More States Choose to Carve Out Medicaid Drug Benefits

by Leslie Small

 

Beginning in April, California and New York will join a growing list of states that have opted to carve out prescription drug benefits from their Medicaid contracts with insurers, wagering that the state can do a better job at negotiating drug prices with manufacturers than managed care organizations and their contracted PBMs.

"I think the pharmacy benefit overall will be something that states are looking at in order to find savings in some way — whether through carveouts or through another policy — just because there are limited levers that the state is going to be able to pull to save money," says Rachel Dolan, a senior policy analyst with the Kaiser Family Foundation’s Program on Medicaid and the Uninsured.

Other states that have carved out their drug benefits from managed care contracts include Missouri, North Dakota, Tennessee, West Virginia and Wisconsin, and Nevada plans to carve out the prescription drug benefit in fiscal year 2023 when its MCO contracts are renewed.

One catalyst for the carveouts may be the increasing scrutiny on spread pricing, which occurs when PBMs charge payers more for prescription drugs than the amount they reimburse pharmacies and retain the difference.

"It also allows the state more control over their formulary and their payment policy, and it can also help them potentially negotiate more supplemental rebates with manufacturers if basically all the drugs are in one big pool covered by the state," Dolan adds.

For Medicaid MCOs, there are a host of important considerations when states opt to carve out their pharmacy benefits, notes Brian Anderson, a principal with Milliman. For example, such a move will generally hinder MCOs' ability to influence prescribing practices, which "have a profound impact on drug utilization and drug mix," he says. Pharmacy networks are another key issue, as MCOs often use closed networks but some states have any-willing-provider regulations for pharmacy participation in networks.

Meanwhile, some health plan trade associations have vocally opposed the pharmacy carveout trend.

Eric Linzer, president and CEO of the New York Health Plan Association, argues that the state's move "will undercut the ability of health plans to work with providers and patients to ensure that their care is integrated." In addition, "the fiscal analysis on this — I think it's an open question as to whether or not this will actually save the state money."

 

From RADAR on Drug Benefits