuccessful. These efforts are expected to be reintroduced this year, and legal challenges are anticipated if NYRx is implemented.

Along with the coalition's concerns surrounding the shift, there is also data that suggests New York and other states may want to reevaluate carving-out pharmacy benefits. In a 2018 report from the Association for Community Affiliated Plans (ACAP), the trade association found that when compared to fee-for-service models, managed care improves the quality of care and saves significantly more on brand name and generic drugs. ACAP analyzed Medicaid drug spending over a six year period and found the following:

• Managed care drug benefits produced considerable savings despite increasing prescription drug costs. "The average net (post-rebate) cost per MCO-paid Medicaid prescription during 2016 was $37, 73 percent of the average net cost of Medicaid prescriptions paid in the fee-for-service (FFS) setting during 2017, which was $50.".
• Managed care Rx services had greater utilization of generic drugs, which helped to decrease drug expenses. "In 2017, generic drugs represented 88.1 percent of MCO-paid Medicaid prescriptions versus 83.7 percent in the FFS setting.".
• Six states that implemented managed care prescription benefits only had a 1 percent increase in net costs per prescription between 2011 and 2014. On the other hand, seven states that carved-out pharmacy benefits saw a 20 percent increase in net costs per prescription during the same period. These seven states missed out on an estimated $307 million in savings in 2014 in comparison to the six states that transitioned to managed care.
• Carving-in prescription drug benefits decreases complexity and improves the quality of care for beneficiaries because managed care plans can coordinate with providers more efficiently.

In 2021, Medicaid expenses were the largest spending category, accounting for 27 percent of state budgets on average. In the same year, Medicaid spent around $80.6 billion on outpatient prescription drugs. Some states have elected to transition to fee-for-service models and carve-out pharmacy benefits to reduce program expenditures. While this is one strategy to try and reduce costs, states should also turn to opportunities to improve efficiency and cost avoid in their Medicaid plans.

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MEDICAID PHARMACY CARVE-OUTS

 

Wisconsin Pharmacy Benefit Carve-Out

In 2020, the Wisconsin Department of Health Services carved out prescription drugs from the Family Care Partnership Program and transitioned to a Fee-for-Service (FFS) delivery model. The carve-out ensured compliance with the 2020 Medicaid and CHIP Managed Care Final Rule and eliminated the need for Managed Care Organizations (MCOs) to implement their own drug utilization review program. In addition, Wisconsin believes that the carve-out will reduce Medicaid costs by lowering prescription drug prices. To date, Wisconsin, Tennessee, West Virginia, and Missouri have carved-out their Medicaid pharmacy benefit.

How States Manage Medicaid Drug Costs

Medicaid's drug spend has skyrocketed over time, and in 2017 it reached $64 billion. While states are not obligated to include pharmacy benefits in their Medicaid programs, the majority do because it is an important part of modern medicine and greatly improves the coordination of care. As a result of Medicaid expansion, surges in enrollment, and the pandemic-driven recession, the problem has only been exacerbated. When states are dealing with fiscal pressure, they usually look to different payment strategies, utilization controls, benefit delivery models, or reductions in program benefits to decrease costs.

Generally, states will employ one of two different methods to manage the costs of drugs. The most common approach is for a state to contract with a MCO and PBM to manage their pharmacy benefits. The alternative is to carve-out Rx benefits and manage drugs by means of a fee-for-service delivery model. Below, we will review the pros and cons of each model to understand their impact on Medicaid drug costs better.

ACA Drug Rebate Policy Changes

States who opt to carve-out Medicaid Rx benefits think they will receive lower drug prices by negotiating with pharmaceutical manufacturers directly. This approach has been successful in some situations; however, the passage of the Affordable Care Act (ACA) introduced drug rebate policy changes that totally altered state prescription drug plans.

Under the ACA, drug companies were mandated to raise the rebate percentage for states from 15.1 percent to 23.1 percent. Aside from the eight-point increase, MCO beneficiaries were also made eligible for these rebates. Prior to the ACA, these rebates were only for enrollees in fee-for-service Medicaid programs.

After the ACA was implemented, The Lewin Group, a premier national health care and human services consulting firm, examined the effect of these changes. Their report, Projected Impacts of Adopting a Pharmacy Carve-In Approach Within Medicaid Capitation Programs, revealed that the ACA eliminated the savings advantage that cave-outs previously had. Furthermore, their report studied carve-outs in fourteen states and concluded that those states could save $12 billion over a ten-year duration by carving-in Rx benefits.

