Magellan Rx Management...The 2016 Medicaid Trend Report articulates the impact of these unique attributes of the Medicaid FFS population . This report presents solutions that maximize

Magellan Rx ManagementMedicaid Trend Report™

2016 EDITION

2 | 2016 MEDICAID TREND REPORT

2 Contributors

3 Introduction

4 Executive Summary

6 2016 Report Data Methodology

7 Medicaid Pharmacy Economics Overview

9 Medicaid Drug Cost Drivers

12 Medicaid Fee-for-Service Cost TrendGROSS PHARMACY REIMBURSEMENT . . . . . . . . 12

TOTAL NET SPEND . . . . . . . . . . . . . . . . . . . . 13

TOTAL NET SPEND: CATEGORY ANALYSIS . . . . . . 13

#1: ANTIPSYCHOTICS . . . . . . . . . . . . . . . 13

#2: HIV/AIDS . . . . . . . . . . . . . . . . . . . . 15

#3: STIMULANTS AND RELATED AGENTS . . . 16

#4: ANTIHEMOPHILIC FACTORS . . . . . . . . . 17

#5: ANTICONVULSANTS . . . . . . . . . . . . . 18

#6: HEPATITIS C AGENTS . . . . . . . . . . . . . 19

#7: NEUROPATHIC PAIN . . . . . . . . . . . . . 20

#8: SHORT-ACTING NARCOTIC ANALGESICS . . . . . . . . . . . . . . . . . . 21

#9: GLUCOCORTICOIDS (INHALED) . . . . . . . 22

#10: CEPHALOSPORINS AND RELATED ANTIBIOTICS . . . . . . . . . . . . . . . . . . 23

24 Notable Market Events

25 Medicaid Legislative UpdatesAMP/OUTPATIENT DRUG FINAL RULE . . . . . . . . 25

ACTUAL ACQUISITION COST . . . . . . . . 25

FEDERAL UPPER LIMITS . . . . . . . . . . . 25

OPIOID CRISIS AND MEDICAID PRESCRIBING PRACTICES . . . . . . . . . . . . . . . . 26

340B ISSUES . . . . . . . . . . . . . . . . . . . . . . . 26

HIGH-PRICED DRUGS . . . . . . . . . . . . . . . . . . 27

ACA LEGACY IMPACT ON MEDICAID RX DRUG PROGRAM . . . . . . . . . . . . . . . . . . . 27

Published by:Magellan Rx Management15950 N . 76th Street, Suite 200Scottsdale, AZ 85260Tel: 800-659-4112magellanrx .com

Publishing Staff

MEDIA DIRECTORStephanie Stevens, M.P.H.

©2016 Magellan Rx Management . Magellan Rx Management 2016 Medicaid Trend Report is published in conjunction with StayWell . All rights reserved . All trademarks are the property of their respective owners .

The content ― including text, graphics, images, and information obtained from third parties, licensors, and other material (“content”) ― is for informational purposes only .

Figures may be reprinted with the following citation: Magellan Rx Management Medicaid Trend Report, ©2016 . Used with permission .

ContributorsGregory S. Kaupp, M.P.A., J.D., M.L.T.SENIOR VICE PRESIDENT, GENERAL MANAGER, GOVERNMENT MARKETS

Douglas Brown, R.Ph., M.B.A.VICE PRESIDENT, DRUG REBATE MANAGEMENT

Chris Andrews, Pharm.D.SENIOR DIRECTOR, CLINICAL SERVICES

Jeanine Boyle, J.D., M.P.H.VICE PRESIDENT, FEDERAL GOVERNMENT AFFAIRS

Troy PhelpsSENIOR DIRECTOR, ANALYTICS

Derek Fredenburg, M.B.A.SENIOR DIRECTOR, PRODUCT INNOVATION

Andy BrockmanDATA AND REPORTING ANALYST

Stephanie Stevens, M.P.H.SENIOR MANAGER, MARKET RESEARCH

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IntroductionMagellan Rx Management is pleased to present the first Magellan Rx Medicaid Trend Report. Developed through in-depth data analysis and supported by broad national experience, this report examines clinically appropriate drug use and cost-saving opportunities for Medicaid fee-for-service (FFS) pharmacy programs.

