States Continue to Experiment with Value-Based Drug Contracts in Medicaid

As Congress continues to hold hearings on how to address rising drug costs, states are continuing to take control of their drug-related expenditures in Medicaid.

Colorado is the latest state to receive CMS’s approval for a state plan amendment (SPA) that authorizes value-based contracts with drug manufacturers serving Medicaid enrollees. An SPA is a common way for states to make permanent changes to their Medicaid program. You may recall that Oklahoma received approval of a similar SPA last summer and Michigan also received approval for their value-based drug contracts in November.

Under Colorado’s SPA, they will negotiate supplemental rebate agreements (SRAs) with drug manufacturers that are based on pre-determined outcome measures. Essentially, drug manufacturers will be paid based on their drug’s efficacy or how well a drug produces its intended outcome.

I admit I had some reservations about how many drug manufacturers would voluntarily sign up for value-based contracts. Oklahoma, the first state to receive authorization from CMS to implement SRAs based on patient outcomes, has only signed four contracts thus far. These four contracts are estimated to only impact roughly 1,700 patients of the more than 800,000 Medicaid enrollees in the state. Nancy Nesser, the director of pharmacy at the Oklahoma Health Care Authority, the state agency that oversees Medicaid, has stated “it’s still too early to forecast savings.” She noted that the state is currently in a “holding pattern…to work out how these four contracts work.”

Rather than introduce permanent changes to their Medicaid programs, same states have opted to start with altering their contract provisions. Louisiana recently announced that they have finalized a subscription-based partnership with a drug manufacturer that develops treatment for hepatitis C. This partnership is the first of its kind in the country because the state will receive unlimited access to expensive hepatitis C drugs to treat Medicaid enrollees and incarcerated patients over a period of five years. This initiative is being referred to as the Netflix model because state health officials will pay a subscription fee for access to medication rather than paying for the medication each time a prescription is filled. The contract is expected to start on July 1.

But the question remains: Why are states pushing so hard to introduce changes to Medicaid?

The rising cost of drugs is a particularly salient issue in Medicaid because states must balance their budget every year. Unlike the federal government, states must ensure that the money they spend is equal to the money they take in via taxes and other means. Therefore, states will continue to seek innovative ways to curb their drug expenditures without sacrificing quality as spending on outpatient drugs continues to grow.

Value-based drug payment arrangements will only add to the increasingly important role that pharmacists play in helping patients understand how their medications work and helping patients adhere to the proper protocols to achieve the intended outcome.

Click here to download URAC’s Industry Insight Report, “Competing in the Specialty Pharmacy Market: Achieving Success in Value-Based Healthcare.”