PRESCRIPTION DRUG COSTS LEAD TO CARVE-OUT IN OHIO

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.

Click this link to read more.

MEDICAID MANAGED CARE RX BENEFITS HELP STATES

Medicaid prescription drug spending has been on the rise and some states have elected to carve out prescription drug benefits and shift to a Fee-For-Service (FFS) model. In theory, this delivery system helps states leverage their purchasing power to reduce costs and increase oversight. However, recent data reveals that when compared to FFS models, managed care prescription services save significantly more on brand name and generic drugs while also improving the quality of care.

In a 2018 report, the Association for Community Affiliated Plans (ACAP) studied Medicaid prescription drug spending between 2011 and 2017. The trade association focused on key expenditure trends and dynamics related to Medicaid's pharmacy benefits. Here is what the report discovered:

• Over a six-year period, managed care drug benefits produced significant savings despite the increase of 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."

• The report also identified that managed care prescription services had higher usage of generic drugs which helped to minimize 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 shifted to managed care prescription benefits only had a 1 percent increase in net costs per prescription between 2011 and 2014. Meanwhile, seven states that carved out pharmacy benefits saw a 20 percent surge in net costs per prescription during the same period. Compared to the six states that switched to a managed care model, these seven states missed out on an approximated $307 million in savings in 2014.

• Finally, including prescription drug services improves the quality of care. Since Medicaid health plans handle all of a patient's benefits, the plan can coordinate and communicate with providers more effectively. This makes care less complicated and also decreases unnecessary hospitalizations and emergency room use.

As a result of skyrocketing pharmaceutical drug costs and the increased size of the Medicaid population, some states have carved out pharmacy benefits and shifted to FFS models to rein in costs. However, data shows that Medicaid plans are able to save more when pharmacy and medical benefits are integrated together. Not only are plans able to save money on prescription drug costs, but they also improve the quality of care for their members. To preserve the program's resources and ensure its sustainability, states may want to reevaluate carving out benefits.

Click the link to read more. 

CA RFP FOR FFS RX BENEFIT MANAGEMENT

In January, California's newly appointed Governor  Governor Gavin Newsom authorized an executive order to significantly reform health care in the state. Executive Order N-01-19 introduced a number of actions and budget proposals to decrease the cost of prescription drugs and health care. One proposal, specifically, shifts all pharmacy services for Medi-Cal managed care to a fee-for-service (FFS) model.

Pharmaceutical drugs are one of the key drivers of growing health care costs. Last year the state's individual market experienced a 10% increase in health care costs and reports suggested the drug manufacturers planned to increase pricing in 2019.

FFS RX BENEFIT

At the moment, Medi-Cal acquires drugs with the aid of public and private purchasers that negotiate with manufactures independently. Under the FFS model, California would become the largest single payer of pharmaceutical drugs and the state would have increased bargaining power to negotiate prices with manufacturers.

Governor Newsom stated, "We will use our market power and our moral power to demand fairer prices for prescription drugs. And we will continue to move closer to ensuring health care for every Californian."

RFP # 19-96125

In July, DHCS sent out a request for proposals for managing the FFS pharmacy benefit. RFP # 19-96125 is requesting proposals for the takeover, operation, and ensuing turnover of administration of the FFS pharmacy services. Entities including commercial businesses, nonprofit organizations, state or public universities that fulfill the qualification criteria are eligible for submission.

Click here to keep reading. 

HB 3388 SEES SIGNIFICANT CHANGES

2019 has been a busy year for healthcare legislation in Texas and one proposal, in particular, intended to carve out PBM's altogether. House Representative J.D. Sheffield (R) introduced HB 3388 on March 6th in an attempt to reform the delivery of prescription drugs to a fee-for-service model for Medicaid and various other public benefit programs. However, during its time in the House, it went through a series of significant changes.

INTRODUCED HB 3388

Initially, HB 3388 was directed toward the delivery of outpatient prescription drug benefits. It proposed extreme changes such as:

• Replacing the vendor drug program with a fee-for-service delivery model.

• HHSC would eliminate any requirement to pay fees included in the capitation rate or other amounts paid to MCOs related to the provision of outpatient prescription drug benefits.

• If HHSC contracts with a claims processor to administer the outpatient prescription benefit program, HHSC would then reimburse the claims administrator for the prescription drugs and a contracted administrative fee.

• HHSC would apply clinical prior authorization requirements state-wide and use prior authorizations to regulate unnecessary utilization.

• HHSC contracts with MCOs would be changed to prohibit the MCO from providing outpatient prescription drugs by December 31, 2019, and would restrict an MCO from developing, implementing, or maintaining an outpatient pharmacy benefit plan for recipients beginning on the 180th day after the date HHSC begins providing outpatient prescription drug benefits.

