Oxandrin

State Medicaid programs spent 23% more on prescription drugs in 2002 than they did in 2001 (figure 1), and prescription costs now represent 16% of total Medicaid budgets on average (figure 2), according to a recent DCMR survey of Medicaid pharmacy directors. Today, the average prescription drug expenditure per Medicaid eligible is almost $800 per year (figure 3), compared with $669 a year ago.

With rising drug costs and rising drug spend per member, cost containment in the pharmacy area is a major focus of state Medicaid programs this year. Medicaid programs are finally beginning to adopt some of the proven cost-control strategies that have long been standard components of commercially available pharmacy plans.

For instance, this past year Maryland implemented mandatory generics, quantity limits, early-refill restrictions, maximum allowable cost (MAC) pricing and tiered copays. That state also applied a tiered structure to pharmacist dispensing fees.

Nationwide, the top five fastest-growing pharmacy strategies for Medicaid are:

1. Mandatory generic substitution;

2. Early-refill edits and quantity limits;

3. MAC-based reimbursement;

4. Physician education programs, also known as counterdetailing;

5. Implementation of aggressive rebate collection policies.

Expansion of Prior Authorization (PA)

Next to drug utilization review, which is federally mandated, PA is the most popular cost-reduction strategy employed by state Medicaid programs. Currently, most states have implemented or expanded PA strategies, even more than last year (figure 4). PA restrictions are imposed on products that are the most expensive and have been pushed out of the tiered system for various reasons. Idaho Pharmacy Services Specialist Shawna Kittridge, R.Ph., attributes most of that state's $22 million in cost avoidance this year its expansion of PA.

OxyContin is the drug most likely to have PA restrictions--whether it is being discussed as an option or is already operating under PA. Last November, Kentucky was the first state to put Zyprexa, an atypical antipyschotic drug that is the most expensive in its class, on its Medicaid PA list.

Other drug classes most commonly put on PA status include: proton pump inhibitors, COX-2 inhibitors and other nonsteroidal anti-inflammatory drugs (NSAIDs). These products may also be subject to early refill edits and quantity limits. While certain drugs consistently require PA, some states have implemented a strategy that requires PA for certain drugs only after a set number of fills.

Use of Early Refill Edits and Quantity Limits Increasing

Last year, 16% of Medicaid pharmacy directors said their states were conducting early refill edits--used to alert the pharmacist when the patient is refilling his or her prescription before the previous supply is sufficiently used up. This year, 54% of states responded that they have implemented early-refill restrictions or are working on ways to improve their system.

Minnesota's pharmacy program manager Cody Wiberg, Pharm.D., R.Ph., claims his state is looking to improve its early-refill system by adding more "hard edits or hard stops." He explains that a code currently exists for early refill to stop, but it is flawed because it allows the claim to be retransmitted to Medicaid after a certain amount of time spent at the pharmacy, and Medicaid ends up paying the claim.

His program has proposed an edit that will not allow that code to be retransmitted. Instead of a code that stops or delays payment of the claim, the pharmacy would be rerouted to a help desk, which could determine a valid reason for refill and override the edit. "Each early refill needs a valid reason," Wiberg says. "We would define what those valid reasons are, looking at different scenarios. We are trying to stop inappropriate early refills, but will allow some with good reason."

Two reasons for allowing early refill are a dosage change or a lost prescription, says Shannon Whalen, pharmacy program manager for Wyoming Medicaid. In Wyoming's system, 80% of a prescription must be used before a recipient receives a refill. The state in August 2002 implemented a "Refill Too Soon" code, which is posted when there can be no override and will thus deny the claim. Early refills typically cannot exceed 34 days, but some states are reducing that number to 31.

In addition to limiting the frequency of prescriptions, states are also limiting quantity. About 56% of states also responded that they have implemented quantity limits, as opposed to 18% last year.

Quantity limits are typically recognized as a limit on the number of prescriptions allowed per member per month or on the size of the supply per month. For instance, Minnesota Medicaid recipients can now get a 90-day supply of medication, but will soon be able to obtain only 30 days at a time. Meanwhile, Wyoming Medicaid recently limited Oxandrin (oxandrolone tablets), a weightgain medication, to 62 tablets maximum in 31 days.

States have been quite creative in structuring quantity limits. Idaho, for example, last year introduced prior authorization after four fills for certain drugs. On Feb. 1, 2003, Wyoming Medicaid implemented the "Pharmacy Lock-In Program," which identifies people that normally go to more than one pharmacy and get prescriptions from more than one doctor, and forces them into going to only one specific pharmacy.

Implementation of Member Copays

Not all states have implemented copays, but 25 reported the implementation or increase of member copays since last year. For those states with prescription drug copays, the copay for brand-name drugs was around $3 while the generic copay ranged from 50 cents to $1. Several states reported that they increased their copays in the last year.