From 2014 to 2015, Medicaid enrollment grew 13 .9 percent and is projected to grow another 4 .9 percent in 2016 .1 Unlike enrollment in the commercial market and Medicare, Medicaid FFS enrollment levels vary from month to month, making it difficult to manage members with unpredictable treatment needs . The 2016 Medicaid Trend Report articulates the impact of these unique attributes of the Medicaid FFS population .

This report presents solutions that maximize clinically appropriate management strategies to identify and generate cost-saving opportunities through the examination of federal rebate rules and cost per claim trends .

These strategies were identified through a comprehensive year-over-year analysis of Medicaid FFS claims data on a cost per claim basis . To achieve the highest level of accuracy for the comparison, this report was generated after the release of the CMS federal rebate data for 2015 . Federal rebate data at the drug level is confidential and protected by Federal Law under the Social Security Act 42 U .S .C . 1396r–8 (b)(3)(D) . Therefore, this report does not disclose net cost pricing information on a per drug basis .

The Medicaid Trend Report differs from other Magellan Rx reports in that it measures the Medicaid FFS trend as cost per claim versus the standard measurement in commercial

pharmacy of per member per month (PMPM) . Magellan Rx Management adopts net cost per claim as the one metric to use in this analysis as it is consistent across clients within the Medicaid book of business . With Medicaid FFS enrollment varying greatly from month to month, a PMPM metric is a less efficient option.

Overall, the 2016 Medicaid Trend Report provides detailed information on Medicaid pharmacy economics, drug cost trends and drivers, category trends, and legislative updates for full calendar years 2014 and 2015 from 24 Medicaid FFS clients across the country (see Figure 1) .

Information in this report is useful in understanding the current market trends of Medicaid FFS . Magellan Rx Management (MRx) employs many tools to aid clients in controlling the FFS trend . In addition to analysis of the current FFS trend, this report explores the many tools used by MRx, such as preferred drug lists (PDLs), prior authorization (PA), clinical criteria, and brand-over-generic opportunities, among other tools to generate cost savings .

1 . http://kff.org/medicaid/issue-brief/medicaid-enrollment-spending-growth-fy-2015-2016/. Accessed July 12, 2016.

MRx Customers in analysis

New MRx Customers2015 / 2016

District ofColumbia

FIGURE 1: Medicaid Drug Cost Management Report States

Executive Summary


State Medicaid pharmacy departments have a difficult task in managing their budgets to facilitate care for millions of recipients. Attention from the Medicaid agency, state legislators, and advocacy groups compounds the scrutiny they face when making difficult choices. The common themes in this review of cost trends speak to the success with which pharmacy departments are able to utilize available tools in maximizing efficiency in Medicaid pharmacy practice.

supplemental rebates in classes such as antipsychotics, stimulants, anticonvulsants, neuropathic pain, and inhaled glucocorticoids was still significant, it was the management of net cost via federal rebates that was the primary driver . Multiple examples of brand-over-generic preferences led states to savings opportunities that were foreign to those who are most familiar with commercial pricing models .

• On occasion, pharmacy departments affect prescribingtrends through other methods. Clinical initiatives toward reducing the abuse of opioids, as well as raised awareness of antibiotic overprescribing, resulted in reduced prescription volume in short-acting narcotic analgesics and cephalosporins and related antibiotics . These two classes, although consisting mostly of generic utilization, were negative drivers of spend .

• Factors outside of the preferred drug list (PDL) program controls had a significant influence in determiningthe overall success of the pharmacy program . The aforementioned brand-over-generic savings opportunities, while significant in theory, were not entirely effective in practice . The price discrepancy between Abilify and aripiprazole was universal in Medicaid; all states would have benefited from making the brand preferred. The market share for the generic reveals that either states did not implement the brand preferred status or providers did not adhere to direction from the state . On a related note, prior authorization programs are also a factor in turning a savings opportunity into a reality . The substantial market share for aripiprazole, for example, indicated that some prior authorization criteria could be stricter when attempting to substitute products deemed equivalent by the FDA .