COMMITTEE SUBSTITUTE

During its time in the House, the bill's focus shifted and the committee's substitute did not include any provisions from the original. CSHB 3388 changed course and focused on the reimbursement of prescription drugs under Medicaid and CHIP rather than the delivery of drug benefits. Under the revised version:

• MCOs providing services under Medicaid or CHIP would be mandated to reimburse retail and specialty pharmacies a minimum of the lesser of the reimbursement amount for the drug in the vendor drug program, including a dispensing fee that is not less than the dispensing fee under the vendor drug program, or the amount claimed by the pharmacy or pharmacist, including the gross amount due or the usual and customary charge to the public for the drug.

• MCOs would be required to reimburse pharmacies that dispense a prescription drug at a discounted price under Section 340B of the Public Health Service Act not less than the reimbursement amount for the drug under the vendor drug program, including a dispensing fee that is not less than the dispensing fee under the vendor drug program.

• HHSC would perform a study every two years to analyze Texas pharmacies' actual acquisition costs and dispensing cost.

• Bill 3388 would take effect on March 1, 2020.

Supporters of the bill believe that pharmacies would get fairer reimbursement of prescriptions filled for Medicaid and CHIP. They point out that the bill would improve transparency since it would use NADAC as a pricing benchmark. It would also not affect which drugs the programs covered.

On the other hand, opponents say that the bill has the potential to raise state costs by changing reimbursement methodology. Their position is that PBMs help to negotiate the best possible deals and protect patients from being prescribed unnecessary medications. They are concerned that the bill would negatively affect patient outcomes while increasing ER visits and opioid prescription rates and decrease medication adherence.

HB 3388 was voted on in the House on May 4th and it has been referred to the Health and Human Services Committee. If the bill is approved it will surely impact healthcare within the state. While the revised bill does not include a pharmacy carve out, it's a clear indication that lawmakers are focused on rising healthcare and prescription drugs costs and what they can do to remedy the problem.

Click on the link and read more. 

THE IMPACT OF CALIFORNIA'S PHARMACY CARVE OUT

At the beginning of 2019, California's governor signed an executive order instructing DHCS to utilize a fee-for-service model for Medi-Cal. Under the order, The state of California would consolidate its purchasing power and leverage its population size to achieve lower drug costs by purchasing in bulk from pharmaceutical drug companies. Additionally, DHCS has been assigned with the task of producing a list of twenty-five of the most expensive drugs that would be included in the negotiations with manufacturers.

In between 2018 and 2019, spending on pharmacy services reached $8 billion in California and most of pharmacy spending took place under the managed care delivery model. According to the Legislative Analyst's Office (LAO), carving out managed care pharmacy services could lead to hundreds of millions in savings annually. That being said, the savings could come at a cost to stakeholders such as enrollees, pharmacies, providers, and MCO's. Just recently, the LAO released a report that assesses what the move could mean for the state and Medi-Cal's stakeholders.

The LAO's analyses identified the following possible impacts of the carve-out:

IMPACT ON NON-CONSUMER STAKEHOLDERS

Reduction in Retained 340B Earnings for Eligible Providers

"By transitioning Medi-Cal pharmacy services entirely to a FFS benefit, 340B eligible providers would no longer be able to generate earning on any pharmacy dispensed drugs paid for by Medi-Cal. Rather, these earnings would largely convert into state savings in the form of lower prescription drug expenditures."

Decrease in Backing for Medi-Cal Managed Care Plans

"Funding for Medi-Cal managed care plans would likely be reduced by between 15 percent and 20 percent under the carve-out. A portion of the reduction would likely come from existing Medi-Cal managed care plan funding for purposes such as administration, care coordination, reserves, and profits."

Minimal Impact on Pharmaceutical Manufacturing Industry

"The carve out is unlikely to have a major impact on earnings for the drug manufacturing industry overall, both in the state and nationwide. Selected drug manufacturers, however, may pay higher negotiated supplemental rebates to the state in exchange for greater utilization of their drugs in Medi-Cal through placement on a more widely applicable Medi-Cal wide preferred drug list."

Likely Increase in Funding for Pharmacies

"Pharmacies will potentially benefit from increased funding under the carve-out due to (1) (absent any changes) the higher dispensing fees paid by Medi-Cal FFS compared to Medi-Cal managed care plans and (2) the larger network of pharmacies serving Medi-Cal FFS compared to individual Medi-Cal managed care plans. A portion of the increase in funding may be offset by lower reimbursement for the drugs since Medi-Cal FFS, but not Medi-Cal managed care, pays pharmacies at close to pharmacies' costs in acquiring their drugs."

