The Soaring Cost of Drugs for the Medicaid Program

Medicaid Drug Costs

03 May The Soaring Cost of Drugs for the Medicaid Program

Last month, President Trump delayed presenting his plan to address the soaring costs of prescription drugs. Despite the delay, New York’s Medicaid Drug Utilization Review Board (DURB) took it upon themselves to negotiate with drug manufacturers. DURB voted in favor of lowering the price its Medicaid program is willing to pay Vertex Pharmaceuticals for the company’s cystic fibrosis drug.

The federal government’s aversion to reduce drug prices for the Medicaid program is the primary driver of soaring costs. Private health insurance companies can create their own formularies and negotiate pricing. Medicaid has much more negotiating power due to its massive membership, but by law, is barred from doing the same.

The Centers for Medicare & Medicaid Services (CMS) is projecting that prescription drug spending will be the fastest growing category of health spending over the next ten years. CMS is well aware of the situation and according to the Chief of CMS, Seema Verma, “the bottom line is that insurance premiums have skyrocketed and there’s a number of people that just can’t afford to pay.”

Pharmacy Benefits Consultants studied wholesale drug prices from the beginning of 2017 to 2018 and found that “twenty prescription drugs saw their prices rise by more than 200%.” Additionally, The Senate Homeland Security and Governmental Affairs Committee Minority (HSGAC) conducted a review and found that “prices for each of the 20 most-prescribed brand-name drugs for seniors have increased dramatically every year for the past five years.” That rate is “approximately ten times higher than the average annual rate of inflation.” Furthermore, from 2012 to 2017, “twelve out of the 20 most commonly prescribed brand-name drugs for seniors had their prices increased by over 50 percent.”

The Trump Administration, the Center for Medicare and Medicaid Services, and other government officials are aggressively assessing the situation and looking for a solution. One approach is proposed in President Trump’s 2019 budget. The idea is to put into place a pilot program that would allow state Medicaid programs to test drug formularies that would encourage more competitive drug pricing.

Massachusetts Medicaid: The Medical Hub and Healthcare Leader

Medicaid’s inability to negotiate with drug companies is one factor contributing to skyrocketing drug prices. In Massachusetts alone, drug prices have doubled in the last 5 years. MassHealth‘s drug costs are stretching the state’s budget as drug costs have grown to over $2 billion a year. In response to the soaring costs, Massachusetts’s Governor, Charlie Baker, has submitted a waiver to the Trump administration to create a selective drug formulary that would allow the state to negotiate pricing and eliminate ineffective medications. State officials are certain that by reducing the number of drugs in the formulary and by limiting the number of drug manufacturing companies who provide them, it will afford MassHealth the negotiating power needed to decrease costs.

While health-care policy experts and CMS support the idea, the state’s proposal to remove drugs from the formulary could be problematic. Consumer groups argue that the people benefiting from the program may need multiple drugs for their conditions. Depending on what medications officials deem ineffective, patients could potentially lose access to needed care. Critics of the proposal suggest that it does nothing to address drug costs and it will actually hurt people that rely on the program. In fact, there is a high possibility that drug manufacturers will raise drug prices as their competition decreases.

Assuming the governor’s plan is approved, MassHealth will need to establish an appeal system for doctors to prescribe medications not present on the formulary so patients can access the medications they need. If states interested in this model can demonstrate that patient’s access to needed drugs is intact and their programs can save money, it may be a solution to rising drug prices across the nation. For the moment, Trumps 2019 budget would allow for five states to attempt what Massachusetts is proposing.

New York’s Approach To Reasonable Medicaid Drug Prices

New York officials also see the importance of having the opportunity to negotiate drug prices. In an effort to combat climbing drug costs, New York’s state Medicaid program’s DURB voted to enact a law that uses supplemental rebates to manage drug costs. The law focuses on drugs that are “priced disproportionately to their therapeutic benefits.” When the state experiences a drug spending surge of 2.4% to 15.1%, the board can ask for discounts to a more reasonable price.

The first test will be conducted with Vertex Pharmaceutical’s cystic fibrosis drug, Orkambi. In the past, the drug cost $250,000 a year for patients, the proposed cost has been lowered to $83,000. That equals a 67% discount.

On a global scale, pharmaceutical companies rarely, if ever, entertain demands for discounts. These companies believe that competition is the key to controlling drug pricing. They argue that drugs like Orkambi have no competitors and that $250,000 annually is reasonable. They also claim that high prices support their ability to research and develop new drugs. This claim does not ring true since nine out of the ten largest pharmaceutical companies spend more on marketing than on developing new drugs.

Drug costs continue to rise and it is putting patients access to care in jeopardy. As a result, government officials are making efforts to reduce the costs and achieve fair prices. Ultimately, the existing reality of hyper-inflated drug prices cannot be sustained, not only for public programs like Medicaid and Medicare but for everyone.