• Continuity of care (grandfathering) policies were an obstacle to market share movement . There were certainly therapeutic classes where disruption of treatment was not advisable; this is not a blanket suggestion for all disease states . However, clinical equivalency for many drug classes was accepted . Ten years ago, this discussion was used to assist in the determination of preferred products for statins and continues to be prevalent in today’s PDL reviews . Such policies should be applied selectively by state Medicaid departments and not over all classes .

Results from this report include:

• The increase in gross cost per claim from 2014 to 2015 was $9.17, while the increase in net cost per claim was $1.26 . Given the common perception of Medicaid pharmacy economics, the increase in gross cost per claim will be met with head-shaking and rhetoric about the inefficiency of government utilization of resources . However, it is the mitigation of that increase by practices that impacted net spend that should be the focus . Limiting the net spend per claim to $1 .26 is worthy of praise, particularly when considering the impact of specialty drugs, generic price increases, and other high-cost influences from the pharmacy market .

• Federal and supplemental rebates played a large role in lowering the net cost of pharmacy expenditures . Supplemental rebates in particular played a significant role in achieving a palatable net cost for hepatitis C products, as they had not been on the market long enough to accrue a significant federal rebate. While the role of

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Given the findings from this report, the following implications can be linked to a successful Medicaid pharmacy strategy:

• Restricting classes from PDL review is an antiquated practice . Through pharmacy department policy or legislative guidance, several therapeutic classes were designated as ineligible for PDL review . This included high-spend classes detailed in this evaluation such as HIV/AIDS and antihemophilic factors . These classes, along with various oncology products, are the next frontier of PDL program management . There was a time when antipsychotics was thought to be an untouchable class; now, review of these products is commonplace, though still not universal among Medicaid programs . To address these specialized classes, PDL reviews must be complemented by appropriate clinical criteria . With additional choices in these therapeutic areas being launched and developed with greater frequency, there are PDL program savings opportunities to address where permitted .

• Stateswilltrytomaintainaflattrendlineonaperclaimbasis.Some have turned to Medicaid managed care organizations to oversee the pharmacy benefit rather than optimize pharmacy practice at the fee-for-service (FFS) level . Those states may find this to be beneficial to their bottom lines. However, all government levels must recognize the impact of lost federal and supplemental rebates . According to our evaluation, states moving the pharmacy benefit from FFS to a managed care organization (MCO) typically experience a 6 percent decline in federal rebates and total loss of supplemental rebates . Supplemental rebates disappeared due to the loss of PDL control at the state level; federal rebates declined due to the shift to generic utilization since Medicaid MCOs operate under a commercial economic system focused primarily on pharmacy reimbursement . A trend has yet to emerge regarding this practice . Other models included traditional FFS programs and MCO pharmacy management with a single statewide PDL .

• Supplemental rebate negotiation and evaluation alone are time-saving and lucrative services that provide a positive return on investment for the cohort of states (more than $1.3 billion over the time period measured) . Net cost monitoring is a related service that identifies products

where brands are more cost-effective than their generic equivalents. In addition, the optimal time frame for finally listing the generic as preferred is planned . In the fourth quarter of 2015, Magellan Rx states saved $86 million ($158 per claim) with this practice .

• Even with all the tools at the disposal of Medicaid pharmacy departments, barriers to optimal control of net spend exist. Specialty products will certainly drive gross spend per claim upward . States and their vendors will try to anticipate which PDL class will become the next budgetary disaster, succeeding hepatitis C . Price protection exists somewhat in the form of the federal rebate, but the next breakthrough therapy threatens Medicaid budgets anew . With the assistance of this trend report, the real challenges to Medicaid pharmacy can be better understood .


2016 REPORT DATA METHODOLOGY


The methodology for the first edition of the Magellan Rx Medicaid Trend Report was developed by government pharmacy experts on the Magellan Rx Management team .

