Following on the Heels of Massachusetts, Arizona Floats New Medicaid Drug Proposal

On November 17th, Arizona’s state Medicaid agency (the Arizona Health Care Cost Containment System, or AHCCCS) sent a letter to CMS proposing policies that it believes will build on past successes and “leverage[] conservative principles.”

In the letter, AHCCS seeks input from CMS on ideas to “modernize” the prescription drug benefits offered under the state’s Medicaid plan.

(Also, notably, though not the topic of this blog post, AHCCCS states that it plans to submit a formal waiver amendment request by the end of the year for a work requirement which would be a condition of Medicaid eligibility for most non-disabled adults, though some exemptions would apply. Arizona’s current pending section 1115 waiver requests are available here).

As with all states, Arizona is concerned about rising prescription drug costs, and in particular, the statutory limitations that states face in curbing these costs under the Medicaid Drug Rebate program.  AHCCCS notes that the state’s Medicaid pre-rebate spending on pharmaceuticals dispensed by pharmacies increased from $786 million to $1.2 billion from 2014 to 2016. According to the letter, that is a 42% per-member, per-year spending increase.

In the letter, Arizona seeks input from CMS on flexibilities Arizona could pursue relating to the requirement that Arizona cover every breakthrough drug upon the manufacturer’s inclusion of the drug under a rebate agreement.  AHCCCS floats two types of flexibilities with respect to drug coverage.  First, AHCCCS argues broadly that:

States should be permitted the flexibility to exclude drugs until market prices are consistent with reasonable fiscal administration and sufficient data exists regarding the cost effectiveness of the drug, without losing the Medicaid Drug Rebate.

AHCCCS does not further define or suggest how “reasonable fiscal administration,” “sufficient data” or “cost effectiveness” would be defined, however, leaving it unclear just how far Arizona would seek to take such a policy.

Second, AHCCCS argues for a formulary requirement that is in line with Medicare Part D’s “two drugs per category and class” requirement. AHCCCS states that:

Arizona should be able to exclude drugs when its Pharmacy & Therapeutics (P&T) Committee has determined that the drug does not have a significant, clinically meaningful, therapeutic advantage in terms of safety, effectiveness, or clinical outcome over another drug on the State’s formulary.  Arizona will cover at least two drugs per drug category or class, unless (1) only one drug is available for a particular drug category or class, or (2) only two drugs are available in a category or class but one drug is clinically superior to the other, consistent with Medicare Part D requirements.

While text of the first sentence above reiterates current guidance from CMS with respect to Medicaid formulary development requirements and the only condition under which a state can exclude a drug from its formulary, the next sentence then pivots to proposing a closed formulary that would align Medicaid requirements to the Medicare Part D formulary “at least two drugs per category and class” requirements located at 42 CFR § 423.120(b)(2)(i).

Note that the Arizona letter does not go so far as the detailed drug proposals in the Massachusetts’ 1115 Waiver request, which was submitted to CMS on September 8, 2017, available here.  For example, under the Massachusetts 1115 waiver request, Massachusetts proposes adopting a closed formulary with at least one drug available per therapeutic class.  However, the Arizona letter makes clear that AHCCCS is intent on seeking new flexibilities when it comes to drug coverage in its Medicaid program so Arizona will continue to be an important state to watch.

If CMS responds with support for either Arizona’s suggested “closed formulary” which models Part D, or approves MassHealth’s proposal for a more restrictive “closed formulary” system for drug coverage, this would be represent a broad and far reaching change to Medicaid Drug Rebate program.

(See my colleague Ross Margulies’ earlier blog post for additional analysis of the Massachusetts waiver request.)

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