State seeks negotiations on Medicaid drug plans

In the absence of new federal policies to tame break-the-bank drug prices, Massachusetts’ state Medicaid program hopes to road-test an idea both radical and market-driven. It wants the power to negotiate discounts for the drugs it purchases and to exclude drugs with limited treatment value.

“This is a serious demonstration proposal,” said Sara Rosenbaum, a health policy expert and professor at George Washington University. “They’re not simply using (this idea) as an excuse to cut Medicaid. They’re trying to take a step toward efficiency.”

If the Department of Health and Human Services approves the Bay State’s plan, others will progbably take similar action. According to the most recent federal data, Medicaid spending on prescription drugs increased about 25 percent in 2014 and nearly 14 percent in 2015.

Currently, state Medicaid programs are required to cover almost all drugs that have received Food and Drug Administration approval, including multiple drugs from different manufacturers used for the same purpose and in the same category. In exchange, manufacturers must discount those drugs — typically based on a set percentage of the list price, specified by federal law. The idea is Medicaid’s vulnerable beneficiaries get medications they need and the state doesn’t go broke paying for them.

As drug prices soar, states say, those fractional rebates no longer suffice to defray the burden of rising costs.

Take, for instance, the hepatitis C cures released in recent years. The price tags come in tens or even hundreds of thousands of dollars and — even after rebates — have cost Medicaid billions. In turn, some states tried to restrict access, so only the sickest patients could get the drugs. Advocates filed suit in response and won based on the argument that such limits violated Medicaid’s statutory drug benefit.

State officials contend that the current Medicaid rebate system may encourage drug price inflation, since a set percentage of a higher price yields a greater profit. Also, the legal requirement to cover most prescriptions leaves little wiggle room to negotiate a better price.

So, Massachusetts wants to go a different route, requesting a federal exemption known as a Section 1115 waiver, which is meant to let states test ways of improving Medicaid. It wants to pick which drugs it covers based on most beneficiaries’ medical needs and which medicines demonstrate the highest rates of cost effectiveness.

It says it will be able to negotiate better prices as a result, saving public dollars while maintaining patients’ access to needed therapies.

The federal Centers for Medicare & Medicaid Services, which will ultimately approve or reject Massachusetts’ proposal, has no deadline for its decision.

Already, though, the pitch is turning heads.

“This is absolutely something a lot of other states are looking very closely at,” said Matt Salo, executive director of the National Association of Medicaid Directors.

If the request is approved, agreed Jane Horvath, a senior policy fellow at the National Academy for State Health Policy, other states would follow suit “in about five minutes.”