IMPACT ON BENEFICIARY ACCESS AND CARE

Statewide Standardization of the Medi-Cal Pharmacy Services Benefit

"While the standardization of the Medi-Cal drug benefit under the carve-out has potential to improve care from a beneficiary perspective in the long run, the transition to FFS could result in beneficiaries losing ready access to drugs they are currently taking. As such, the Legislature may wish to consider continuity of care protections for beneficiaries currently utilizing prescription drugs."

Expansion of the Pharmacy Network Where Beneficiaries Can Obtain Prescription Drugs

"According to the administration, Medi-Cal's FFS pharmacy network extends to almost all pharmacies throughout the state. Transitioning pharmacy services coverage to a FFS benefit could give Medi-Cal enrollees greater choice in where they obtain their prescription drugs."

Less Timely Prescription Drug Utilization Information for Medi-Cal Managed Care Plans

"While DHCS provides FFS prescription drug utilization data to managed care plans on behalf of their members for currently carved out drugs, it is our understanding is that this data does not arrive from DHCS in a timely enough manner to assist plans' care coordination activities."

Opioid Curtailment Programs

"These initiatives have likely contributed to dramatically reducing the number and potency of opioid prescriptions among Medi-Cal members. Under the carve-out, it is uncertain whether such initiatives by Medi-Cal managed care plans would continue."

At this point, California's administration has not published information on how the order will be carried out and they have yet to release any information on how stakeholders may be impacted. In order to help the state's legislators understand what the carve out could mean for the state, the LAO also specified outstanding details that should be addressed prior to the change. These include:

• Overall Fiscal Estimate
• What New State Resources Are Needed to Administer the Entire Medi-Cal Pharmacy Services Benefit?
• How Would State Information Systems Be Improved to Maintain or Improve Existing Managed Care Plan Care Coordination?
• Managed Care Plans' Continued Role in Coordinating the Medi-Cal Pharmacy Services Benefit in Conjunction With Their Members Overall Health Care

Reducing prescription drug prices is a major concern for states at this point and California's effort is merely one approach. Aside from transitioning to a fee-for-service model, there are also a variety of alternate methods. While the state sorts out the details of its transition, the analyses from the LAO also includes four alternative options that could be used in place of a complete carve out.

1. Universal Medi-Cal Preferred Drug List Spanning FFS and Managed Care.
2. Transfer Savings From 340B Drug Discounts in Medi-Cal to the State
3. Formalize the Use of Cost-Effectiveness Analysis for Preference of Drugs in Medi-Cal
4. Adopt a Medi-Cal Prescription Drug Spending Cap

At the end of the analyses, the report made two specific recommendations to state legislatures due to the uncertainty surrounding the order and its possible impact. First and foremost, the LAO recommended that strong oversight should be in place before the implementation. They also suggested that the state condition resources for implementation based off of key details provided by DHCS.

To read more, click here.

LOWERING MEDICAID'S PRESCRIPTION DRUG COSTS

Since state Medicaid programs are responsible for the healthcare of a number of populations, increasing pharmaceutical drug costs have become a major budgetary concern. Currently, health care spending is dominating a number of their budgets and on a per capita basis, inflation-adjusted retail prescription drug spending has increased from $90 in 1960 to $1,025 in 2017.

As a result of the pressure from these rising costs, states are turning to a variety of approaches to rein in costs with the use of legislation and revised purchasing models. While the impact of politics and policy are unclear, both Medicaid enrollment and drug costs continue to rise. For that reason, it will be important for state Medicaid programs to examine every opportunity to improve efficiency.

CALIFORNIA TURNS TO SINGLE PURCHASER MODEL

In California, Medi-Cal alone uses 15% of the state's general funds, and over the last several years, the proportion of the population on Medi-Cal has reached 29%. With nearly one-third of the state's population enrolled in the program, California's Governor, Gavin Newsom, signed an executive order in January to consolidate the state's purchasing power in order to negotiate lower drug prices.

The order is part of the governor's "California For All" agenda and is scheduled for implementation on January 1, 2021. Having said that, in order for the change to go into effect, it will need approval from CMS and it is uncertain as to how they will react to the ambitious proposal.

OHIO: PASS-THROUGH PRICING

In 2018, Ohio announced that its managed care plans could no longer contract with PBMs that employ "spread pricing". The state's Medicaid department objects to the payment model since it lacks transparency and also because PBMs can profit from it by purchasing the medication from a dispenser at a lower rate than what they bill plan providers.

Starting in January, The Ohio Department of Medicaid required that MCOs use "pass-through" payment models to promote transparency and reduce costs. Under the new payment model, Medicaid plans are billed the same amount for pharmaceutical drugs that a PBM purchases them for. PBMs are then paid an administrative fee for each prescription filled.

WEST VIRGINIA: FEE-FOR-SERVICE

In West Virginia, employee health plans were paying 1% more for pharmacy claims than the PBMs paid the dispensing pharmacy. Lawmakers calculated that the 1% cost the state $10 million each year and made a decision to eliminate the use of PBM's completely.