This report includes Medicaid fee-for-service (FFS) claims data for the full calendar years 2014 and 2015 from our 24 Medicaid FFS clients across the country. We identified the net cost per claim for the 2014 calendar year and compared it to the net cost per claim for the 2015 calendar year .

Data included are reported as net cost per claim and gross pharmacy reimbursement . For this report, gross pharmacy reimbursement is defined as the total pharmacy reimbursement amount before the calculus of the federal and supplemental rebates or rebate offset. Net cost per claim is defined as the net cost of a prescription after all federal and supplemental rebates and the total rebate offset are taken into account. It is calculated as (Gross Pharmacy Reimbursement - Supplemental Rebates - Federal Rebates + Rebate Offset) / Number of Claims).

The 2016 Medicaid Trend Report examined over 150,000,000 claims in each calendar year with gross pharmacy reimbursement of $13 .9 billion in 2014 and $14 .5 billion in 2015 . Accounting for rebates of $6 .8 billion in 2014 and $7 .9 billion in 2015,

2016 Report Data Methodologyit yielded net drug spend of $7 .0 billion and $6 .6 billion, respectively (see Table 1) . These data were examined across over 170 therapeutic categories based on National Drug Code (NDC) and MRx category analysis .

TABLE 1: Total Net Pharmacy Spend 2014-2015 2014 2015

Gross Pharmacy Spend $13,970,897,042 $14,584,206,555

Total Rebates (Federal, Supplemental, and Rebate Off-Set Amount)

$6,897,922,337 $7,936,072,813

Net Pharmacy Spend $7,072,974,705 $6,648,133,743

TABLE 2: Top 10 by Net Spend 2014-2015

Therapeutic Class 2014 Net Spend / Class

2014 Impact to Net Cost

per Claim by Therapeutic

Class

2014 Rank

2015 Impact to Net Cost

per Claim by Therapeutic

Class

2015 Rank

Change in Net Cost per

Claim by Therapeutic

Class

Antipsychotics $578,111,037 $3 .55 2 $4 .57 1 $1 .01

HIV/AIDS $526,413,499 $3 .24 3 $3 .38 2 $0 .15

Stimulants and Related Agents $589,685,915 $3 .63 1 $3 .37 3 ($0 .26)

Hemophilia Treatment $432,719,865 $2 .66 4 $2 .92 4 $0 .25

Anticonvulsants $388,765,252 $2 .39 5 $2 .54 5 $0 .15

Hepatitis C Agents $243,305,286 $1 .50 6 $1 .50 6 $0 .00

Neuropathic Pain $227,421,798 $1 .40 7 $1 .00 7 ($0 .39)

Analgesics, Narcotics Short $169,296,970 $1 .04 8 $0 .97 8 ($0 .07)

Glucocorticoids, Inhaled $134,622,457 $0 .83 9 $0 .79 9 ($0 .04)

Cephalosporins and Related Antibiotics $115,636,243 $0 .71 10 $0 .68 10 ($0 .03)

Total Top 10 Classes $3,405,978,323 $20.94 $21.71 $0.77

Total Net Spend All Classes $7,072,974,705 $42.08 $43.34 $1.26

Percent of Total Net Spend All Classes 48% 50% 50% 61%

To examine the focus on Net Pharmacy Spend within the report, the chart below illustrates the analysis of the top 10 drug classes by Net Pharmacy Spend from 2014 and 2015 . Little changed in the rankings from 2014 to 2015 and the top 10 class accounted for 50 percent of net pharmacy spend and drove 61 percent of the increase in net cost per claim ($0 .77 of the $1 .26) . In this report, we will examine the drivers of cost for each of these therapeutic classes and review the management strategy employed to control spend (see Table 2) .

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MEDICAID PHARMACY ECONOMICS OVERVIEW

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Medicaid Pharmacy Economics OverviewThe pharmacy economics of Medicaid are unique and dissimilar to commercial drug pricing and rebate management . Medicaid is a state-run program with federal oversight, which demands full government transparency and 100 percent of federal and supplemental rebates be paid directly to the state .

