Many healthcare stakeholders are looking for creative solutions to offset steadily rising pharmaceutical costs. State governments are no exception. For example, attempts from Massachusetts and New York to gain leverage in negotiations with pharmaceutical companies to drive down drug costs in their Medicaid Plans have recently been in the news. Massachusetts applied for a Centers for Medicare and Medicaid (CMS) waiver – though a leaked report claims it will be denied – to create a closed Medicaid drug formulary. This would theoretically allow it to drive harder bargains with drug companies who might otherwise find themselves completely shut out of the Massachusetts Medicaid market. Current federal Medicaid rules do not allow this; state Medicaid plans are required to offer access to all of a given manufacturer’s drugs, if that manufacturer abides by a steep discount formula.
New York is taking a somewhat more complex route, setting caps on Medicaid drug spending and compelling manufacturers of particular high-cost drugs to negotiate higher rebates with threats of reduced access. According to the state, many manufacturers have been willing to come to the negotiation table. However, it is unclear whether this strategy will pass regulatory muster if New York ever does remove a drug from its formulary completely.
Combatting Pharmaceutical Costs No Easy Feat
There are pros and cons of these states’ actions. On the one hand, they address a real issue of inflating drug costs and remove an artificial barrier to negotiation, as increasing negotiation is likely to marginally push down drug costs.
On the other hand, limiting the drugs Medicaid beneficiaries have access to creates an additional burden for an already challenged population. Even if states provide access to at least one drug per therapeutic class, as Massachusetts has promised to do, there will inevitably be individuals who would have benefited from an unavailable drug. Unlike participants in the commercial health insurance market, Medicaid beneficiaries generally do not have the option to switch plans if they are unhappy with those drugs available to them.
In addition, these actions are arguably unfair from the pharmaceutical manufacturer perspective. Drug companies are still bound by rules requiring them to offer lower prices to Medicaid plans, but would lose the largely unfettered access to Medicaid beneficiaries they received in exchange for that concession.
Whether state-level attempts to increase negotiation leverage can appreciably reduce the cost of prescription drugs while avoiding, or at least minimizing, the potential downsides is ultimately an empirical question, which is perhaps the best argument for encouraging Massachusetts and New York to move forward with their experiments. As long as data is collected comprehensively and rigorously and reported without bias, the healthcare industry stands to learn from their attempts.