Since then, West Virginia has returned to a fee-for-service model that employs the help of West Virginia University to identify which medications are offered. The Bureau of Medical Service's Office of Pharmacy Services (OPS) then purchases each prescription.

COST SAVINGS FROM IMPROPER PAYMENTS

Even though the state's administrative initiatives could alleviate some pressure, they also need to understand that there is a tremendous amount of opportunity for cost savings in relation to improper payments.

Improper claims payments in the Medicaid program have become a $37 billion dollar problem and a common misconception surrounding these payments is that they are primarily a consequence of fraud and abuse. While fraud and abuse do add to payments made in error, they only account for 43% of improper payments. The majority of these payments actually arise from Third Party Liability (TPL) identification issues.

Improper payments take place in government-funded health care systems for three reasons:

1. The Coordination of Benefits (COB) and identifying TPL is complicated. It requires timely data and the management of several data sources.
2. The Medicaid population has a high rate of churn and is in near-constant flux.
3. Eligibility data is not coordinated among federal and state systems and is often unreliable.

Up until now, there has been no reliable way to identify unreported primary health coverage. For the sole purpose of supporting the TPL needs of Medicaid programs, Syrtis Solutions offers a proactive cost avoidance approach to improper payments. By leveraging e-prescribing, the company has the ability to access active Rx coverage while identifying the corresponding medical coverage as well. This means that Medicaid plans can prospectively cost avoid pharmacy and medical claims accurately and timely. Additionally, their solution can target beneficiaries that are actually generating claims rather than trying to maintain data on each plan member.

To learn more, click here.

STATES ACT TO LOWER MEDICAID PRESCRIPTION DRUG COSTS

In 2018's legislative session, 45 laws were passed by 28 states to focus on the problem of prescription drug costs. Aside from these legislative initiatives, administrative measures are also being taken to make improvements to the management of Medicaid pharmacy benefits spending. Ohio, West Virginia, and California are a few of the states exploring and implementing administrative efforts to reduce drug costs.

Medi-Cal Aims To Negotiate Prescription Drug Costs

California is looking to legislative measures to address drug costs. The state's governor, Gavin Newsom (D) authorized an executive order in January that would make Medi-Cal responsible for negotiating drug costs with pharmaceutical companies directly by 2021. The order would utilize a singular purchaser model and leverage the purchasing power of the state's Medicaid population of 13 million.

Despite turning to a singular purchaser model, the order also enables parties such as private payers, small businesses, self-insured employees, and local governments to collaborate in the negotiations with drug manufacturers.

Supporters view the order as a chance to reduce the cost of high priced drugs by making them more common. In addition, they believe that the model has the potential to be beneficial at the federal level. Critics on the other hand, are worried that the formularies would no longer be handled by managed care plans. Thereby leading to denied prescriptions and jeopardizing patient's access to care and provider satisfaction. At this point, the governor's order will need federal waivers before it can be implemented.

Ohio Medicaid Adopts Pass-Through Pricing Model

Last year, Ohio announced to its managed care plans that they could no longer contract with PBMs that use "spread pricing". The Ohio Medicaid Department objects to this payment model due to its lack of transparency and the fact that PBMs can profit from it by buying the medication from a dispenser at a lower rate than what they charge plan providers. A state investigation evaluated the payment model's impact and revealed that it contributed to an 8.8% markup on pharmacy claims; enabling PBMs to collect $5.70 on each drug filled.

Starting January 2019, The Ohio Medicaid Department has directed that MCOs adopt "pass-through" payment models that promote transparency in order to reduce the program's costs. Under the new payment model, Medicaid plans are billed the same amount for prescriptions that a PBM buys them for. PBMs are then given an administrative fee for each prescription filled. The fee is estimated to be between $0.95 and a $1.90.

West Virginia Carves Out PBMs

After an audit, West Virginia found that employee health plans were paying 1% more for pharmacy claims than the PBMs paid the dispensing pharmacy. Because of this, the state made a decision to eliminate the use of PBMs entirely. Lawmakers concluded that the 1% cost the state $10 million each year.

Rather than rely on managed care for state employee and Medicaid beneficiary pharmacy benefits, West Virginia has returned to a fee-for-service model. With the aid of West Virginia University, the state has identified which medications should be available and the Bureau of Medical Service's Office of Pharmacy Services (OPS) pays for each prescription. According to West Virginia's pharmacy board, the state saved $38 million in its first year after the administrative reform.

States are concerned over rising prescription drug costs and the lack of pricing transparency with PBMs. In response, lawmakers have taken legislative and administrative efforts such as alternate payment models to rein in these costs.

Click here and read more.