LEGISLATION FAILS TO LOWER IMPROPER PAYMENTS IN GOVERNMENT-FUNDED PROGRAMS

Legislation like the Improper Payments Information Act (IPIA P.L. 107-300) and Executive Order 13520 looked to address improper payments in government-funded programs. IPIA ordered federal agencies to report on the number of improper payments occurring and lay out what measures are being taken to lower them. Order 13520 worked to pinpoint high-priority programs and increase transparency. Agencies were required to submit projected reduction estimates and specifics on how they would work to obtain them. Despite these pieces of legislation, government-funded programs continue to lose billions of dollars due to payments made in error.

According to the GAO, federal entities estimated about $141 billion in improper payments in 2017. The Congressional Research Service (CRS) also reported and discovered that the 20 high-priority programs identified as a result of Order 13520, accounted for 96% of the $141 billion. In the years ahead, the CRS anticipates that these programs will account for 90% of all improper payments.

STATUTE COMPLIANCE ISSUES

In their improper payment reporting, the GAO has regularly brought up the following four compliance issues:

• Federal entities struggle to collect accurate eligibility data.

• Agencies do not have reliable methods for identifying improper payments.

• Entities fail to steer resources towards compliance efforts mandated by law.

• Agencies go through the motions and see the compliance measures as a way to keep oversight at bay.

Surprisingly, while agencies struggle to comply with statues to report on improper payments, none of them require that agencies decrease payments made in error. Consequently, improper payment rates continue to rise and agencies engage in costly measures to report.

The CRS report specified, "nearly half of the high-priority programs have shown no improvement. Specifically, the error rates for seven programs have increased since they first began reporting data, and the error rate for one program has remained unchanged. Moreover, while the error rates for twelve programs have decreased, the decline has been less than 10% for five programs. In some cases, program error rates have not improved."

IMPROPER PAYMENTS LOWERED WITH QUALITY DATA

To reduce improper payments, the federal government will need to make a focused effort in targeting the root causes for these payments within high priority programs while at the same time implementing technology solutions.

CMS is one agency in particular that successfully implemented existing initiatives and innovative processes, such as its Fraud Prevention System, to deal with improper payments within its programs. Following the compliance efforts established in the Improper Payments Elimination and Recovery Act of 2010 (H.R. 3393), last year CMS reported its lowest improper payment rate in eight years.

The agency's Fraud Prevention System is an IT solution that takes advantage of data analytics to detect when mistakes or intentional behavior may result in improper payments or indicate fraud. CMS says that the system will yield a 20% savings increase.

According to the agency, "CMS employs multi-faceted efforts to target the root causes of improper payments, with an emphasis on prevention-oriented activities. Actions to prevent and reduce improper payments include: policy clarifications and simplifications; prior authorization initiatives that ensure applicable coverage, payment, and coding rules are met before services are rendered; a targeted probe and educate medical review strategy that focuses on outlier providers, limits the number of medical records requested, and puts emphasis on education and assistance in correcting claims errors; and provider education on Medicare policy."

Legislation has helped to bring the problem of improper payments into focus for agencies and government officials. Having said that, the statues directed by legislation are costly and primarily revolve around compliance and reporting as opposed to reducing improper payments. In order to stop improper payment rates from rising further, agencies need to look to innovate quality data solutions to identify and prevent fraud, waste, and abuse.

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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.

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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.

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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.

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LEGISLATORS QUESTION OVERSIGHT OF MEDICAID IMPROPER PAYMENTS

Medicaid has been determined a high-risk program by the GAO since 2003 due to its size, growth, diversity and oversight challenges concerning improper payments, proper use of program dollars, and data. In fiscal year 2018, improper payments represented about 9.8% of the programs total spending of $36.2 billion. Just recently, members of the Senate Finance Subcommittee on Health Care have spoken out against these payments made in error. Republican Senators, Pat Toomey, and Chuck Grassley are behind the effort and are aiming to improve the program's oversight and integrity in order to reduce improper payments. This initiative comes after various bipartisan initiatives over the last seventeen years.

In a letter written to CMS administrator, Seem Verma, the senators stated, "To maintain public confidence in such a large commitment of national resources, it is essential to ensure these dollars are spent as Congress intended-namely, to provide specified health and long-term care services for low-income Americans, with a historical focus on the aged, disabled, children, and families. Unfortunately, governmental efforts to ensure Medicaid payments are spent prudently have fallen short." 

The senators, "believe that CMS' past actions have ignored its requirements under the law and are concerned that the July 5, 2017, final rule will perpetuate many of the weaknesses that characterized the previous enforcement regime."

Under the joint federal-state program, the federal government covers about 58% of the health care costs of Medicaid beneficiaries while the states are accountable for the remaining amount. Legislation, such as The Patient Protection and Affordable Care Act, was ruled into law to enact additional rights and protections that would increase coverage and make it more affordable. However, the legislation came at a higher cost to taxpayers and properly categorizing enrollees has proven to be difficult.

