Michigan’s Medicaid Program Plans to Save Millions By Eliminating PBMs

October 21, 2019

The state’s desired savings and efficiencies can be realized, but will likely take some effort.

Michigan’s Medicaid program wants to cut out using pharmacy benefit managers (PBMs) to negotiate prescription drug claims.

Beginning December 21, 2019, Michigan wants to begin to manage drug coverage on its own, according to a notice from the Michigan Department of HHS (MDHHS). Outpatient prescription drugs will no longer be covered as part of the Medicaid Health Plan (MHP) benefit; all pharmacy drug coverage will be transitioned to fee-for-service (FFS) Medicaid, explains Monica R. Chmielewski, partner and healthcare and life sciences lawyer with Foley & Lardner LLP.

“Essentially, the state will take over the role that MHPs currently play in filling prescriptions; providers will need to bill the MDHHS contracted PBM,” Chmielewski says. “Medications will be subject to current FFS pharmacy policies and coverage limitations, including prior authorization requirements.”

Michigan believes that these actions will result in cost savings estimated at approximately $40 million, with the saving generated through a combination of increased rebates from pharmaceutical manufacturers and decreased administrative capitation costs, according to Chmielewski. “The state also believes that this will help standardize the benefit state-wide, under one delivery system,” she says.

While Chmielewski is hopeful that the desired savings and efficiencies will indeed be realized, achieving the results “will likely take some effort,” she says.

“The MDHHS is taking steps to ensure a smooth transition by partnering with MHPs and its contracted PBM to work to continue medication coverages for individuals and to minimize obstacles during the transition,” she says. “Following the transition, the MDHHS will need to work to try and obtain additional and favorable rebates from pharmaceutical manufacturers, while working to ensure that enrollee out-of-pocket expenses are not raised, and that other costs and expenses are not increased.” 

Related: Manufacturer-PBM Collaboration

Other states have already taken-and some are looking to take-similar actions, according to Chmielewski.

“For example, West Virginia started managing its Medicaid managed care prescription drug benefits in July of 2017, anticipating savings for the state,” she says.

Earlier this year, the West Virginia Bureau for Medical Services released a report showing actual savings of $54.4 million to the state Medicaid program for the first year as a result of the direct management. The report also notes that in addition to the savings, the prescription drug benefit carve-out resulted in $122 million paid to West Virginia pharmacies in the form of fixed dispensing fees. Those funds could be used for other state priorities like roads, education, and law enforcement to better serve the state's taxpayers.

New York has introduced legislation that would mandate that Medicaid managed care plans adopt a FFS program, effectively cutting out PBMs entirely, according to Chmielewski.  California, via an Executive Order issued by the Governor in January 2019, is requiring that all Medi-Cal pharmacy services be transitioned from managed care to FFS by January 2021. California, like Michigan, has expressed that this will strengthen the state’s ability to negotiate state supplemental drug rebates with the manufacturers, according to Chmielewski.

“Hospitals and systems should be prepared to address any potential administrative and/or operational issues it, and its pharmacies, may face during and after the transition,” Chmielewski says. “Executives should closely observe and study any effects of this change on spending, patient out-of-pocket costs, and potentially on patient outcomes, including regimen adherence and clinical response, deserve close observation and continued study.”