Featured Health Business Daily Story, Dec. 27, 2016; Featured in Government News of the Week, Dec. 12, 2016

State-Mandated PDL Led to Rise in Drug Costs in Fla. Medicaid Program

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By Angela Maas, Managing Editor
December 9, 2016Volume 17Issue 23

When Florida overhauled its Medicaid program in 2011, one of the changes required managed care companies participating in Florida’s Medicaid managed care program to use a state-mandated preferred drug list (PDL) instead of their own formularies. And although proponents of the legislation claimed that it would help hold down costs in the program, a recent study shows that drug costs actually increased after the PDL requirement was implemented in July 2014. While formularies certainly can be a useful tool to mitigate increasing drug costs, there may be unintended consequences when plans lack the ability to make changes to them.

Researchers examined changes in the program from before the mandated PDL to afterwards and compared those with data from a comparable Medicaid managed care plan without a state-mandated PDL. For the pre-policy period, researchers evaluated data from Jan. 1 to June 30, 2014, while post-policy data were from Jan. 1 to June 30, 2015.

Drug Benefit News

Drug Costs Increased More Than 45%

Among the findings are the following:

  • Overall drug costs for plans in Florida rose more than 45% after the PDL went into effect compared with the pre-policy period.

  • Costs for formulary brand drugs increased almost 49% after PDL implementation.

  • 79% of brand drugs that were not on formulary before the program went into effect switched to being on formulary after the mandated PDL was in place. The comparable Medicaid managed care plan had an increase of 1% during the same time period.

  • Overall claims for traditional drugs dropped about 9%, generic drug utilization decreased 13%, but the use of brand drugs increased by 50% after the mandated PDL was used as opposed to before then.

  • Nonformulary brand drug use dropped 97%.

The data were unveiled in a poster presentation at the Academy of Managed Care Pharmacy Nexus 2016 in October. Researchers were from Express Scripts Holding Co.

Co-author Krista Ward, senior director, government programs, Medicaid, explains that the motivation behind conducting the study was to get a better understanding of how a state-mandated PDL could impact “both the utilization of prescription medication and health plan drug expenditures.”

Ward tells DBN that three items stood out in the findings: (1) the decrease in generic drug use and increase in brand drug use; (2) “the greater than 45% increase in overall plan drug costs in the post-policy period, which was largely driven by the near 49% increase in branded drug costs”; and (3) “the higher proportion of brand drugs switching from non-formulary status pre-implementation to formulary status in the post-implementation period in the Florida plan.”

Mandated PDL Had ‘Unintended Consequences’

According to Ward, “What this says to us is that the state-mandated formulary had the unintended consequences of driving up the use of more expensive brands and [disincentivized] the use of lower-cost generics. This, in turn, led to much higher drug costs for the health plans that were mainly driven by more expensive drugs and not because more beneficiaries were using medications. And when compared to a state Medicaid program that allows managed Medicaid health plans the flexibility to manage the formulary, we can infer that flexibility may go a long way in helping health plans and the state save money.”

Data from the Kaiser Family Foundation for state fiscal year 2016 show that 10 states reported requiring Medicaid managed care firms to adhere to a uniform PDL.

Formularies mandated by states “are designed and maintained by committees within the state Medicaid program that include state Medicaid officials, physicians and pharmacists from within the state, and the state’s fee-for-service pharmacy benefits manager,” explains Ward.

She also points out that “drug selection within competitive therapeutic categories is influenced strongly by the availability of state supplemental drug rebates, which are not shared directly with the health plans.”

When asked if the issue is that there is a mandated formulary or what the formulary contains, Ward responds, “Both. There’s not much room for states to anticipate or react to increased drug costs and make equitable adjustments to plan capitation rates with a mandated formulary.”

According to Ward, “We can infer from this study that state regulations should permit participating plans to leverage utilization management strategies, including MCO managed formularies, to control costs and advocate for appropriate, cost-effective therapy.”

In this way, she says, “States may be able to prevent any unforeseen effects on medication use and plan costs with mandated formularies by taking into consideration drug utilization changes among beneficiaries and health plan financial viability.”

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