Some states still do not have a tiered system, but are considering implementing one. In both Wyoming and Alaska, Medicaid recipients pay a $2 copay for every prescription. Alaska's task force has suggested changing to a tiered system, with $1 or $2 for preferred and generic drugs, and $3 or $4 for brand-name prescriptions.

At least a third of states do not impose member copays, but several mentioned that they are considering implementing copays on some scale. Minnesota, for instance, has proposed a copay of $1 on generics and $3 on brand-name drugs.

Mandatory Generic Programs--Is Brand Medically Necessary?

Generics are the buzz in the commercial sector, and now many state Medicaid programs are implementing mandatory generic programs. In 2002, 11% of survey respondents had mandatory generic programs. This year, a whopping 56% have gone generic-happy (figure 4).

Such programs force the pharmacy to fill a prescription with a generic equivalent to the prescribed drug if it exists. Unless the physician writes "brand medically necessary" on the prescription, the generic will always be filled. New Mexico Medicaid Drug Program Administrator Neil Solomon is not sure how many providers are actually requesting brand. "A lot of pharmacies have their software set incorrectly and may be driving generic utilization by default," he says.

On a lesser scale, some states use generic substitution where the generic fill is not mandatory. In Alabama, for instance, generic substitution is allowed when the physician has indicated on the written prescription that this is acceptable, but generic substitution is not mandatory. Similarly, North Carolina's providers are participating in a "preferred generic dispensing initiative."

The Campaign for Rebates

The number of states that aggressively pursue rebates has also increased in the last year. In 2002, 37% of states responded that they aggressively pursue rebates, compared with a majority of states this year. Nancy Nesser, D.Ph., J.D., pharmacy director for Oklahoma Medicaid, responded, "We currently receive federal rebates only, but we do aggressively collect both the rebates and the interest due on unpaid amounts. Our annual rebate collection is 98-99% on all rebates invoiced."

Some states have chosen to pursue rebates collectively. In February, Michigan and Vermont started the first-ever multi-state drug purchasing pool. South Carolina has since jumped on board, and Wisconsin, Kansas and Minnesota have expressed an interest in participating, according to Scott Allocco, a spokesman for First Health Services Corporation. First Health is administering the program and negotiating with pharmaceutical manufacturers on behalf of the states to receive deeper discounts known as "supplemental rebates" from manufacturers. The "negotiation process is still ongoing," says Allocco, so there are no data on cost savings yet available.

Supplemental rebates are often sought in the creation of a preferred drug list (PDL). A PDL is a list of drugs that may be prescribed without prior authorization from the PBM, and often includes the least expensive, yet clinically effective drugs by therapeutic class. Manufacturers will pay supplemental rebates to have a drug placed on the PDL and not be subjected to prior authorization. In Florida, for example, for brand-name products to be included on the PDL, manufacturers must offer a minimum, combined federal-state supplemental rebate of 25% of the Average Manufacturer Price. PBMs are often instrumental in the implementation of a PDL.

States Divided on Preferred Drug List

While some of the other strategies already mentioned are being widely adopted by state Medicaid programs, states and their legislatures still remain divided on the implementation of a PDL.

This year, 18 states are considering implementing a PDL or are in the process of developing one, while 17 have already implemented one. The remaining states still do not have a PDL and have no immediate plans to implement one.

Although a PDL can help keep the costs of prescription drugs down by guiding utilization toward less expensive drugs, it can be considered a last resort for many states. In November 2002, the Maryland Department of Health and Mental Hygiene (DHMH) proposed a PDL for the state's Medicaid program, and received opposition from the Maryland Health Advocacy Alliance (MHAA) and the Monumental City Medical Society.

MHAA surveyed residents in Maryland and found that 77% objected to the list, which MHAA felt would limit recipients' access to a large number of prescription drugs and thus interfere with a physician's ability to prescribe the best drug for their patients. Despite the opposition, DHMH expects to implement the list, and expects to save $16 million (50% general funds, 50% federal funds) in fiscal year 2004.

Maryland also has legislation proposing prior authorization for mental health drugs, and prohibiting DHMH from negotiating supplemental rebates from pharmaceutical manufacturing companies. Those supplemental rebates could have brought in approximately $2 million a year. In 2002, Maryland spent about $300 million on prescription drugs, about 9% of the state's Medicaid budget (figure 2).

Michigan's attempt to save money with a PDL was challenged this year by the Pharmaceutical Research and Manufacturers of America and mental health advocates. The Michigan Pharmaceutical Best Practices Initiative, however, was upheld by the U.S. District Court for the District of Columbia, which ruled in March that states have the ability to create preferred drug lists. Michigan's program was implemented in February 2002, saving the state approximately $850,000 a week.

PBM Contracting Strategies

While some states successfully manage pharmacy benefits in-house, many rely on PBMs and fiscal intermediaries for at least one PBM function. Fiscal intermediaries often handle claims control, resolution and processing; provider relations and training; and priorauthorization functions, or claims processing only.

