Oklahoma’s Medicaid Drug Pricing Experiment Appears Promising -- But is it Workable?

| Brittany McCullough
prescription pills on US dollar bills

While it doesn’t capture the press that it should, real innovation in America’s health system is occurring at the state level – in Medicaid.

This article is the first in a series about pioneering approaches to value-based care in state Medicaid contracts. With a focus on section 1115 waivers and state plan amendments, I’ll examine a subset of the policies being enacted and their potential impact on cost and quality.

Given that the markedly high cost of prescription drugs has dominated healthcare headlines all summer, a look at proposals to lower drug costs is a natural place to start this series.

CMS recently made the landmark decision to approve Oklahoma’s value-based payment arrangement to rein in drug expenditures in their Medicaid program. In the press release, HHS Secretary Alex Azar noted that “Oklahoma’s plan for value-based drug contracts is an important example of how states can innovate to bring down drug costs.”

The element of Oklahoma’s proposal that makes it a momentous ruling by CMS is that this is the first time the federal agency has given a state authority to negotiate supplemental rebate agreements (SRAs) based on value. If you aren’t familiar, a rebate is a reduction in price on an item that is not received at the point of sale but in the future. Drug rebates are provided by pharmaceutical companies to increase the sale of their product and help secure a prime position on a formulary.

The Medicaid Drug Rebate Program (MDRP) dates back to 1990 and is operational in all 50 states and Washington D.C. As of March 2018, more than 45 states and Washington D.C. also have SRAs in their Medicaid pharmacy contracts, but they aren’t explicitly tied to a drug’s efficacy. Since SRAs provide rebates equal to those under the MDRP, this value-based arrangement will allow Oklahoma to recoup more money if a drug does not produce its intended clinical outcome.

Oklahoma’s SPA requires the state and drug manufacturers to “jointly agree on benchmarks based on health outcomes and the specific populations for which these outcomes-based benchmarks will be measured and evaluated” as described in the press release. It will be important during negotiations for the state and manufacturer to consider the following questions:

  1. What population groups will the benchmark values be based on?
  2. What is an appropriate sample size?
  3. How long will the study period to determine if a drug produced its intended clinical outcome be?
  4. What is the timeline for repayment if a drug does not produce its intended clinical outcome?
  5. How will the repayment amount be calculated?

Oklahoma’s SRA is voluntary but Nancy Nesser, director of the pharmacy unit for Oklahoma’s Medicaid agency, recently announced the state signed their first contract with Alkermes Plc for a schizophrenia treatment. Nesser estimates the new value-based SRA language might only save “a couple of million” of Oklahoma’s $650 million annual expenditure on prescription drugs, so the success of this program hinges in part on how much participation this voluntary proposal gets and the benchmarks of success. Nonetheless, this is a shining example of a state being innovative and using their authority to promote value.

With health costs continuing to rise at unsustainable rates, we need to really shake things up.

As URAC’s President and CEO Kylanne Green recently put it, “it’s show time. There’s no turning back. This time, it is play or pay. Adapt or face extinction.”

Brittany McCullough

Brittany McCullough, Health Policy Associate.

Brittany McCullough, URAC's health policy associate, focuses on tracking and analyzing legislation and regulations of importance to URAC stakeholders. Brittany considers herself an early careerist but most of her policy and research work has been centered on the ACA, Medicaid, CHIP, and mental health. She holds a B.S. in Neuroscience and a Master of Health Administration.

Views, thoughts and opinions expressed in my articles belong solely to me, and not necessarily to my employer.

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