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Massachusetts has a really big idea to bring down drug costs

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Dylan Scott covers health care for Vox. He has reported on health policy for more than 10 years, writing for Governing magazine, Talking Points Memo and STAT before joining Vox in 2017.

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In Massachusetts, prescription drug costs for Medicaid have increased 13 percent annually since 2010.

"If growth in drug costs continues at the current trajectory, it may crowd out important spending on health care and other critical programs," state officials said in a letter to the Trump administration.

Massachusetts wants to fix that, and has an idea about how to do it: Let Medicaid act like a private insurance plan.

It'll be a big test of the Trump administration's willingness to tackle drug pricing, which had at one time been a priority for the president but was set aside to instead debate Obamacare repeal forever and ever, world without end.

Right now, state Medicaid programs can't quite pick and choose which drugs to cover. If a drug company says it will offer Medicaid a discount as required by federal law, the program is supposed to cover their medicines to some degree.

States can do a few things to try to bring down drug costs, like negotiate additional discounts with drugmakers or require a doctor to get authorization from Medicaid before he or she writes a prescription. But their options are pretty limited.

"They’ve had many fewer tools than private insurance, Medicare, or the VA," said Rachel Sachs, a health law professor at Washington University in St. Louis who follows drug pricing.

But now Massachusetts is proposing to let Medicaid work more like private insurance, by introducing what's called a formulary.

A private insurer has broad discretion to decide which drugs to cover: If there are two drugs for your high blood pressure that more or less do the same thing and do an equally good job of keeping your hypertension under control, the plan can say, you know what, we are only going to cover the $10 drug.

But Medicaid's options are more limited. The program covers any FDA-approved drug, as long as its manufacturer participates in the federal Medicaid drug rebate program. It can try to steer people to cheaper medicines — you have to try the $10 drug before the $100 one — but it is not the same flexibility that private insurers have.

Massachusetts is now asking the Trump administration to let it use a formulary. The state argues that if it is permitted to exclude some drugs from its coverage, that would give the state more leverage to negotiate deeper discounts and thereby bring down costs.

The state's plan would come with conditions to protect patients: Its Medicaid program would have to cover at least one drug for every kind of condition, and it would have to allow exceptions if, for example, a patient suffers side effects from the drug covered by Medicaid and wants to try an alternative.

At the same time, Massachusetts also wants to exclude brand new drugs that the state concludes haven't proven their medical benefits yet.

This issue has come up with a controversial drug for the rare Duchenne muscular dystrophy disease. The FDA approved the drug, although there was limited evidence of its clinical benefits, and health plans — including Medicaid — have been locked in disputes with patients about whether to cover the $300,000 treatment.

That is, while an extreme example, likely the kind of case Massachusetts has in mind with its plan.

"We should be concerned about the introduction of these new high-priced drugs and their effect on the program," Sachs said. "They want to get that under control. That’s what they’re trying to do."

But that scenario is also a reminder of the pitfalls that could await the Massachusetts proposal: This would restrict what drugs Medicaid patients will have access to. If you want to try something else or try something new, you could have new hoops to jump through.

So on its face, the idea of giving states more flexibility to decide what drugs to cover with Medicaid, as a way to achieve the universally held goal of reducing costs, seems unobjectionable, though the drug industry will surely have something to say, as the proposal would remove the existing guarantee that Medicaid will cover your drugs as long as you provide the mandated discount.

But the trick will all be in the implementation, balancing individual patient needs with the desire to reduce costs for the entire program.

"This would be a big change — potentially lowering expenses for states/taxpayers and if done correctly, potentially improving their health," Walid Gellad, who studies pharmaceutical policy at the University of Pittsburgh, told me in an email. "But it comes with risks if there are budget constraints and formulary decisions poorly made."

Chart of the Day


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Kliff’s Notes

With research help from Caitlin Davis

Today's top news

  • “ObamaCare repeal authors to meet with Trump”: “The main sponsors of the last ObamaCare repeal bill will meet Thursday with President Trump to discuss health care, according to a White House official. The bill from Sens. Bill Cassidy (R-La.) and Lindsey Graham (R-S.C.) had gained momentum last week, but ultimately Republicans decided Tuesday against holding a vote this week after it became clear the legislation wouldn’t pass.” —Rachel Roubein, the Hill
  • “Health Insurers Stay in ACA Despite Fears of Last-Minute Exits”: “Health insurers appeared likely to offer Affordable Care Act plans in all U.S. counties next year, despite months of drama and worries among some state officials about last-minute exits, ahead of a late-Wednesday deadline.” —Anna Wilde Mathews, Wall Street Journal
  • “Health plans, regulators pan Trump's plan to allow purchase of insurance across state lines”: “President Donald Trump on Wednesday said he will likely sign an executive order allowing Americans to purchase health care across state lines. But the idea is broadly opposed by state insurance commissioners, consumer advocates and insurers, and has failed in states where it's been tried.” —Paul Demko and Nolan D. McCaskill, Politico

Analysis and longer reads

  • “This State Has the Best Health Care in America”: “Hawaiians lived two years longer than the national average of 79 years, benefiting from four decades of employer-paid insurance, generous Medicaid benefits and favorable demographics. Residents of West Virginia, which ranked last, lived three years less than the average, even though per capita health-care spending there was $9,462 compared with $7,299 for Hawaii.” —Vincent Del Giudice and Wei Lu, Bloomberg
  • “The High Price of Failing America’s Costliest Patients”: “It’s well known that the country’s staggering health care costs are not evenly distributed. Just 1 percent of patients account for 20 percent of costs, and 5 percent of the population accounts for nearly half the nation’s health care spending. But exactly who these patients are — and how we can better meet their needs — is less clear.” —Dhruv Khullar, New York Times
  • “5 challenges ACA still faces after GOP withdraws latest bill”: “The bill is effectively dead, for now. That message was underscored by Senate Majority Leader Mitch McConnell (R-Ky.), who said 'where we go from here is tax reform.' But that does not mean all is smooth sailing for the ACA. Here are five ongoing challenges the law faces.” —Julie Rovner, Kaiser Health News

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