Internet Explorer 11 is not supported

For optimal browsing, we recommend Chrome, Firefox or Safari browsers.

States Want Control Over Drug Prices. Will the Feds Give It to Them?

In an attempt to lower health-care costs, Massachusetts is seeking to exclude certain drugs from its Medicaid program. It's a bold step, experts say, that will not only invite imitation but also lawsuits.

While Congress remains gridlocked on health-care reforms -- particularly regarding drug prices -- states are increasingly taking matters into their own hands.

In September, Massachusetts submitted a waiver to the Centers for Medicare and Medicaid Services (CMS) that asks permission to exclude certain drugs from its Medicaid program, MassHealth.

It’s a bold step, says Tom Dehner, Massachusetts' former Medicaid director. The move, he says, is an attemp to "take the next step in managing costs."

Indeed, Medicaid costs have ballooned in recent years, with MassHealth now accounting for 40 percent of the state’s budget. Massachusetts is hardly an outlier, as Medicaid programs on average make up around 25 percent to 30 percent of states’ budgets. Prescription drugs are often cited as a key factor in the rising costs, according to data from the Kaiser Family Foundation.

By declining to cover more expensive drugs in favor of cheaper alternatives, Massachusetts' Medicaid program will have greater leverage when negotiating drug prices, says Matt Salo, director of the National Association of Medicaid Directors. “The minute you cross that threshold and say, ‘We’re not going to cover that drug,’" he says, "that suddenly creates a different dynamic between the payers and the manufacturers. You exclude one drug, that enables you to get better pricing. It’s 100 percent a great option.”

As it stands, state Medicaid programs receive hefty rebates from drug manufacturers. In return, Medicaid programs are required to cover pretty much every drug approved by the Food and Drug Administration. To put that in perspective, most private insurance plans will decline to cover drugs when there is a cheaper or generic alternative.

Massachusetts is not alone in looking for more control over drug pricing. Arizona Medicaid Director Thomas Betlach sent a letter to CMS Administrator Seema Verma in November asking, among other things, for greater decision-making power in what drugs Medicaid covers. “States should be permitted the flexibility to exclude drugs until market prices are consistent with reasonable fiscal administration and sufficient data exists regarding the cost effectiveness of the drug,” he wrote.

Similarly, Maryland passed a law last year that allowed the state’s attorney general to sue drugmakers who hike prices without proper explanation. A judge struck down the law last month.

The federal government has sent mixed messages on whether or not it’ll approve Massachusetts' waiver. Verma has promised to give states more flexibility than was granted under the Obama administration. But some observers think it's unlikely she'll approve this waiver in its current form, arguing that the Trump administration is friendlier to pharmaceutical interests. Alex Azar, the current Health and Human Services secretary, is a former pharma executive.

Most experts, though, didn’t want to make any predictions on the timing or outcome of the waiver, merely speculating that some kind of compromise is likely. One thing seems certain: If Massachusetts is allowed more leverage over drug prices, more states will certainly follow with similar waivers.

Lawsuits are also expected to follow, from either advocacy groups concerned about limiting drugs or pharmaceutical interests.

Ross Margulies, a health-care lawyer with the law firm Foley Hoag, says the legal battle over work requirements will be a good limitus test for this kind of waiver. When CMS allowed Kentucky to enforce work requirements on its Medicaid beneficiaries, a lawsuit from patient advocacy groups was almost immediately filed and is still pending. If courts strike down the lawsuit and allow Kentucky to enforce work requirements, it could indicate that states will also be allowed to take more control over the drug pricing formulary.

However, while Margulies says that “there’s a technical legal argument to waive certain sections of the rebate program,” the bigger question is how drug companies will react to that. “If a state no longer guarantees coverage for products," he asks, "will a manufacturer hold up their end of the bargain for rebates? That’s trickier."

The Pharmaceutical Research and Manufacturers of America has said that Massachusetts’ waiver is “unnecessary on top of the rebates Medicaid already receives,” according to Kaiser Health News.

Meanwhile, regarding advocates' concerns about limiting drugs, Salo maintains that Medicaid recipients in Massachusetts won’t suddenly be denied life-savings drugs. Rather, drugs would be excluded after “a very carefully arrived at decision, taking into consideration expert advice," he says. "They also wouldn’t exclude anything if it hasn’t already been excluded in other plans.”

This appears in the Health newsletter. Subscribe for free.

Mattie covers all things health for Governing.

Special Projects
Sponsored Stories
Workplace safety is in the spotlight as government leaders adapt to a prolonged pandemic.
While government employees, students and the general public had to wait in line for hours in the beginning of the pandemic, at-home test kits make it easy to diagnose for the novel coronavirus in less than 30 minutes.
Governments around the nation are working to design the best vaccine policies that keep both their employees and their residents safe. Although the latest data shows a variety of polarizing perspectives, there are clear emerging best practices that leading governments are following to put trust first: creating policies that are flexible and provide a range of options, and being in tune with the needs and sentiments of their employees so that they are able to be dynamic and accommodate the rapidly changing situation.
Service delivery and the individual experience within health and human services (HHS) is often very siloed and fragmented.
In this episode, Marianne Steger explains why health care for Pre-Medicare retirees and active employees just got easier.
Government organizations around the world are experiencing the consequences of plagiarism firsthand. A simple mistake can lead to loss of reputation, loss of trust and even lawsuits. It’s important to avoid plagiarism at all costs, and government organizations are held to a particularly high standard. Fortunately, technological solutions such as iThenticate allow government organizations to avoid instances of text plagiarism in an efficient manner.
Creating meaningful citizen experiences in a post-COVID world requires embracing digital initiatives like secure and ethical data sharing, artificial intelligence and more.
GHD identified four themes critical for municipalities to address to reach net-zero by 2050. Will you be ready?
As more state and local jurisdictions have placed a priority on creating sustainable and resilient communities, many have set strong targets to reduce the energy use and greenhouse gases (GHGs) associated with commercial and residential buildings.