Runaway pharma costs tackled in new Medicaid plan

January 28, 2016

N.Y. Gov. Andrew Cuomo proposes a budget provision that would call for capping prices on some drugs and requiring drug companies to provide information about their costs.

New York Governor Andrew Cuomo’s new budget plan is looking to cap the prices of certain drugs, as well as for pricing transparency from pharmaceutical manufacturers.

Related: When cheap drugs suddenly become expensive

According to Politico, if Gov. Cuomo’s plan is approved by the state legislature, it would allow the state's health commissioner to develop a list of prescription drugs for which manufacturers would be required to provide a minimum rebate to Medicaid. The drug manufacturers on the list would then be required to provide a minimum rebate to Medicaid, which would be set by the state following an actuarial study. Additionally, Cuomo is proposing that drug makers provide information to the state, consumers, and prescribers on how they arrive at the price of their drugs. 

Early

“The governor has come out with some budget proposals directed at the pharmaceutical companies due to the rising cost of pharmacy items and its impact on the state budget- both directly based on what the state needs to pay or indirectly based on the impact to managed care plans which the state is paying premiums to for handling the Medicaid population,” explains Thomas Early, former managed care executive at Health Plus and Elderplan, both New York managed care plans involved in government programs.

The executive budget for New York State proposes a host of pharmacy-related provisions that impact Medicaid managed care plans, according to Dennis J. Graziano, president and chief executive officer of YourCare Health Plan, Rochester, N.Y.  

Graziano

“The [budget] also authorizes the New York State [NYS] Department of Health to establish a list of critical prescription drugs and require manufacturers to supply information about said drugs to the state for purposes of setting a ceiling price,” Graziano says. “Under this provision, the NYS Department of Health may require the manufacturer to pay a rebate to the state if the price paid for the drug by managed care plans exceeds the ceiling price. The governor also proposes to establish a cap on the price of generic drugs, which recently have seen dramatic price increases.”

Without question, the fastest growing cost center for health plans continues to be our pharmacy benefit, Graziano adds. “The introduction of higher cost drugs and increased utilization drives additional costs to the plans and ultimately to the state as the payer for Medicaid managed care. Higher cost drugs, both brand and generic, are driving costs up, faster than medical inflation,” he says.

Early agrees and says that pharmacy costs have had a direct impact on the budget because of the continued rise in the costs of drugs, particularly new drugs, that are brought to the market, says Early. Two of those are hepatitis C drugs Sovaldi and Harvoni.

“Although the long-term impact may reduce costs overall for someone with hepatitis C, the immediate costs are significantly high,” Early says. “The course of treatment for one of these drugs is somewhere from $60,000 to $90,000 over a period of a two- to three-month treatment. There are other new drugs out there that are also throwing pharmacy budgets way out of line. Even generic drug pricing has been growing faster than medical inflation.”

Next: State budgets impacted

 


State budgets are being notably impacted and at the end of the day, the state has to increase funding to managed care plans to cover these added expenses, according to Early.

“This is having a significant negative effect on state budgets that are already being strained,” he says. “The state is looking at various ways it can control these growing costs and also to deal with the new drugs that are being developed and sold at higher costs. Implementing mandatory Medicaid rebates, requiring prior auths, eliminating prescriber prevails rules and setting ceiling prices are all ways that the state is trying to get control of the pharmacy costs.”

Graziano supports Cuomo’s drug pricing proposals “and the state’s effort to control drug pricing in Medicaid managed care. Managed care plans can no longer sustain double-digit increases in prescription drug prices. If implemented this policy will certainly limit our financial exposure and allow us to continue to provide quality healthcare to our state’s most vulnerable populations.”

Failure to address this issue will, at some point, force the state, and ultimately managed care plans, to make some very difficult decisions regarding treatment options and/or benefits that members currently receive, according to Graziano.

“This problem is not unique to Medicaid managed care plans or to New York alone. Every State and healthcare insurer in the country is struggling with this issue,” he says. “The projected cost increases for prescriptions drugs that we are seeing are just not sustainable for the long term.”

It is possible that other states are discussing similar strategies “to try and control the same budget item that New York is trying to control,” Early says.

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