Status Report: Medicaid Preferred Drug List Program

and Maximum Allowable Cost (MAC) Pricing

Presentation to:Senate Finance Committee

Health & Human Resources Subcommittee

Patrick W. Finnerty, DirectorDepartment of Medical Assistance Services

January 26, 2004Richmond, Virginia

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Presentation Outline

Background

Development of Preferred Drug List (PDL) Program

Status of PDL Program

Maximum Allowable Cost (MAC) Pricing Program

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Medicaid Coverageof Prescription Drugs

Prescription drug coverage is an optional benefit. In Virginia, this coverage is provided through fee-for-service and managed care programs.

Virginia has instituted several provisions to control prescription drug utilization and spending: generic substitution, drug utilization review, manufacturer rebates, pharmacy lock-in for abusers, lower dispensing fees, and 34-day prescription limit.

Like most other states, Virginia is implementing a Preferred Drug List (PDL) Program to contain rising costs.

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Fee-For-Service (FFS) Pharmacy Costs Have Increased 111% Since 1997

$201.2 $222.0$262.4

$298.4$342.0

$425.4$379.6

$0.0$50.0

$100.0$150.0$200.0$250.0$300.0$350.0$400.0$450.0

1997 1998 1999 2000 2001 2002 2003

Pharmacy Costs

Annual FFS Pharmacy Costs

(Millions)

Source: Statistical Record of the Virginia Medicaid Program

Net of drug rebates

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FFS Pharmacy Costs As A Percentage of Total Medical Costs Is Increasing

8.9% 9.5%10.7% 10.9% 11.3% 11.9% 11.9%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

1997 1998 1999 2000 2001 2002 2003Source: Statistical Record of the Virginia Medicaid Program

FFS Pharmacy Costs As A Percentage of Total Medical Costs

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Presentation Outline

Background

Development of Preferred Drug List (PDL) Program

Status of PDL Program

Maximum Allowable Cost (MAC) Pricing Program

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What is a PreferredDrug List (PDL) Program?

PDL is a prior authorization program that divides Medicaid covered prescription drugs into two categories:– (1) Those that are available with no prior authorization, known as

“preferred” drugs.– (2) Those that are available with prior authorization, known as

“nonpreferred” drugs.

A “preferred” drug is selected based on safety and clinical efficacy first, then on cost effectiveness.

Many classes of drugs are not subject to the PDL program.

All clinical decisions regarding the PDL and prior authorization process are made by DMAS’ Pharmacy and Therapeutics (P&T) Committee.

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2003 Appropriations Act: Preferred Drug List (PDL) Program

Item 325(ZZ.1) of the 2003 Appropriations Act directs DMAS to:– Implement PDL program no later than Jan. 1, 2004– Seek input from physicians, pharmacists, pharmaceutical

manufacturers, patient advocates, and others– Form a Pharmacy & Therapeutics (P&T) Committee– Ensure drugs on the PDL are safe and clinically effective before

considering cost effectiveness– Include several key provisions: 72-hour emergency supply; 24-hour prior

authorization process; expedited review of denials; and consumer/provider training and education

– Report to General Assembly on main design components– Generate net savings of $9 million GF in FY 2003 and $18 million GF in

future fiscal years

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Role of P&T Committee

The P&T Committee shall recommend to the Department:– therapeutic classes of drugs to be subject to the PDL and prior

authorization requirements– specific drugs within each class to be included on the PDL– appropriate exclusions for medications, including atypical anti-

psychotics, used for the treatment of serious mental illnesses such as bi-polar disorders, schizophrenia, and depression

– appropriate exclusions for medications used for the treatment of brain disorders, cancer, and HIV-related conditions

– other appropriate exclusions and “grandfather” clauses

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Members of P&T Committee

Member Background Randy Axelrod (MD) (Chairman)Anthem Chief Medical Officer Roy Beveridge (MD) Oncologist Avtar Dhillon (MD) Psychiatrist (CSB) James Reinhard (MD) Psychiatrist (DMHMRSAS) Arthur Garson, Jr (MD) Dean, UVA Med. School Mariann Johnson (MD) Family Practice Eleanor (Sue) Cantrell (MD) Local Health District Director Christine Tully (MD) Geriatrician, VCU/MCV Mark Szalwinski (Pharmacist) Sentara Health Care

(Vice Chairman) Gill Abernathy (Pharmacist) INOVA Health System Mark Oley (Pharmacist) Westwood Pharmacy Renita Warren (Pharmacist) Edloe’s Pharmacies

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PDL Development Process

All Therapeutic Classes of Drugs

Pharmacy & Therapeutics Committee Recommends Drug Classes To Be Subject to PDL & PA

P&T Committee Recommends Drugs Within Each Class That Are Clinically Effective and Safe

Preferred Drugs

NO PDL PA Required

Non-Preferred Drugs

Drug requires PA

Cost Consideration

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Key Drug Classes Were Excluded from the PDL Program

Therapeutic Class Description

Insulins Cholinesterase Inhibitors Platelet Aggregation Inhibitors Antivirals for HIV Cancer Chemo. Agents Anti-convulsants Immunosupressants Antiemetics Anti-psychotics, Atypical and

Typicals

Used in the Treatment of

Diabetes Alzheimers Clotting Disorders HIV/AIDS Cancer Seizure Disorders, Mental Health Transplant rejections, Arthritis Nausea in cancer patients, Aging Serious Mental Illness

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Critical Steps Taken in Development Process

Met with more than 30 interested parties (manufacturers, providers, pharmacists, advocates, state agencies, etc.) to solicit input into design of PDL program