Due to the growth in enrollment, the risk of improper payments has increased and is more reason to efficiently oversee program funds. By law, Medicaid is a payer of last resort program, required by Congress to make every effort necessary to recover improperly spent dollars. Unfortunately, in the last twenty years, there has been little effort to recover payments made in error.

In their letter, the senators stated their interest in wanting to help resolve the problem with CMS. They explained, "Our offices would like to work with you on our shared goal of ensuring that the government complies with the intent and plain language of Section 1903( u) of the Social Security Act by discouraging systematic and routine errors in Medicaid eligibility determinations by states."

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HOW TRUMP’S 2020 BUDGET PROPOSAL AFFECTS MEDICAID

The Trump administration released its 2020 budget proposal on Monday and it gives some insight into the president’s priorities. The budget includes $1.9 trillion in cost savings for Medicaid and other safety net programs. According to the administration, A Budget For A Better America will balance the nation’s budget by 2030 and promote economic prosperity. Despite its major reductions for welfare programs and increases in defense spending, Congress will be the primary decision maker and the budget is unlikely to pass on Capitol Hill.

President Trump’s budget is the largest in federal history and includes spending increases for defense and border security while reducing costs of Medicaid, Medicare, and disability programs. The proposal will cut spending by $4.6 trillion over a ten-year period. That equates to 9% of the country’s $53.5 trillion projected spending over that time. 

The White House Chief of Staff, Mick Mulvaney, believes the proposal will favor taxpayers. He stated, “This is, I think, the first time in a long time that an administration has written a budget through the eyes of the people who are actually paying the taxes.”

Chris Edwards is the director of tax policy studies at the CATO Institute. Edwards evaluated the administration’s proposal and stated, “Cuts would reduce federal deficits, which have plagued the government since the turn of the century. The budget’s spending cuts are being called cruel and heartless, but chronic deficits are imposing huge costs on young Americans down the road, which is totally unethical.”

The proposal is finding support among conservative groups due to its focus on economic growth, increased Medicaid eligibility checks, and in that it promotes self-sufficiency versus dependence on government-funded welfare programs.

Kristina Rasmussen, Vice President of Federal Affairs at the Foundation for Government Accountability (FGA) commented, “With no real incentive in place for individuals to leave the program, the welfare system has transformed from a safety net originally intended to serve the truly needy into a trap for able-bodied adults, many of whom report no income.”

Critics, on the other hand, view the budget as extreme and harsh since it will prevent people, who rely on welfare programs, from accessing the support they need. They point out that the budget breaks key campaign promises as Trump approaches the 2020 elections.

Senator Amy Klobuchar, (D)-MN says, “The President has proposed a budget that cuts hundreds of billions of dollars from domestic programs like Medicare and environmental protections. But he still found billions of dollars for his wall. We need a smart budget, not one based on empty campaign promises.”

Senator Kamala Harris (D)-CA commented on the budget saying, “This would hurt our seniors and is yet another piece of evidence for why we need a new president.”

Despite their criticism, the administration denies that the president wants to cut from these programs. In addition, they point out that the previous administration reduced Medicare spending.

The Office of Management and Budget Deputy Director, Russ Vought, testified in front of the House Budget Committee. According to Vought, “The President doesn’t believe he’s breaking his commitment to the American people at all. There are no structural changes to Medicare. There is no cut to Medicare. Medicare continues to grow each and every year.“

In 2000, federal spending for the Medicaid program was at $118 billion. In almost twenty years, that amount has climbed to $389 billion. The cost is unsustainable and a driving factor in why Trump wants to cut $200 billion from Medicaid and $800 billion from Medicare.  Additionally, the budget also introduces block grants for states in an effort to save $610 billion in tax dollars over the next 10 years.

The budget could be a starting point to reduce debt and an opportunity for states to have more control and flexibility in managing their programs. Additionally, health consumers may have more control over their insurance to make it more affordable. In order to accomplish this, the budget includes association health plans and short-term plans for the uninsured.

Kristina Rasmussen says, “The Trump administration has outlined a plan to move government out of the way, take down nonsensical barriers to work, and promote a safety net that encourages upward mobility to empower more Americans to win.”

Salim Furth is a Former Research Fellow from Heritage’s Center for Data Analysis. He determined, “A restoration of growth will not, however, follow automatically from enacting the president’s agenda. A lot of other things have to go right as well as policy. So the president’s plan to eliminate the deficit and control the debt should not depend so much on things outside his control. Limiting the growth of entitlement spending would be a more certain path to balance than relying on historical forces.”

Currently, the nation’s debt is unsustainable and safety net programs are continuing to grow at accelerated rates. In an attempt to remedy the situation, the president has introduced his 2020 budget proposal, A Budget For A Better America. It aims to make major reductions that would significantly impact Medicaid and Medicare. Despite criticism over the president’s budget proposal, large reforms will be necessary as the debt continues to climb.

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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.

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