In the absence of new federal policies to tame break-the-bank drug prices, Massachusetts’ state Medicaid program hopes to road-test an idea both radical and market-driven. It wants the power to negotiate discounts for the drugs it purchases and to exclude drugs with limited treatment value.
“This is a serious demonstration proposal,” said Sara Rosenbaum, a health policy expert and professor at George Washington University. “They’re not simply using [this idea] as an excuse to cut Medicaid. They’re trying to take a step toward efficiency.”
If the Department of Health and Human Services approves the Bay State’s plan, others will likely take similar action. According to the most recent federal data, Medicaid spending on prescription drugs increased about 25 percent in 2014 and nearly 14 percent in 2015.
Currently, state Medicaid programs are required to cover almost all drugs that have received Food and Drug Administration approval, including multiple drugs from different manufacturers used for the same purpose and in the same category. In exchange, manufacturers must discount those drugs — typically based on a set percentage of the list price, specified by federal law. The idea is Medicaid’s vulnerable beneficiaries get medications they need and the state doesn’t go broke paying for them.
As drug prices soar, states say, those fractional rebates no longer suffice to defray the burden of rising costs.
Take, for instance, the hepatitis C cures released in recent years. The price tags come in tens or even hundreds of thousands of dollars and — even after rebates — have cost Medicaid billions. In turn, some states tried to restrict access, so only the sickest patients could get the drugs. Advocates filed suit in response and won based on the argument that such limits violated Medicaid’s statutory drug benefit.
State officials contend that the current Medicaid rebate system may encourage drug price inflation, since a set percentage of a higher price yields a greater profit. Also, the legal requirement to cover most prescriptions leaves little wiggle room to negotiate a better price.
So, Massachusetts wants to go a different route, requesting a federal exemption known as a Section 1115 waiver, which is meant to let states test ways of improving Medicaid. It wants to pick which drugs it covers based on most beneficiaries’ medical needs and which medicines demonstrate the highest rates of cost effectiveness.
It says it will be able to negotiate better prices as a result, saving public dollars while maintaining patients’ access to needed therapies.
The federal Centers for Medicare & Medicaid Services, which will ultimately approve or reject Massachusetts’ proposal, has no deadline for its decision. A Massachusetts spokeswoman said officials are pushing for an answer by year’s end.
Already, though, the pitch is turning heads.
“This is absolutely something a lot of other states are looking very closely at,” said Matt Salo, executive director of the National Association of Medicaid Directors.
If the request is approved, agreed Jane Horvath, a senior policy fellow at the National Academy for State Health Policy, other states would follow suit “in about five minutes.”
Critics worry this change could make it harder for low-income people to get needed medications, without necessarily providing them an alternative. In the past decade, though, it has become commonplace for people with commercial insurance to have limited drug choices — meaning only those medicines listed on a plan’s formulary are covered.
The Pharmaceutical Research and Manufacturers of America (PhRMA), the drug industry’s trade group, has already lodged its displeasure, saying this would limit consumer access and is unnecessary on top of the rebates Medicaid programs receive.
“The pharmaceutical industry has a reputation for being litigious. This would be a big deal for them,” said Andy Schneider, a Medicaid expert at Georgetown University, who worked at CMS under the Obama administration. If CMS approves the waiver, analysts said, the industry would likely sue, though PhRMA wouldn’t comment on potential legal action.
But federal approval is no sure thing.
On one hand, the Trump administration has encouraged states to test changes that would run Medicaid more like a private insurance plan. Through that frame, Massachusetts’ approach seems a logical fit. Though a formal strategy has not been released, President Donald Trump has said his administration intends to bring drug prices “way down.”
On the other hand, analysts said, CMS’ decision-making regarding waivers has proven unpredictable. The agency declined to comment beyond confirming it was reviewing Massachusetts’ request.
It’s clear why states are interested. On average, between 25 and 30 percent of state budgets go to Medicaid, and program directors across the country identify rising drug costs as a major contributor to spending increases, according to a recent survey by the Kaiser Family Foundation. (Kaiser Health News is an editorially independent program of the foundation.)
In Massachusetts, Medicaid accounts for about 40 percent of the state’s budget. Prescription-drug spending has in the past seven years more than doubled — from about $917 million in 2010 to about $1.94 billion last year, according to figures provided by the state health department.
If the waiver is approved, the state’s Medicaid program would cover at least one medication per therapeutic class — that is, per specific medical need.
It also would have an appeals process for people to get their off-formulary drugs covered, if they’re medically necessary.
Number crunchers say it’s hard to estimate what this would save. It depends on how the state negotiates, how industry responds and what the program covers. The potential result is significant, though.
“You’d have to be foolish not to consider this,” said Ameet Sarpatwari, an epidemiologist and lawyer at Harvard Medical School, who studies drug pricing and related legislation.
But consumer groups worry about Medicaid’s low-income beneficiaries, even as they acknowledge that rising drug costs are unsupportable for state budgets.
“The Medicaid population is different from the commercially insured — they’re more vulnerable and have a lot more going on in their lives, and are generally poorer. So they have fewer resources to try to get the services and prescription drugs they need,” said Suzanne Curry, associate director of policy and government relations at Health Care For All, a Massachusetts-based advocacy group.
Although Massachusetts, a state with a long history of innovation, has committed to making sure patients get needed medicine, “you have to ask what will real-world implementation looks like,” said Benjamin Sommers, an associate professor of health policy and economics at Harvard’s public health school. Appeals processes, he noted, can be onerous or restrictive.
And even if Massachusetts receives federal approval, it still couldn’t challenge the cost of certain expensive drugs that are the only offering in their therapeutic class. For instance, Spinraza, which treats the rare but debilitating disease of spinal muscular atrophy, has a price tag of $750,000 for an initial year of treatment. With no therapeutic equivalent, it would still have to be covered.
But states are desperate to push back in new ways and however they can. “We have seen in the past year … drugs that have almost bankrupted state budgets,” Sarpatwari said. “There will be many other states that will be interested in following this lead.”
KFF Health News' coverage of prescription drug development, costs and pricing is supported in part by the Laura and John Arnold Foundation.KFF Health News is a national newsroom that produces in-depth journalism about health issues and is one of the core operating programs at KFF—an independent source of health policy research, polling, and journalism. Learn more about KFF.
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