Michigan Medicaid Pharmacy Cost Containment

Paul Reinhart, Director

Medical Services Administration

Michigan Department of

Community Health

October 8, 2004

2

Conclusions

• Preferred drug list program has reduced the rate of growth in Medicaid pharmaceutical spending

• Savings will grow as more states join the new multi-state initiative

• No adverse beneficiary impact• Medicare pharmacy reform will have both

positive and negative impact on states

3

“Medicaid is the bleeding ulcer of state government.”

State Rep. Marc ShulmanDetroit News, April 19, 2004

4

Growth in Michigan Medicaid Vs. Growth in Michigan Revenue

-20%

0%

20%

40%

60%

80%

100%

FY95 FY97 FY99 FY01 FY03 FY05

Medicaid

Revenue

5

Michigan Medicaid Caseload

1,000

1,050

1,100

1,150

1,200

1,250

1,300

1,350

1,400

1,450

Fiscal Year

In T

hou

san

ds

1999 2000 2001 2002 2003

1,071,900

1,401,800*

Previous Record

*August 2004

2004

6

Pharmacy Expenditures

$0

$100,000,000

$200,000,000

$300,000,000

$400,000,000

$500,000,000

$600,000,000

FY00 FY01 FY02

7

Michigan Medicaid Pharmacy Cost Containment

8

Medicaid Fee for Service FY03 Pharmaceutical Spending

FFS Pharmacy $620 MillionAll Other

Spending $6.4 Billion

9

Medicaid Pharmacy Program Prior to PDL

Pre-PDL

Preferred Drugs Some Generics

Federal Rebate Yes

Supplemental Rebate

No

Pharmacist Payments

AWP, MAC, etc.

10

Medicaid Pharmacy Program After PDL

Pre-PDL Post PDL

Preferred Drugs Some Generics Larger List

Federal Rebate Yes Yes

Supplemental Rebate

No Yes

Pharmacist Payments

AWP, MAC, etc.

Same

11

2002-2003 PDL

• Limited to Michigan• Pharmacy and Therapeutics Committee

identified clinically necessary drugs in 40 drug classes

• Contractor (First Health) negotiated supplemental rebates

• Clinically necessary and drugs with supplemental rebates are not subjected to prior authorization

12

Annual Cost Per Script Increase

4.2%

11.0%

0% 5% 10% 15%

FY03

FY99 to FY02AnnualAverage

13

Estimated Pharmacy Cost Containment Savings

$0$100$200$300$400$500$600$700$800

FY99 FY 00 FY 01 FY 02 FY 03 FY 04

Mill

ions

Actual Trend

14

Preferred Drug List Impact on Beneficiaries

15

Prior Authorization Denials

• 14,300,000 claims

• 106,000 prior authorization requests

• 39,000 approved by technician

• 61,000 approved by pharmacist

• 3,500 approved by state physician

• 2,500 denied by state physician

• 1 denial reversed after administrative appeal

16

Multi-State Preferred Drug List Program

17

Michigan Multi-State Pooling Agreement• Approved by the federal government on

April 22, 2004

• States in the initial pool: Michigan, Vermont, Nevada, Alaska, New Hampshire

• Hawaii and Minnesota state plan amendments approved in September

18

“Matrix” Bid Theory: More Lives, More Exclusivity = Lower Cost

Lives 1 of 1 1 of 2 1 of 3 1 of 4

< 3 m $1.00 $1.10 $1.20 $1.30

3 – 6 m $.90 $1.00 $1.10 $1.20

6 – 9 m $.80 $.90 $1.00 $1.10

> 9 m $.70 $.80 $.90 $1.00

More Exclusivity

M

ore

Liv

es

19

Medicare Prescription Drug, Improvement, and Modernization

Act of 2003

20

Impact on Medicaid

• January 1, 2006 federal government assumes responsibility for processing claims for dual eligibles

• Dual eligibles account for over 2/3 of our fee-for-service pharmacy spending

• “Clawback” requires states to pay federal government for dual eligibles

• Could increase state costs

21

“Clawback” Will Increase Michigan’s Costs

$180$190

$200$210

$220$230

$250

$170$180$190$200$210$220$230$240$250$260

FY03 FY04 FY05 FY06 FY07

Stat

e C

osts

in M

illi

ons

State Operated Federal Clawback

22

Other MMA Impacts

• New state administrative costs

• Reduced state pharmacy bargaining power

• State pharmacy assistance program savings

• State pharmacy assistance coverage expansion opportunities

23

Conclusions

• Preferred drug list program has reduced rate of growth in Medicaid pharmaceutical spending

• Savings will grow as more states join the new multi-state initiative

• No adverse beneficiary impact• Medicare pharmacy reform will have both

positive and negative impact on states