PBMs may perform those functions, as well as help states implement programs such as prospective and retrospective DUR or prior authorization, as well as perform POS/ProDUR pharmacy claims processing, rebate collection and administration. PBMs may also aid in the development and/or implementation of a formulary or PDL, while a state Pharmacy and Therapeutics Committee, DUR Board, or other state advisory committee makes clinically based decisions on the formulary.

Additional PBM services may include disease management, clinical consultation, automated eligibility verification, analysis and reporting, and a pharmacy help desk or call center.

Of the 40 states responding to this question, a third claimed they did not contract with a PBM for any services and did not have any future plans to do so. Some states, in fact, were quite satisfied with their in-house pharmacy benefits management.

Missouri Director of Pharmacy George Oestreich says, "We have an in-house program that accomplished all of these goals and more," referring to the Division of Medical Services' cost reduction strategies. Likewise, Utah Pharmacy Program Director Rae Dell Ashley claims the state handles all PBM responsibilities and will "absolutely not" consider contracting with a PBM. "We have a wonderful rebate program," says Ashley. "We get a lot of money, and it is used by our administration for certain programs, and we are not going to let a PBM get part of that money."

Texas Medicaid Pharmacy Director Martha MacNeill explained that her pharmacy unit acts as its own PBM and that its pharmacy program is a "carve-out from managed care." But with the legislature in session, "There's no telling what they're likely to do" in terms of new strategies, including contracting with a PBM, she adds.

Meanwhile, three states responded that they are looking into contracting with a PBM or will definitely do so. North Dakota has recently contracted with a PBM for MAC list maintenance, and will be using one for physician detailing and auditing of pharmacies in the near future, according to Pharmacy Administrator Brendan Joyce, Pharm.D., R.Ph.

Meanwhile, Delaware contracts only with a fiscal agent, and EDS Pharmacist Consultant Cynthia Denemark says that contracting with a PBM is "being given some thought, but specific design has not been completed." West Virginia has also considered expanding its PBM contract. Figure 6 provides details on the various services provided to state Medicaid programs by PBMs and fiscal intermediaries.

Legal Action Against Drug Manufacturers Continues

While only two states responded that they have taken legal action in the last year, there have been several multi-state lawsuits against drug manufacturers reported in 2003.

Pfizer Inc. is accused of failing to pay mandated drug rebates to state Medicaid programs and of witholding federally mandated "best price" information for Lipitor, the popular anti-cholesterol medication. Pfizer has agreed to pay $49 million to 46 states and the District of Columbia. Meanwhile, Bristol-Myers Squibb Co. recently reached a preliminary settlement with 35 states, Puerto Rico and the District of Columbia for allegedly blocking competition from certain generic drugs, leading to price inflation on its anti-anxiety drug BuSpar (buspirone HCl).

And in the nation's largest-ever Medicaid fraud settlements, according to the U.S. Attorney's Office for the District of Massachusetts, Bayer Corp. and GlaxoSmithKline (GSK) agreed April 16 to pay more than $344 million to the U.S., 49 states, the District of Columbia and Public Health Service entities. The companies are charged with neglecting to report their best prices to CMS and to pay millions of dollars in rebates to the Medicaid program. Through a scheme commonly called "lick and stick," the companies allegedly sold relabeled products to Kaiser Permanente Medical Care Program at deeply discounted prices. Neither company, however, has admitted wrongdoing.

New Strategies on the Horizon

This year DCMR added reference pricing to the list of cost reduction strategies on the Medicaid survey. Reference pricing is a concept that is new to the U.S., and it is not clear whether it will enter into the public sector since it is new to the commercial sector.

It is a reimbursement strategy in which payers set a ceiling price for medications that exhibit similar therapeutic benefits (DCMR March 2003). The practice attempts to set a reimbursement threshold for individual drug classes and is meant to control overall reimbursement. Both Missouri and Washington claim they have implemented reference pricing in their Medicaid pharmacy programs.

Other than those states vehemently opposed to contracting with PBMs, no states indicated that they were not open to new ideas in the pharmacy unit. With the cost of drugs and the number of Medicaid recipients rising, and most states facing severe budget cuts, states may consider any of the named cost reduction strategies.

TennCare Director of Pharmacy Services Leo Sullivan says, "We are looking into everything." Martha MacNeill says that Texas also is considering everything, although the Health and Human Services Commission has been sued over two of its recent attempts to reduce costs--implementing a member copay and reducing the pharmacist dispensing fee.

With the rise in the number of states using prior authorization, preferred drug lists, member copays, quantity limits and early refill edits, it will be interesting to see what impact these programs will have on states' prescription drug costs over the next 12 months.

Note: The raw data researched for this article is available to DCMR subscribers. To receive the complete data in an electronic spreadsheet, e-mail your request to the editor at snpeat@aispub.com.

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