By Leslie Small

As part of long-awaited guidance that CMS issued to states on Jan. 30 outlining how they can test-drive a fixed federal Medicaid budget and more program flexibilities, the Trump administration invited states to try out something else that hasn’t been done before: implement a closed drug formulary for a portion of their Medicaid population.

“For the first time, participating states will have more negotiating power to manage drug costs by adopting a formulary similar to those provided in the commercial market, with special protections for individuals with HIV and behavioral health conditions,” CMS said in its press release unveiling the Healthy Adult Opportunity demonstration, which states can apply for via a Section 1115 Medicaid waiver.

Currently, states’ Medicaid programs must cover all FDA-approved drugs, as mandated by federal law. But CMS is suggesting that states can waive that requirement for the population they choose to cover under their demonstration — likely people who are covered by Medicaid expansion — and still participate in the Medicaid Drug Rebate Program.

But some industry experts tell AIS Health they’re not sure whether that will be legally permissible.

“I have my doubts as to whether this will bear legal scrutiny because it goes against the entire Medicaid Drug Rebate Program, which is rebates in exchange for open formularies,” says Jeff Myers, the former CEO of Medicaid Health Plans of America and founder of health care consulting firm OptDis.

Indeed, “the legal side is obviously the giant question with the whole Healthy Adult Opportunity program,” Jason Karcher, an actuary with Milliman, Inc., tells AIS Health. “We just don’t know how the courts will ultimately see this, although I think it would be fair to be skeptical that we’ll actually get to see a waiver under this [guidance] make it in the near future.”