Reprinted from MEDICARE ADVANTAGE NEWS, biweekly news and
business strategies about Medicare Advantage plans, product design, marketing,
enrollment, market expansions, CMS audits, and countless federal initiatives in
MA and Medicaid managed care.
By James
Gutman, Managing Editor
April 9, 2015 Volume
21 Issue 7
Pharmaceutical costs in Medicaid
managed care programs that “carve in” pharmacy benefit management and thus let
insurers handle it are 14.6% lower in terms of average net cost per
prescription than in “carve-out” Medicaid states, according to a new study done
for trade group America’s Health Insurance Plans (AHIP) by consulting firm The
Menges Group. The study comes at a time when, as AHIP notes, some additional
states are considering carving out their pharmacy benefit oversight as a way to
lower costs via benefiting from the clout of large pharmacy benefit manager
(PBM) firms.
The overall conclusion in the 12-page
study report released by AHIP April 1 is that the differential in cost per
prescription in the 28 Medicaid managed care organization (MCO) states using
carve-ins versus the seven carve-out states meant $2.06 billion net savings in
state and federal expenditures in federal fiscal year 2014. Menges found that
the seven carve-out states had a 20% hike in net costs per prescription from
fiscal 2011 through fiscal 2014, while there was just a 1% increase for the six
states that recently switched from a carve-out to a carve-in model. The seven
carve-out states thus missed a total of $307 million in fiscal 2014 savings
that they could have had with a carve-in model, according to the report.
But the Menges study also notes that
because the pharmaceutical carve-outs typically utilize a fee-for-service
framework that “uses brand drugs (where very large rebates occur) more
extensively” than in managed care, overall rebates per Medicaid prescription
were $7.46 higher in those FFS states than in the carve-in states. This rebate
differential, though, “does not come close to offsetting the initial unit cost
differential” resulting from greater use of generic drugs in the carve-in
setting, the report asserts.
Rebates Have Drawn States to Carve-ins
Menges acknowledges that “Medicaid
rebates have played a significant role in the decision-making of the states
that have opted for the carve-out model.” The Affordable Care Act (ACA),
however, the study notes, extended the federal Medicaid rebates on prescription
drugs “to medications paid by MCOs” from the previous requirement for such
rebates just in the FFS setting and thus “essentially eliminated the
rebate-related financial advantages of the carve-out model.”
The report also points out “some
stakeholders contend” that a pharmacy carve-out is more “user-friendly for
physicians and pharmacies” because there then is a single Medicaid formulary
and set of prior-authorization policies. However, growing IT sophistication
among payers and providers makes the administration of multiple payer policies
“much more automated and less burdensome than was previously the case,” the report
says. And a carve-in approach yields many administrative efficiencies in such
aspects as accessing pharmacy data and integrating the data into an MCO’s
“overall coordinated care program.”
On the other hand, the ACA’s health
insurer fee also applies to the pharmacy benefit portion of for-profit Medicaid
plans’ pay, so states generally are having to reimburse that to make insurers
whole, the study acknowledges. No such insurer fee — and state reimbursement
for it — applies in pharmacy carve-outs, Menges notes.
If this is a minus for carve-in
pharmacy arrangements, it is more than made up for in the advantages of
carve-ins, the report suggests. Point-of-sale payments in carve-in states
amount to far less in terms of cost per prescription, according to Menges’
research, even after the impact of rebates is figured in.
And Menges’ analysis of six states that
switched from carve-outs to carve-ins between the end of fiscal 2011 and the
beginning of fiscal 2014 found their overall Medicaid costs per prescription
fell by 6% on a pre-rebate basis during the period.
The Pharmaceutical Care Management
Association (PCMA) trade group, which represents PBMs, says Menges in an
earlier study had suggested the main problem is states underutilizing the tools
already available from PBMs and elsewhere. That study, PCMA tells MAN,
“found that modernizing Medicaid pharmacy benefits could save $74.4 billion
without cutting either benefits or enrollees. Proven savings tools — including
negotiating competitive pharmacy dispensing fees, encouraging even greater use
of generics and preferred brands, reducing waste, and implementing pharmacy
networks — have long been used by many private-sector employers, union plans,
Part D, and Medicaid managed care plans, but are still underutilized by many
state Medicaid programs.”
View the AHIP study by visiting the
April 9 From the Editor entry at MAN's subscriber-only Web page: www.aishealth.com/newsletters/medicareadvantagenews.
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