Michigan Medicaid Pharmacy Cost Containment

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Michigan Medicaid Pharmacy Cost Containment

• Paul Reinhart, Director
• Medical Services Administration
• Michigan Department of
• Community Health
• October 8, 2004

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Conclusions

• Preferred drug list program has reduced the rate
  of growth in Medicaid pharmaceutical spending
• Savings will grow as more states join the new
  multi-state initiative
• No adverse beneficiary impact
• Medicare pharmacy reform will have both positive
  and negative impact on states

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Medicaid is the bleeding ulcer of state
government.State Rep. Marc ShulmanDetroit
News, April 19, 2004
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Growth in Michigan Medicaid Vs. Growth in
Michigan Revenue
Medicaid
Revenue
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Michigan Medicaid Caseload
1,401,800

Previous Record
1,071,900
1999
2000
2001
2002
2003
2004
August 2004
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Pharmacy Expenditures
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Michigan Medicaid Pharmacy Cost Containment
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Medicaid Fee for Service FY03 Pharmaceutical
Spending
FFS Pharmacy 620 Million
All Other Spending 6.4 Billion
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Medicaid Pharmacy Program Prior to PDL
Pre-PDL
Preferred Drugs Some Generics
Federal Rebate Yes
Supplemental Rebate No
Pharmacist Payments AWP, MAC, etc.
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Medicaid Pharmacy Program After PDL
Pre-PDL Post PDL
Preferred Drugs Some Generics Larger List
Federal Rebate Yes Yes
Supplemental Rebate No Yes
Pharmacist Payments AWP, MAC, etc. Same
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2002-2003 PDL

• Limited to Michigan
• Pharmacy and Therapeutics Committee identified
  clinically necessary drugs in 40 drug classes
• Contractor (First Health) negotiated supplemental
  rebates
• Clinically necessary and drugs with supplemental
  rebates are not subjected to prior authorization

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Annual Cost Per Script Increase
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Estimated Pharmacy Cost Containment Savings
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Preferred Drug List Impact on Beneficiaries
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Prior Authorization Denials

• 14,300,000 claims
• 106,000 prior authorization requests
• 39,000 approved by technician
• 61,000 approved by pharmacist
• 3,500 approved by state physician
• 2,500 denied by state physician
• 1 denial reversed after administrative appeal

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Multi-State Preferred Drug List Program
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Michigan Multi-State Pooling Agreement

• Approved by the federal government on April 22,
  2004
• States in the initial pool Michigan, Vermont,
  Nevada, Alaska, New Hampshire
• Hawaii and Minnesota state plan amendments
  approved in September

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Matrix Bid Theory More Lives, More Exclusivity
Lower Cost
? More Exclusivity
Lives 1 of 1 1 of 2 1 of 3 1 of 4
lt 3 m 1.00 1.10 1.20 1.30
3 6 m .90 1.00 1.10 1.20
6 9 m .80 .90 1.00 1.10
gt 9 m .70 .80 .90 1.00
?More Lives
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Medicare Prescription Drug, Improvement, and
Modernization Act of 2003
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Impact on Medicaid

• January 1, 2006 federal government assumes
  responsibility for processing claims for dual
  eligibles
• Dual eligibles account for over 2/3 of our
  fee-for-service pharmacy spending
• Clawback requires states to pay federal
  government for dual eligibles
• Could increase state costs

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Clawback Will Increase Michigans Costs
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Other MMA Impacts

• New state administrative costs
• Reduced state pharmacy bargaining power
• State pharmacy assistance program savings
• State pharmacy assistance coverage expansion
  opportunities

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Conclusions

• Preferred drug list program has reduced rate of
  growth in Medicaid pharmaceutical spending
• Savings will grow as more states join the new
  multi-state initiative
• No adverse beneficiary impact
• Medicare pharmacy reform will have both positive
  and negative impact on states