How might current federal drug pricing proposals impact Medicaid?
Prescription drug spending is back on the political agenda, with Congress and administration development of proposals to target drug prices. Although attention in current federal actions is largely focused on medicare and private insurance drug prices, federal legislation has also recently been introduced or promulgated this would affect Medicaid’s prescription drug policy. In 2019, raw drug Medicaid expenses was $ 66 billion and $ 37 billion was offset by rebates, resulting in $ 29 billion in net shared spending between states and the federal government. A separate analysis examines a range of federal and state drug price policy proposals and their implications for Medicaid. A number of these proposals are included in two key bills that were reintroduced in the 117e Congress: HR 3, The Elijah E. Cummings Lower Drug Costs Now Act, passed the House in 2019, did not become law and has since been reintroduced in 117e Congress. HR 19, The Lower Costs More Cures Act has also been reintroduced (Figure 1).
Among the most notable provisions of HR 3 are allowing the government to negotiate the prices of drugs for Medicare, which is not allowed under current law, and imposing a penalty on drugs. drug prices that are rising faster than inflation, which will likely affect Medicaid drug discounts.. HR 3 would give the Secretary of Health and Human Services (HHS) the authority to negotiate the prices of 50 to 250 drugs without competition in the market, with an upper limit based on prices in a set of foreign countries. The negotiated price would apply to both Medicare and could also be used by commercial payers. There is also an additional penalty on Medicare drugs, with prices rising faster than inflation. The Congress Budget Office estimates that direct Medicaid spending would likely increase by around $ 2.5 billion due to lower rebate payments and higher introductory prices due to Medicare price negotiation and increased rebates on inflation, but federal spending as a whole would drop significantly because of the large amount saved on Medicare drugs. Since Medicaid already receives inflationary discounts on drugs that have experienced large price increases over time, lowering those prices may result in lower discounts for the program. For brand name drugs, rebates on inflation represent approximately half of the total discount received by Medicaid.
HR 19 includes provisions that would limit pricing by pharmacy benefits managers (PBM) in Medicaid. Differential pricing refers to the difference between the payment the PBM receives from the state or AGC and the reimbursement amount it gives to the pharmacy. HR 19 would eliminate deferred pricing in Medicaid by requiring pass-through pricing and only allow PBMs to collect an administrative fee. The version of HR 3 that passed Home in 2019 included a spread price ban in Medicaid, but the version reintroduced in 2021 does not. Eliminating spread pricing would generate savings for States and the federal government, thanks to lower payments to AGCs or PBMs, about $ 929 million over ten years.
HR 3 and HR 19 would make list price information more accessible in order to reduce drug costs. HR 19 includes a number of transparency provisions focused on both Medicaid and drug prices in general, including establishing the national average acquisition cost of drugs (NADAC, a federal pharmacy survey that helps states determine the cost of acquiring pharmacies) mandatory, increasing manufacturer reporting oversight for MDRP, requiring manufacturers to provide notification and justification for certain price increases, and that this information is made available to the public. HR 3 would require the secretary of HHS to make negotiated prices of drugs available to the public and also require manufacturers to report to the secretary of HHS to justify certain price increases. The impact of transparency on real prices is uncertain, and may not produce savings for the Medicaid program, unless transparency results in more accurate reimbursement to pharmacies or more accurate price reports that increase discounts to states and the federal government.
HR 19 includes other provisions that have implications for Medicaid. HR 19 also includes other Medicaid-specific arrangements, including collection of data on prescribing patterns and increased oversight of Medicaid’s Drug and Therapeutics (P&T) Committees. The bill would also create a state option for value-based risk-sharing agreements for curative drugs that would allow states to pay in installments over time.
HR 3 and HR 19 would both make significant changes to Medicare drug benefit and would also reduce direct costs for beneficiaries and those with private insurance. The proposals are expected to generate significant federal savings related to Medicare and private insurance, but they also have implications for Medicaid. HR 3 and HR 19 have been introduced in the House and referred to committees, but a relatively narrow Democratic majority in the House and an even narrower majority in the Senate could make legislative action difficult. However, if drug pricing proposals that offer significant savings, such as HR 3, gain traction, the federal savings could be used as offsets for policies to advance other healthcare initiatives, such as lowering the age of Medicare eligibility and improving Medicare benefits or covering people in the Medicaid coverage gap.