Formed PDL Implementation Advisory Group

Developed a “Virginia-specific” program

Provided broad access to all PDL information through dedicated website and e-mail (pdlinput@dmas.state.va.us)

ALL decisions regarding “preferred” and “non-preferred” drugs were made by the P&T Committee

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Critical Steps Taken in Development Process

Developed extensive education program– Memorandum and reminder postcard sent to all providers– Information (English & Spanish) sent to all recipients– Regional and targeted training programs for pharmacists,

health systems, and provider associations– Extensive beta-site testing with community and long-term

care pharmacists– Individual, personal contact made with high volume Medicaid

prescribers and pharmacists

Implementation of initial drug classes has gone smoothly

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Presentation Outline

Background

Development of Preferred Drug List (PDL) Program

Status of PDL Program

Maximum Allowable Cost (MAC) Pricing Program

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PDL Program Is Being “Phased-In”

The goal of this “phased-in” transition process is to minimize the impact of the program on enrollees and providers.

Classes of drugs are being implemented on a quarterly basis: January, 2004; April 2004; and July, 2004 Additional phases/drug classes will be added as determined

by the P&T Committee

Implementation of each phase includes a period of “Soft” edits (message to pharmacist that future PA will be required) which precedes the “Hard” edits (PA required). “Soft” edits on the January, 2004 drug classes began on

January 5th; “Hard” edits are being implemented on a rolling basis beginning January 19 through February 23

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13 Drug Classes Were Included in the PDL Program for January 2004

Therapeutic Class Description Proton Pump Inhibitors (PPIs) H2 Antagonists Nasal Steroids Second Generation Antihistamines Selective Cox-2 Inhibitors HMG CoA Reductase Inhibitors (Statins) Sedative Hypnotics Beta Adrenergics Inhaled Corticosteroids ACE Inhibitors Angiotensin II Receptor Blockers(ARBs) Calcium Channel Blockers (CCBs) Beta Blockers

Used in the Treatment of: Gastrointestinal Disorders Gastrointestinal Disorders Allergies, Asthma, Other Respiratory Illness Allergic Conditions Inflammatory Conditions High Cholesterol and Dyslipidemia Insomnia Asthma and Other Respiratory Illness Asthma and Other Respiratory Illness Hypertension/Other Cardiovascular Illness Hypertension/Other Cardiovascular Illness Hypertension/Other Cardiovascular Illness Hypertension/Other Cardiovascular Illness

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Drug Classes To Be Added to PDL Program in April 2004

Therapeutic Class Description

Oral Hypoglycemics

Leukotrine Modifiers

Bisphosphonates

Traditional NSAIDs

Serotonin Receptor Agonists

Oral Anitfungals

Used in The Treatment of:

Diabetes

Allergic Conditions/Asthma

Osteoporosis

Inflammatory Conditions

Migraine Headache

Nail Fungal Infections

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Review Of Additional Drug Classes

Ophthalmologic drugs will be added in July

P&T Committee will review antibiotics and long-acting narcotics at its February 9th meeting for possible inclusion in PDL in July, 2004

By April, 2004, the P&T Committee will have reviewed the top 50 therapeutic classes based on overall expenditures except those that have been excluded from the program and the antidepressants

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Antidepressants (SSRIs)

Medicaid spent approximately $29.5 million in total funds (net of rebates) on SSRIs ($15.8), anti-anxiety drugs ($6.9), and new generation antidepressants ($6.8) in FY 2003

The SSRI drug class is the third highest in expenditures– Generic forms of the SSRIs are coming onto the market– “Grandfathering” patients currently on a SSRI eliminates concern

regarding changing a patient’s drug regimen

Excluding the SSRIs, anti-anxiety drugs and new generation antidepressants from the PDL would cost approximately $5 million (total funds) annually; a “grandfather” provision would cost roughly half of this amount

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Evaluation of PDL Program

DMAS will be conducting a thorough evaluation of the PDL Program to address the following key issues:– Has the PDL program been implemented in a way to ensure

a high rate of compliance without adversely affecting patient access/care?

– What impact has the PDL program had on Medicaid pharmaceutical spending?

– Has the PDL program impacted patient health outcomes for Medicaid clients?

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Presentation Outline

Background

Development of Preferred Drug List (PDL) Program

Status of PDL Program

Maximum Allowable Cost (MAC) Pricing Program

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Maximum Allowable Cost (MAC) Pricing for Generic Drugs

Currently, Virginia Medicaid reimburses pharmacies the Average Wholesale Price (AWP) of the drug minus 10.25% for brand and generic drugs

With multiple source generic drugs, pharmacies often can purchase them for far less than this amount (sometimes 40-60% or greater below brand costs)

Under a MAC pricing program, DMAS would reimburse pharmacies a “maximum” amount based on the cost that the drug can be purchased by pharmacies in the marketplace – Provides an incentive for pharmacies to be prudent purchasers

of generics– MAC price would be set at a level that reflects pharmacies’

acquisition costs plus an appropriate profit

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MAC Pricing for Generics

At least 35 other state Medicaid programs utilize MAC pricing for generics

MAC pricing is used throughout the commercial insurance market

State Medicaid programs and private insurers vary in how aggressive they are in setting their MAC pricing

The DMAS P&T Committee has recommended strongly that Virginia Medicaid implement a MAC Program

The MAC that is set for each drug must be reviewed and updated periodically to ensure appropriate pricing

DMAS estimates the net savings for its proposed MAC program to be $5.15 million (GF) in each year of the 2004-2006 biennium