Last month, the Trump administration approved a first-of-its-kind proposal to lower drug prices.

Oklahoma will now be allowed to negotiate Medicaid drug prices based on the effectiveness of the medicine. The state will only pay full price for a drug if it's proven to work. If not, then the state will only pay a fraction of that cost.

“Oklahoma’s plan for value-based drug contracts is an important example of how states can innovate to bring down drug costs,” said Alex Azar, secretary of the U.S. Department of Health and Human Services, in a statement announcing Oklahoma's program.

Other states have already reached out to Oklahoma to learn more about the approach, says Nancy Nesser, pharmacy director for the Oklahoma Health Care Authority, which administers the state’s Medicaid program.

“[Pharmaceutical companies] have done some similar things in the commercial space and wondered why they can’t do that with us,” she says.

While most private insurance plans can and will refuse to cover drugs when there is a cheaper or generic alternative, state Medicaid programs are required to cover every drug approved by the Food and Drug Administration. 

The Oklahoma decision by the federal Centers for Medicare and Medicaid Services came on the same day the agency declined another state's unprecedented drug pricing waiver. Massachusetts wanted to exclude certain drugs from Medicaid coverage in order to gain bargaining power over prices. CMS rejected that proposal out of concern that parts of it would violate federal law.

States already receive a discount for prescriptions -- sometimes up to 50 percent -- through the Medicaid Drug Rebate Program, but Nesser says it's not enough. Prescription drugs cost Medicaid programs $32 billion in 2015 -- up from $28 billion in 2014, according to the Kaiser Family Foundation.

If CMS had approved Massachusetts’ waiver, it would have "signaled more coming changes to the drug rebate program," says Ross Margulies, a health-care attorney with the firm Foley Hoag. Instead, he says, the approval of Oklahoma’s proposal means CMS is likely only open to more modest changes in how states pay for prescription drugs.

In its rejection, CMS said that Massachusetts could end its participation in the rebate program and come up with a state-specific alternative. That would be an incredibly heavy lift, says Margulies. “But if any state were to try something like that, it could be Massachusetts,” which pioneered the framework for the Affordable Care Act.

Oklahoma’s program is voluntary for pharmaceutical companies. One company joined this month and a couple of others are in negotiations with the state.

“Some of the smaller companies have really been open to it, and some of the bigger companies haven’t," Nesser says. "That really has surprised me. I figured it’d be the other way around.”

It's up to the state to decide if drugs are working as intended -- a process Nesser says will be labor-intensiveThe state will primarily use refill data to track outcomes. If people aren't refilling a certain prescription, the state can assume it's not working correctly. 

"One thing we've learned is that some companies don't really stand behind their drugs, and it's kind of scary. ... We're paying a premium for them, and they're not willing to say that they will work," Nesser told the Associated Press

There is some skepticism among health experts about how much money Oklahoma will actually save. Nesser admits that they’re expected to just save “a couple of million” in a program that spends $650 million on prescription drugs a year.

“Will this be a watershed program? I don’t think so. But I also don’t want to downplay it because this is the first time we’ll see true outcomes-based pricing in the Medicaid program," says Margulies. "It is a clever way to get around best-price rules."

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