HHS Wants States to Control Medicaid Pharmacy Spending

Here's some fun weekend reading.

In a letter to state Governors, Secretary of Health and Human Services Kathleen Sebelius laid out a long list of options on how states can control Medicaid spending. She notes that "states have substantial flexibility to design benefits, service delivery systems, and payment strategies, without a waiver." Read the full letter.

Take note of her comments under the heading "Purchasing Drugs More Efficiently." (Text excerpted below.) Secretary Sebelius highlights some of the items that I have covered extensively on Drug Channels, including:

• Better management of pharmacy benefits including "generic drugs, mail order, management relating to over-prescribed high cost drugs" (How to Stop Medicaid from Overpaying for Drugs)
• Alabama's cost-plus pharmacy reimbursement model (Alabama: More Momentum for Cost-Plus)
• A national survey to create a database of actual acquisition costs (CMS Wants Public Transparency to Pharmacy Profits)

This letter is a welcome (albeit belated) statement of principles given how little attention was paid to cost-control in the Patient Protection and Affordable Care Act.

Here's the full text related to pharmaceuticals:

"Purchasing Drugs More Efficiently. In 2009, States spent $7 billion to help Medicaid beneficiaries afford prescription drugs. States have broad flexibility to set their pharmacy pricing. We are committed to working with States to ensure they have accurate information about drug costs in order to make prudent purchasing decisions. As recommended by States, the Department is undertaking a first-ever national survey to create a database of actual acquisition costs that States may use as a basis for determining State-specific rates, with results available later this year. Alabama, the first State to adopt use of actual acquisition costs as the benchmark for drug reimbursement, expects to save six percent ($30 million) of its pharmacy costs in the first year of implementation. We will also share additional approaches that States have used to drive down costs, such as relying more on generic drugs, mail order, management relating to over-prescribed high cost drugs, and use of health information technology to encourage appropriate prescribing and avoidance of expensive adverse events."

In additional Enclosures to the letter titled "Medicaid Cost-Savings Opportunities," she also notes the following:

"Provide States with a new, more accurate benchmark to base payments. A workgroup of State Medicaid directors and State Medicaid pharmacy directors has recommended a new approach to establishing a benchmark for rates, namely, use of actual average acquisition costs. Alabama, the first State to adopt use of actual acquisition costs as the benchmark for drug reimbursement rates, expects to save six percent ($30 million) of its pharmacy cost in the first year of implementation. However, it is difficult and costly for each State to create its own data source for actual acquisition costs. States have recommended a national benchmark. In response, CMS is about to undertake a national survey of pharmacies to create a database of actual acquisition costs that States may use as a basis for determining State-specific rates. The data will be available to States later this year."