Following the ACA's rebate and eligibility changes, most states contracted with MCOs to deliver care to Medicaid beneficiaries. By 2017, there were 39 states with Medicaid MCO contracts, and 35 had carved-in their Medicaid prescription drug benefits. As of July 2018, 40 states were contracted with risk-based managed care plans, and 5 had carved out prescription drugs.

Recent Carve-Outs

While most states have kept pharmacy benefits carved into their managed care contracts, there continues to be carve-out activity and other efforts to lower costs.

New York was planning to carve out pharmacy benefits starting April 1, 2021. Medicaid members enrolled in managed care plans, health and recovery plans, and HIV-special needs plans would begin to receive their prescription drugs through a Medicaid FFS pharmacy program as opposed to their MCO. However, the change has been postponed two years due to an amendment of the state budget after lobbying efforts. The transition to the new Medicaid FFS model will now go into effect on April 1, 2023.

In 2019, Ohio's legislature directed the state to select a Single Pharmacy Benefit Manager (SPBM) after growing criticism of how its pharmacy benefits were being administered. Following the order, the state released a RFP for a SPBM that would contract with Ohio directly to improve transparency and manage its prescription drug program. Ohio's newly designed program is anticipated to take effect at the beginning of 2022.

In 2019, Governor Gavin Newsom signed an executive order that California would move all pharmacy services for Medi-Cal to a FFS model. As a result, California expects to negotiate better drug prices from drug companies by consolidating purchasing power and leveraging the state's population size. According to the Legislative Analyst's Office, carving-out could result in hundreds of millions in savings annually. That being said, the move is controversial. There are concerns over its possible impact on MCOs, PBMs, pharmacies and the coordination of care since California's Medicaid Rx benefit is currently managed by ten separate PBMs responsible for 90% of the state's Medicaid beneficiaries.

In 2019, Michigan's Department of Health and Human Services issued a notice of proposed policy declaring that outpatient drug coverage would no longer be a benefit and the state would move to a FFS model. Michigan anticipated saving approximately $10 million on a yearly basis using drug rebates and doing away with associated administrative capitation costs. Critics opposing the decision alleged that it did not align with MHP's goal of delivering whole-person integrated care. They believed that out of pocket costs would increase and members would not have the appropriate overview of their prescriptions. After considering the carve-out, the state decided to implement a single Medicaid Preferred Drug List (PDL) instead.

Like Michigan, Washington state has also introduced a PDL to minimize costs. The Apple Health Preferred Drug List was rolled out in 2018, and all Medicaid MCO plans and fee-for-service plans were mandated to use the PDL.

Medicaid Payers and PBMs

Although states determine what delivery model they use to coordinate care, MCOs stand behind carving-in Medicaid Rx benefits. Whenever a program benefit, like prescription drugs, is carved out it makes the coordination of care challenging and awkward. MCOs believe that when pharmacy benefits are carved-in, program performance is strengthened, quality is improved, and costs are reduced.

In 2015, America's Health Insurance Plans (AHIP) commissioned a report from The Menges Group that evaluated the impact of carving-out prescription drug benefits from MCO benefit packages. According to The Menges Group, "the decision to carve out pharmacy benefits is likely to significantly increase costs for states and the Federal government". The evaluation also discovered that in "28 states using the carve-in model, the net cost per prescription was 14.6 percent lower than the average net cost per prescription in states not carving in pharmacy."

Critics of the managed care model argue that PBMs add to the high cost of drugs, as they operate like middlemen in getting pharmaceuticals from manufacturers to patients. PBMs obviously disagree with this criticism. Instead, they maintain that they are uniquely positioned to help manage the cost of Medicaid Rx benefits. PBMs work to negotiate rebates, manage formularies, provide mail-order options to patients, manage the distribution of drugs among pharmacies, and provide specialty drug services.

Over time pharmacy spend has become an increasing expenditure in state budgets. Because of fiscal pressure states are considering different delivery models, PDLs, and legislation to reduce drug costs. While most states deliver pharmacy benefits through managed care models, a handful have chosen to carve-out prescription drugs and shift to FFS models. In addition to lowering drug costs, states should also seek out cost avoidance opportunities and further efficiency in their Medicaid plans to reduce costs.

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