Baker Administration Submits 1115 Waiver Request to CMS, Including Major Change to Drug Coverage

On September 8, 2017, following the mandated 30-day public comment period, the Baker Administration concluded its review of the pending MassHealth Section 1115 Demonstration Amendment Request. The submitted waiver request can be viewed online here.  Once received at CMS, the agency will have to time to review the proposal, and must also solicit additional public feedback, prior to finalizing any waiver.

While the agency made a number of modifications to the waiver based on public feedback, the agency largely left intact the controversial provisions adopting commercial insurance tools to obtain lower drug prices and enhanced rebates.  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.

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.

Interestingly, in the package submitted to CMS for approval, EOHHS recognized this state law impediment, listing “state legislative approval of H. 3828” as a requirement to move forward with the new legislative tools.  This, raises several interesting questions moving forward:

  • Will CMS consider lack of state law authority when reviewing the waiver request? (We think not.)
  • If approved, will EOHHS proceed to implement the waiver in full without state law authority?
  • If so, will third parties impacted sue?

We will continue to watch and track this waiver very closely as we believe it could set a national precedent if approved.

 

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