N.Y. Medicaid Proposals Would Shift Drugs To Managed Program, Curtail Brand Coverage

New York Medicaid Director Jason Helgerson and a team of healthcare experts, business leaders and state politicians are considering a number of Medicaid cost-cutting proposals, including changes to drug coverage, which would pare $2.8 billion from the state's 2011-2012 budget.

New York Medicaid Director Jason Helgerson and a team of health care experts, business leaders and state politicians are considering Medicaid cost-cutting proposals that would shift management of the prescription drug benefit from the fee-for-service setting to managed care and institute changes in the preferred drug program.

The Medicaid Redesign Team was established by New York Governor Andrew Cuomo in January and charged with finding ways to cut $2.8 billion from the state's 2011-2012 budget, which is currently facing a $10 billion overall deficit. The team has come up with a list of 49 cost-saving proposals, of which several relate to drug coverage; the proposals to shift management of drugs to managed care and the changes to the preferred drug program together would account for $75 million in savings.

The proposal to bundle the pharmacy benefit into managed Medicaid would be the biggest cost saver among the drug proposals under consideration. It is expected to generate $50 million in savings to the state and total savings of $100 million for 2011-2012, according to documents posted to the N.Y. Medicaid program website.

While other states have moved the pharmacy benefit to managed care in varying degrees, New York so far has not done so.

New Rebates For MCOs

The plan builds on new rules for federal rebates under Medicaid that were established by the Affordable Care Act. Under the law, managed care organizations are entitled to the same level of mandated rebates as are available to the fee-for-service program. Most MCOs negotiate their own rebates with drug firms but they are generally not as large as those obtained by the federal government.

N.Y. currently receives $1.5 billion in federally mandated rebates and $190 million in supplemental rebates. Supplemental rebates are those negotiated by the state above the federally mandated level.

Now that the federal rebates to MCOs have been equalized with the fee-for-service program, New York's budget may benefit from drug utilization management tools used by pharmacy benefit managers on behalf of Medicaid managed care plans, the proposal states. Furthermore, "management of the prescription drug benefit by the managed care plans will also enable access to pharmacy data which can improve their ability to manage patient care."

On the other hand, one concern with the proposal is that the revenue from rebates may be "at risk" because purchasing power will be fragmented across multiple plans, the proposal points out. Other concerns include a "lack of transparency" due to plan reliance on PBMs and "issues of accuracy and consistency of data" from multiple plans.

The Pharmaceutical Care Management Association, the trade association for PBMs, heralded the proposal in a Feb. 15 release, indicating ways its members can help save money for the Medicaid program. "Currently New York's Medicaid program uses fewer generic drugs and pays pharmacies twice what they are paid by Medicare and private insurers," the group said.

"Rebuilding" The Preferred Drug List

Another proposal under consideration would promote wider use of generics through changes to the state's Preferred Drug Program. The program promotes use of less expensive, equally effective drugs through use of a Preferred Drug List, which groups together drugs of the same therapeutic class that produce similar clinical effects. The list is developed based on the recommendations of a Pharmacy and Therapeutics Committee.

The program produces revenues for the state in two ways: drug firms provide supplemental rebates in order to secure a spot on the preferred drug list, and the program moves beneficiaries to less expensive drugs by requiring prior authorization for non-preferred medications. However, the program includes a statutory "provider prevails" requirement that allows the PA to be overridden by prescribers.

The proposal seeks to change the preferred drug list process by allowing the state to conduct more aggressive direct negotiations with manufacturers to obtain greater supplemental rebates. It would enhance the state's role in the P&T committee by allowing a state staff member to act as chair.

The proposal would also eliminate the "provider prevails" provision, which is likely to generate substantial opposition from prescribers, patient advocacy groups and drug firms on the basis that the change could inappropriately limit access to non-preferred drugs, the document acknowledges.

In a preliminary estimate, the proposal predicts the state could save $25 million in 2011-2012 from the changes to the PDL and total savings could reach $50 million. The estimate is based on increasing the generic dispensing rate from 65% to 70%, and would be in addition to the savings projected for the Managed Medicaid bundling proposal.

Other Drug Proposals

Four other proposals relate specifically to drug reimbursement. One would allow prior authorization under the preferred drug program for four categories that are currently exempt from PA: anti-depressants, atypical antipsychotics, anti-retrovirals and immunosuppressants.

"Allowing PA in these classes would maximize supplemental rebate revenue and is comparable to what other states are doing," the proposal notes, adding that a survey of 28 states found 25 include antidepressants in their preferred drug program and 17 include atypical antipsychotics.

The other drug-related proposals would limit the number of brand medications that a beneficiary could receive to five per month; limit opioids to four prescription fills every 30 days; and eliminate "wrap-around" coverage for Medicare/Medicaid dual eligibles.

In the redesign effort, New York Medicaid Director Helgerson hopes to replicate the success he had over the past two years in restraining costs in Wisconsin's Medicaid program, where he was the former director. In Wisconsin, Helgerson gained a reputation as a proponent for collaborative change

New York's governor is hoping Helgerson can engage stakeholders in a similar way, thus improving the chances that substantive change will make it through the state legislature, which in the past has rejected most big-ticket, cost-cutting and structural changes to the program.

Working with the state Health Department, the team will develop a final package of proposals that will be submitted to the governor by March 1 for inclusion in the budget process. New York's fiscal year begins April 1. The team next meets Feb. 24-25 to discuss its recommendations.

New York's Medicaid program serves 4.7 million individuals at an annual cost of more than $53 billion, including federal, state and local funding.

-Cathy Kelly ([email protected])