An increasing amount of pharmaceutical and biotech sales are occurring in the public sphere. Your knowledge about the Medicaid market will help you approach physicians who prescribe drugs for Medicaid patients on a regular basis in their practices, and in clinics and hospitals across the country. The Medicaid population is NOT just those who are on public assistance. The largest growing group is the disabled.

Medicaid is the joint federal-state assistance program that provides healthcare for about 47 million Americans a year. Medicaid is administered by the Centers for Medicare and Medicaid Services under the Department of Health and Human Services. To put CMS’s role in drug sales in perspective, these two public programs together account for 49% of all prescription drug spending.

CMS has broad federal guidelines for Medicaid program eligibility and benefit packages, but the states have the authority to expand eligibility and benefits according to their specific population’s needs and budgetary constraints. Outpatient pharmaceuticals are not required by the federal government to be covered, but every state offers some type of outpatient prescription drug coverage.

The federal government pays at least 50% of the cost of the Medicaid program for each state; however, in some states the federal government can pay up to 80% of these costs based on the overall population’s per capita income. Almost every state has a drug benefit that covers pharmaceutical products as part of their Medicaid program. The exception to this is specialty drug items that are covered under the program's medical benefit, not the pharmacy benefit. However, there has been movement in many states to have specialty drugs and products become part of the pharmacy benefit.

Just as in the rest of the healthcare world, pharmaceutical costs in the Medicaid program are rising at a faster rate than many other components of care. According to Specialty Pharmacy News, July 2004 edition, 17.2% of Medicaid spending is attributed to outpatient prescription drugs, up from 16% the prior year, and the costs are rising at an annual rate of close to 20%.

Medicaid programs across the country spent $27.5 billion on prescription drugs in 2003, and it is expected they will spend $37 billion this year, according to the same article. In response to the increased drug expenditures, states are imposing cost and utilization control measures similar to those used in the private managed markets. Some of those controls include formulary restrictions, prior authorization requirements, preferred drug lists, and disease management programs.

Let’s look at some of the ways Medicaid manages prescription pharmaceuticals and biotech products.

State Controls

States are struggling under financial restraints, due not only to the rising costs of healthcare and the increasing number of eligible Medicaid patients, but because states must balance their budgets each year. Unlike the federal government, which can accrue deficits, states must find the money they spend each year. Therefore, they are more likely to need to impose caps on entitlement programs, especially programs like Medicaid.

This fiduciary restriction impacts the Medicaid program, and especially the prescription drug benefits offered by state governments. The most popular methods used to control drug costs include:

• Negotiating price. This includes ingredient cost, dispensing fees, rebates, retail pharmacy networks, MACs (maximum allowable cost), and mail order pharmacy
• Managing utilization. This includes cost sharing, quantity limitations, drug utilization review, prior authorization, and patient and physician profiling
• Managing drug mix. This includes generic substitution, therapeutic substitution, and step therapy “fail first” policies. This “fail first” policy requires patient to try and fail at the preferred drug before a nonpreferred drug can be prescribed
• Combining various strategies. This can include imposing formulary restrictions, implementing disease management programs, and adhering to strong utilization management

State Formularies

One of the most popular methods of cost control is through the state’s Medicaid formulary. A state’s pharmacy and therapeutics (P &T) committee or state Drug Utilization Review (DUR) board decides what prescription drugs will be approved to be on the formulary. They define the formulary by selecting the classes of drugs and which drugs within each class will ultimately be on the state’s official formulary.

The formulary must:

• Include covered outpatient drugs of any manufacturer that has entered into a rebate agreement with the state
• Include drugs that must be clinically advantageous
• Allow excluded drugs to be available through physician gaining prior authorization before prescribing

Medicaid formularies offer the same advantages of those developed by PBMs (Pharmacy Benefit Managers) in the private sector. They help control costs by taking advantage of manufacturer rebates offered for drugs included on formulary by driving volume to their products. They also may have a tiered copayment structure tied to the preferred drugs on the formulary; however, Medicaid has strict rules governing copays, which are usually between 50¢ and $3. This copay amount is increasing too as states are trying to find ways to offset costs. Medicaid formularies also control drug mix by encouraging generic substitution.

