Policy Background

Medicaid serves more than 50 million people, with total annual costs of more than $300 billion. States share the cost of the program with the federal government, picking up 40 percent of overall Medicaid costs. Over the past decade, double-digit annual increases in prescription drug costs in state Medicaid budgets have been the norm, and states are looking at every alternative to cut costs. A 2005 survey of 33 state Medicaid programs anticipated Medicaid prescription drug spending increases of 14.3% for the 2005-06 FY, consistent with the prior year’s growth of 12.9%

Implementing the Medicare Part D prescription benefit has also placed an additional financial burden on many states seeking to insure that all eligible persons are properly enrolled and receiving the medications they need. States moved aggressively to auto-enroll those eligible for both Medicaid and Medicare, to provide wrap-around pharmacy benefits, and to help subsidize the extra cost of copays and premiums. While these measures helped protect dual eligibles and other vulnerable populations from the more onerous Medicare provisions, they also burdened state budgets.

Financial pressures lead to benefits cuts. As a result of these financial pressures, states are adopting a number of policies to cut prescription drug benefits in Medicaid. One policy that is both widely adopted and widely criticized is to place monthly or annual caps on the number of prescriptions that an enrollee of a Medicaid or other state prescription drug plan may fill. Despite the fact that drug caps have been repeatedly discredited in peer-reviewed studies as not only harmful to patients but also ineffective in reducing total medical costs, states continue to adopt these policies, which promise initial cost savings and are simple to understand and implement. According to October 2005 data, at least 12 states had drug caps (37 were surveyed). In 2006, both Tennessee and West Virginia adopted drug caps to save money in state health programs. TennCare now limits adults to five prescriptions per month, and only two of them can be brand-name medications. These restrictions are among the tightest limits anywhere in the country. While they have saved money up front in TennCare, anecdotal evidence is that the policy is already negatively affecting the health of enrollees.

In West Virginia, Medicaid enrollees who fail to sign or meet then goals of a "personal responsibility contract" will have their benefits reduced, and could face caps on the number of prescriptions that would be covered or other benefits. In Mississippi, effective July 1, 2005, Medicaid enrollees are allowed five prescriptions per month - two brand-name drugs and three generic medications. The previous policy allowed them to receive up to seven prescriptions per month -- five of any type and two additional drugs that require prior authorization. Facing a lawsuit challenging this policy as applied to HIV-positive people, who must take a prescription drug “cocktail” of several medications, the state lifted this policy with respect to HIV-positive persons. Many others with chronic conditions, however, are also required to take multiple prescriptions and they remain subject to the arbitrary cap.

Many better alternatives to these arbitrary benefit cuts policies are available. There are better policies which promise substantial savings without harming patient health. NLARx is working with state legislators to craft thoughtful responses to budgetary pressures that preserve effective prescription drug benefits for patients on Medicaid and Medicare. These policies are detailed on other issue pages of this website, and include:

  • Multistate and inter-agency purchasing pools
  • Eliminating reliance on vendors and PBM middlemen to negotiate rebates directly
  • Implementing an enforceable Preferred Drug List
  • Providing medicines at below-Medicaid prices through 340B of the Public Health Act
  • Enforcing “Best Price” provisions and aggressively controlling vendor fraud
  • Increasing generic prescribing
  • Communicating evidence-based effectiveness and safety information

Greater pricing transparency

Investments in fraud enforcement pay off. NLARx is also working with states to adopt effective measures to prevent and punish vendor fraud. The Federal False Claims Act has been used in litigation against pharmacy benefit managers, chain drugstores and pharmaceutical manufacturers for fraudulent pricing and billing practices including drug switching, false reporting of Medicaid ‘best price’, short-filling prescriptions, failure to pay rebates, kickbacks and side deals. Recent changes in federal law create a financial incentive (an additional share of any recovery based on Medicaid funding formulas) for states to enact false claims laws addressing Medicaid fraud that are as effective as the federal law in key particulars (providing for filing under seal, whistleblower protection and compensation, significant penalties).

A new report released by Taxpayers Against Fraud concludes that every dollar invested by the government in investigation and prosecution of federal health care fraud returns $15 back to the American people. The report finds that in the 5-year period from 2000 to 2004, the Federal government spent $443.8 million to recover $6.642 billion in health-care fraud related settlements and judgments. States frequently share in these recoveries. For example, in August 2006 the drug manufacturer GlaxoSmithKline agreed to a $70 million settlement with Arizona, California, Connecticut, Montana, Nevada and New York over allegations that the company artificially inflated average wholesale prices of prescription drugs. Thirty-four other states and the District of Columbia also will be eligible to receive part of the settlement.

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