States struggle with rising Medicaid drug costs

Getty Images

As prescription drug prices continue to rise, states are struggling to find ways to cover the costs to Medicaid, which could mean unwelcome changes for beneficiaries and health plans.

States have implemented policies to prevent spending exorbitant amounts of money on drugs, but as prices continue to rise, experts said some hard decisions will have to be made. States can use tactics like preferred drug lists, prior authorization, and even comparative effectiveness reviews, but those may not be enough if recent pricing trends continue. States could dramatically scale back benefits by doubling down on policies that limit medications or cut reimbursements to health plans.

{mosads}“States have been creative, but it’s a tough, steep hill to climb” to deal with the price increases, Trish Riley, executive director of the National Academy for State Health Policy, told The Hill Extra. “We’re pretty close to states hitting their breaking point. It’s not just the increase, it’s the unpredictability of it.”

Spending on prescription drugs has been growing in recent years, mostly because of the introduction of expensive specialty drugs, like those to treat hepatitis C. Medicaid has price controls in the form of required rebates paid by the manufacturer, as well as the ability of states and plans to negotiate supplemental rebates, but those often aren’t enough. States also need predictability to balance their budgets, but a company dramatically raising the price of its drug multiple times a year can throw that into chaos.

Cumulative effect

Some recent price hikes have been dramatic, but with Medicaid, experts said everything is cumulative.

“You don’t budget for a single drug,” Riley said. There are states that are reviewing all spending on [the Medicaid drug benefit] to see where they can save.”

“EpiPen isn’t breaking the bank,” and the concern isn’t just how much hepatitis C drugs cost, Matt Salo, executive director of the National Association of Medicaid Directors told The Hill Extra. “It’s all the other things states have to pay for — [like] statins and cancer drugs.”

Sovaldi, the brand-name hepatitis C drug manufactured by Gilead, can cost $1,000 per day when purchased wholesale, which equals $84,000 for a 12-week course of treatment. Its successor, Harvoni, cost $94,500, but also came with a 98 percent cure rate. Medicaid beneficiaries are most at risk for hepatitis C, which is a blood-borne virus often spread through intravenous drug use. So Medicaid bears the brunt of the costs of providing those drugs.

Other cuts possible

Reimbursement rates are set well in advance of plan year, Edwin Park, vice president for health policy the Center for Budget and Policy Priorities, said. But if there’s a new blockbuster drug introduced, or drug like EpiPen has a massive increase, there may not be a mid-year correction available, Park toldThe Hill Extra.  

“If a drug price rises significantly — like in the double digits — that puts pressure on a state’s entire [Medicaid] program, and could lead to payment rate cuts,” Park said.

Riley said Medicaid programs have been able to reduce their drug spending growth due to manufacturer rebates, but not completely stop the spending.

“When you’re a state that has to have a balanced budget, [dealing with price increases] is really challenging,” Riley said. “The sense among states is ‘what’s next?’ [Manufacturers] are inventing great drugs that cure diseases, significantly improve quality of life, but there are tough tradeoffs” that result because of the price tag, she said. The worst case scenario would be for a state to completely end its Medicaid drug program because it’s too expensive.

Rebate help

Recently, Mylan has drawn the ire of the public and of Congress for raising the price of its EpiPen injector more than sixfold since 2007. Rebates mean states or Medicaid plans won’t pay the full price, which is over $600 for a pack of two, but enough of an increase in drug spending could force states to start making cuts elsewhere.

The Medicaid Drug Rebate Program requires manufacturers to pay Medicaid 23.1 percent of average manufacturer price (AMP) for brand name drugs, increased by an additional rebate if the AMP of the drug increased faster than the rate of inflation. The rebate for generic products is 13 percent of AMP, without inflation protection.

Salo told The Hill Extra states won’t get the same inflation rebates from Mylan, because the EpiPen was classified as a generic.

States have some flexibility to negotiate supplemental rebates, but they may not be able to negotiate much if it’s a commonly used drug they know they have to cover — like EpiPen or the hepatitis C drug Sovaldi.

Each state has wide discretion in administering its own Medicaid program, but states must follow some federal standards. States can restrict coverage of the drug only if there’s no medically acceptable reason to cover it. 

With hepatitis C drugs, “prior authorization made sense,” Jeff Myers, president and CEO of the Medicaid Health Plans of America told The Hill Extra. Prior authorization means that the physician needs approval from a health plan to prescribe a specific medication.

But the EpiPen is different. “A child needs epinephrine. So [plans] will pay the price and wait for a competitor” to bring the price down, Myers said.

See more exclusive content policy and regulatory news on our subscription-only service, The Hill Extra


Most Popular

Load more


See all Video