Medicaid programs pay dispensing fees which vary by state. The sliding dispensing fee schedule may encourage the dispensing of preferred drugs or generic drugs by paying a higher dispensing fee for lower cost drugs. Some states have mandatory generic dispensing policies, but sometimes branded drugs can cost less than generics due to the rebates negotiated with the manufacturer.

When selling in a setting where the physicians prescribe according to a state Medicaid formulary, be aware that most of the same cost and utilization strategies used by PBMs are also employed by Medicaid. Also, remember that prior authorization of medically necessary drugs is strictly enforced in Medicaid.

Preferred Drug Lists

Many states are implementing preferred drug lists, or PDLs, which accomplish similar goals as formularies. They are tied to supplemental rebates, employ cost-sharing strategies, and manage product mix to control costs and utilization.

State PDLs steer Medicaid prescribing to preferred drugs in selected therapeutic categories. However, as with Medicaid formularies, Medicaid physicians have the option to prescribe any drug they deem appropriate for a specific patient with a specific condition using prior authorization. When talking with Medicaid providers, know when your drugs are on the preferred drug list, because you will be able to easily pull them through with Medicaid physicians. However, if your competitor’s product is listed on the PDL and yours is not preferred, remind physicians with a heavy Medicaid patient base that they have the right to use prior authorization for any drug they believe to be medically necessary.

Disease Management Initiatives

People with chronic diseases account for a large percentage of healthcare costs. Currently, efforts are underway to manage the care of the chronically ill using disease management programs. Medicaid has placed a significant focus on disease management, especially in the high-cost areas of asthma and diabetes. Many of these efforts are concentrated on children.

Some states have experience with disease management initiatives, and are leading the way, including Florida, Mississippi, New York, Texas, and Virginia. When selling a product that addresses a disease that is the focus of a disease management Medicaid program initiative, be sure to mention it to Medicaid physicians.

Quantity Limits

There are 3 major types of prescription drug quantity limitations that may be imposed by Medicaid. It helps to be aware of them, and to realize that the Medicaid patient may not enjoy the same freedom as patients in the private health insurance market. “Hard” limits, as these are known, are unique to Medicaid programs. These limitations exist only in certain states, so find out which ones, if any, apply to Medicaid physicians in your territory.

Quantity limit strategies include:

1. Limits on the number of prescriptions per beneficiary per month or per year
2. Dollar limits on payments for prescriptions per beneficiary
3. Limits on the amount of medication that may be dispensed or prescribed at a given time

When encountering hard limits, you will find exemption policies in place so that necessary medications can reach needy patients. Usually hard limits can be exceeded utilizing prior authorization. Also, some specific drugs or categories of drugs are exempt from these limits such as family planning drugs. Also, some populations are exempt, especially children and nursing home residents.

A Word on Biotech Products

Specialty biotech products are growing as a proportion of the prescription drug market. Under most Medicaid programs at this time, biotech products are reimbursed through the medical budget and therefore are not subject to prescription drug management strategies. However, there is legislation is several states to change this.

As you know, most prescription drugs are identified using a national drug code, or NDC number, that helps tie the prescribed drug to any rebates. Biotech drugs are most typically identified using another identification system known as a J-Code, and therefore are not able to be monitored through the drug benefit management structure. States are moving toward billing more specialty drugs using an NDC code, which will help states manage biotech products much as they manage other prescription drugs, using drug cost management and rebate programs.

A survey reported in the July 2004 Specialty Pharmacy News showed that 30 out of 39 states responding do not have a strategy for managing the cost of injectables and biotech products at this time. A few programs noted they are taking steps to implement some cost and utilization methods for this high-cost line item. Biotech product sales representatives may eventually be working with Medicaid physicians to help them prescribe their products subject to drug formulary management strategies.

More Control, Not Less

It is highly likely, given the continued rising cost of prescription drugs and the expansion of public sector healthcare programs, that pharmaceutical and biotech sales representatives will be selling in a more restrictive public market under increasing cost and utilization controls. Developing a broad and in-depth understanding of state Medicaid policies and their impact on your territory providers is key to developing a mutually beneficial relationship with them. Managed market selling strategies that have been useful in the private sector will become more common among Medicaid (and even Medicare) physicians.