By skyforbes 
Texas policymakers did the right thing in 2012 when they decided to allow managed care organizations (MCOs), health plans that manage the Texas Medicaid program, to manage the prescription drug benefit, known as a “carve-in” of the Rx benefit. However, while handing off financial responsibility of the benefit to health plans, the State failed to give them the ability to fully manage the prescription drug program the same way health plans manage all other health care benefits. It required the plans to use a single, uniform state Medicaid formulary instead of their own formularies, also referred to as PDLs (prescription drug lists). Texas’ current uniform Medicaid PDL approach favors more expensive brand-name drugs and a strategy of pursuing rebates from pharmaceutical companies to offset Rx costs.
Playing the Wrong Game Well
Though Texas does well on rebates and ranks 9th among states on rebate revenue, this only tells half of the story. By focusing primarily on rebate revenue, Texas is playing the wrong game well according to a new study commissioned by the Texas Association of Health Plans and carried out by national consulting firm The Menges Group. The study found that Texas taxpayers are losing $1 million for every four days that the State of Texas fails to fully implement the carve-in, totaling $100 million each year. In addition, the use of the single state formulary is confusing for prescribing physicians, often does not correlate with the medications pharmacists stock on their shelves, and can lead to delays in getting patients the most effective and safe medications they need.
Maximizing rebates, at the expense of choosing lower-cost prescription drug alternatives, is not an effective strategy for achieving an overall low net cost per prescription across all Medicaid prescriptions (both brand and generic). The study found that:
- Even after rebate revenue is accounted for, the cost of brand-name drugs is still 5X higher than the lower-cost generic alternatives in the Texas Medicaid program
- 21 other states outperform Texas on lower Medicaid net costs per prescription drug (after rebate revenue is factored in), and Texas ranks 45th in the country in the use of generics
- The top third of high-performing states, which focus more on lowering drug costs rather than maximizing rebates, have Medicaid net per-prescription-drug costs that are 21% lower than the national average and 19% lower than Texas
The use of generics in Texas is 4.6% below the national average. Because brand-name drugs are 5X more expensive than generics in Texas (even after accounting for rebates), these percentage points translate to large dollar spending differences. Texas’ approach favors more expensive brand-name drugs and a strategy of pursuing rebates from pharmaceutical companies to offset Rx costs. As a result, Texas ranks 9th in rebate revenue, but only ranks 22nd in the most important metric: overall net cost per Rx after rebates.
Medicaid Health Plans Successfully Lower Net Prescription Drug Spending for States
Health plans already manage their own formularies successfully in all other health care markets including the private market, Medicare, Tricare, and ERS/TRS. Medicaid health plans also have experience reducing net drug costs and maximizing generics in states that, unlike Texas, allow their Medicaid health plans to manage their own formularies. Thirty other states allow health plans to manage their own formularies and prescription drug management tools.
A Single State-Operated Medicaid Formulary Puts Quality of Care and Patient Outcomes at Risk
In addition to providing greater cost-savings in the Medicaid program, fully integrating the pharmacy benefit would allow MCOs to apply time-tested pharmacy management tools that improve quality of care and health outcomes for patients. Unlike the State, MCOs have direct relationships with prescribing providers and can communicate with them in a more timely manner to assist with formulary changes and best practices in prescribing. Additionally, MCOs have the ability to update PDLs in real time and put in place important clinical standards that ensure patients are receiving the right medications they need when they need them.
Concerns with the state’s uniform PDL include the following:
Confusion for Prescribers
The use of a single statewide formulary adds complexity for prescribing providers, who are used to clinically relevant formularies that do not change which drugs are allowed on the formulary as rebates change. Providers have expressed frustration with not being able to prescribe the most clinically appropriate drug because it is not on the state’s formulary. Integrated care coordination based on sound clinical evidence, a hallmark of managed care, benefits enrollees by improving clinical quality safeguards, increasing patient compliance, promoting generic drug use, and preventing potentially harmful drug interactions.
Confusion for Pharmacies and Drug Shortages
The single statewide formulary is inconsistent with the way pharmacies stock drugs. Because every other health care market focuses on using lower cost generic alternatives when available, pharmacies tend to stock more generic drugs and may not keep the more expensive brand drugs stocked. However, the state’s single Medicaid formulary is brand-name heavy, which can lead to covered drugs not being available when a Medicaid enrollee shows up to the pharmacy, causing delays in treatment.
Delays & Barriers to Improving Outcomes
While the state has been responsible for creating clinical safeguards and taking into account healthcare outcomes, it does not have the same expertise for managing care as the MCOs and is unable to respond quickly to changes in clinical standards and changes in the market. Viewing the drug benefit in isolation from other health care benefits and management tools makes it difficult to impossible to achieve the same health outcomes and safeguards for enrollees that MCOs could achieve given a full carve-in.
- It can take a more than a year for HHSC to add a new drug to the formulary. MCOs are able to make life-saving therapies available more quickly than the VDP process.
- Because the state only updates the uniform PDL twice a year, when a drug becomes unavailable on the market, the state cannot react quickly to make other drugs available, causing delays and interruptions in patient treatment.
- The state’s uniform PDL is not always up-to-date with the most recent clinical evidence and national guidelines.
- Step therapy, which is commonly used in other health insurance markets and involves prescribing the lowest-cost, clinically effective drug before switching to a higher cost drug, is underutilized in the Medicaid program.
- MCOs have direct relationships with prescribing providersand can communicate with providers in a more timely manner (if allowed by HHSC) to assist with formulary changes and best practices in prescribing.
Opportunity for Texas Medicaid Savings: Texas Can Do Better
When we compare Texas on the national scale, we see that other state Medicaid health plans that fully manage the prescription drug benefit have demonstrated stronger ability to steer volume to generic therapies and lower prescription drug costs. The Menges study demonstrates that Texas’ MCOs operating in other states have much lower Medicaid pharmacy costs than they have been able to achieve in Texas under the restricted carve-in model.
Health plans have a proven track record of reducing drug costs and maximizing the use of generics, not only in the private market but in other public programs such as Medicare, TRICARE, ERS, and TRS.
It’s time to eliminate the barriers that are keeping Texas Medicaid health plans from ensuring Texans in Medicaid have access to the life-saving drugs they need, when they need them, and to do so in a way that brings down costs, saves taxpayer dollars, and improves the quality of care.
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Background Materials & Social Media Sharing
A copy of the study, Assessment of Medicaid MCO Preferred Drug List Management Impacts, conducted by The Menges Group, can be found here, as well as The Menges Group’s summary of their findings, here.
TAHP documents with further background on the study and infographics can be found here and here.
A recent piece in the Texas Tribune highlights findings from the study here.
Help TAHP share these important findings on social media! Suggested tweets and posts are below:
- .@TexasTribune highlights new @txhealthplans study on Medicaid Rx benefit: TX taxpayers losing $1M every 4 days http://bit.ly/1U1yYWz
- New @txhealthplans study finds taxpayers lose $1M for every 4 days TX fails to fully carve in Medicaid Rx benefit http://bit.ly/1p54Nka
- Attn #TXlege: Wanna save taxpayers millions? Look no further than Medicaid Rx benefit & new @txhealthplans study http://bit.ly/1p54Nka