On July 21, 2017, the Massachusetts Executive Office of Health and Human Services (“EOHHS”) announced its intent to submit a request to amend its existing MassHealth Section 1115 Demonstration to the Centers for Medicare and Medicaid Services (“CMS”). If approved (by both the State legislature, and CMS), it would be the most sweeping change to any state’s Medicaid pharmacy benefit to date. We previously previewed some of the changes EOHHS was considering under the new flexibility granted to states under the Price/Verma administration on this blog.
Among other major changes to the state’s Medicaid program, EOHHS is proposing to restructure existing MassHealth pharmacy coverage requirements in order to “obtain lower drug prices and enhance rebates at MassHealth.” The demonstration proposal includes incorporating into MassHealth’s prescription drug program tools that are available to commercial health plans to restrict utilization and access by selecting preferred and covered drugs, including establishing a “closed” formulary, administering a limited pharmacy network, and implementing tiered copays for prescription drugs. If CMS approves MassHealth’s proposal to move to a “closed formulary” system for drug coverage, it would be the first time the agency has approved such a broad and far reaching change to Medicaid Drug Rebate program.
Federal regulations finalized in 2012 require a state to provide at least a 30-day public notice and comment period for applications for new demonstrations and extensions of existing demonstration. Based on this timeframe then, we could see Governor Baker submit the new waiver application as early as late-August 2017. While the Price/Verma administration has signaled its intent to broaden the type of waivers it will approve, approving the MassHealth changes (in particular, the ability of MassHealth to establish a closed formulary) would signal a major shift in the Medicaid program, with national implications.
Under the current requirements of the Medicaid Drug Rebate program, once a prescription drug manufacturer has agreed to pay rebates under the law’s rebate scheme, states are required to cover the manufacturer’s drug (although states may subject drugs to certain formulary management techniques, such as prior authorization).  Indeed, the only basis to exclude a drug for which a rebate has been paid from a formulary is in the case of a drug that does not have a “significant, clinically meaningful therapeutic advantage in terms of safety, effectiveness, or clinical outcome of such treatment … over other drugs included in the formulary and there is a written explanation (available to the public) of the basis for the exclusion.” Therefore, in order to MassHealth to establish a closed formulary (or even to implement tiered copays), it will require a waiver of the requirements of section 1927 of the Social Security Act (governing the Medicaid Drug Rebate program.)
Notably, however, section 1927 is not one of the sections of the Social Security Act that can be waiver using 1115 waiver authority. However, section 1902 can be waived – therefore, one circuitous way in which a state can waiver requirements under section 1927, is to request a waiver of section 1902(a)(54) of the Social Security Act, which requires states to comply with Section 1927. However, even though a waiver of section 1927 is possible, it does not mean that CMS will grant the waiver. Previous administrations have found plenty of reasons to deny 1115 waiver requests where the agency did not find the request supported the goals of the Medicaid program. It is still to be seen whether or not the Price/Verma administration will support a major disruption to the “grand bargain” that is the Medicaid drug rebate program.
Another possible hiccup in Governor Baker’s plan to introduce commercial formulary management techniques into his state’s Medicaid program is that he likely needs the authorization of the state legislature in order to proceed. Under current state law at MGL c. 118E, § 53 (Section 53), MassHealth is required to offer coverage for all federally optional services (which includes drug coverage under section 1927 of the Social Security Act) that were included in the state Medicaid plan in effect on January 1, 2002. Because MassHealth had no waiver from the Medicaid drug rebate requirements in 2002, MassHealth is required under Section 53 to maintain an open formulary for prescription drugs. Thus, even if EOHHS is successful in obtaining an amendment to its current 1115 waiver, the Governor will still need state legislative approval.
We will be watching the waiver request process closely – if CMS approves the waiver (and if the Massachusetts legislature gives the go ahead), this could signal a major shift in Medicaid prescription drug policy throughout the nation.
 Governor’s FY18 Vetoes, Attachment F -Amendment Letter Section 16 (July 17, 2017)
 MassHealth Reform Package, Section-by-Section Summary.
 See generally Social Security Act § 1927(d)(4)(B) (requiring any formulary developed by a state to include all drugs that have entered into a rebate agreement).
 Id. at § 1927(d)(4)(C).
 “The division shall include within its covered services for adults all federally optional services that were included in its state plan or demonstration program in effect on January 1, 2002.” GL c. 118E, § 53.