Federal legislation in 1990 was a game changer for the Medicaid Drug Rebate Program . The Omnibus Budget Reconciliation Act of 1990 (OBRA ‘90) mandated, among other things, that manufacturers sign a rebate agreement with the U .S . Department of Health and Human Services (HHS), guaranteeing a minimum mandated rebate in exchange for drug coverage by state Medicaid programs . The legislation mandated that manufacturers pay:

1) A minimum discount (federal rebate) for generic drugs and, for brand drugs, the larger of the minimum discount or the best price the manufacturer offered to any commercial plan.

2) A Consumer Price Index-Urban (CPI-U) penalty on top of the mandatory federal rebate for brand drugs serves to protect the states against drug price inflation should a manufacturer raise its price faster than the rate of inflation.

In 2015, the average federal rebate was 54 percent off of gross pharmacy reimbursement . New brands have a minimum rebate of 23 .1 percent of Average Manufacturer Price (AMP); conversely, established brands can approach and exceed 90 percent of AMP after years of discounting and CPI-U penalties .

In Medicaid, Pharmacy Benefit Management (PBM) companies are paid an administration fee for clinical and financial services in support of state PDL programs and other services,

and are incentivized to manage to the lowest net cost on pharmaceuticals . In this model, 100 percent of the federal and supplemental rebate are paid to the state and federal government, and states control all the pricing levers with no hidden cost . Supplemental rebates are best-price-exempt and average 3 to 6 percent off a state’s gross spend, depending on state practices (clinical criteria, MAC list, reimbursement algorithms) and drug mix . Total discounts for states with fully implemented PDLs will, on average, range from 56 to 59 percent . Those who look to measure the success of a PDL program by only considering the supplemental rebate dollars risk driving a higher net cost per claim in their program . The focus should always be on the net cost after all discounts (federal, supplemental, and rebate offset amount). Regardless of the classification of federal or supplemental rebate, these rebates are equally valuable to states . Federal and supplemental rebates are paid to the states and shared with the federal government according to their federal medical assistance percentage (FMAP) .

THE ECONOMICSTo truly understand Medicaid economics, one must understand the dynamics of the aforementioned factors . In Figure 2 represented on page 8, we provide an illustration of brand-drug pricing from market entry through patent expiration . Drug cost is represented on the y-axis and the drug’s life cycle (time) is the x-axis . For this exercise, a new brand drug enters a competitive market with a mandatory rebate of 23 .1 percent of AMP, the minimum federal rebate for brand drugs, and has clinically equivalent therapeutic alternatives, with higher discounts and lower net costs than the new brand . To achieve preferred status, the manufacturer offers a supplemental rebate of 26 .9 percent of AMP (a total discount of 50 percent


MEDICAID PHARMACY ECONOMICS OVERVIEW

FIGURE 2: Medicaid Pharmacy Economics

GENERIC INFLUENCEWhile the commercial market is focused on pharmacy reimbursement, states evaluate drug pricing net of federal and, when applicable, supplemental rebates . As mentioned previously, high federal rebates can push net drug prices of brands to significantly discounted levels. This is particularly true of a brand approaching its patent expiration date and beyond . A new generic typically launches at a price point that is discounted to the brand’s full price . If competition is limited by any means (patent litigation or raw material shortage, for instance), only a few new generic manufacturers enter the market and the initial price of the generic often is slightly less

at Time = 0) to be financially competitive. Moving through time, manufacturer price actions drive the total discounts up, but due to inverse relationships between supplemental and federal rebates, supplemental discounts decline over time . As the patent expiration approaches, the manufacturer generally increases the cost of their drug and the CPI-U penalty accelerates the growth of the federal rebate in the quarters just prior to that event (see Figure 2) .

When generics first enter the market, they are generally priced at a small discount to the brand’s gross cost, with the federal rebate fixed at 13 percent of AMP. As shown in Figure 2, the state net brand drug cost can be markedly less than the generic at this time. Factors affecting the availability of this new generic can cause the net cost of the generic to remain relatively high for periods lasting from six months to multiple years . Therefore, it is imperative that states (or their PBMs) monitor these scenarios in order to take full advantage of all savings opportunities .

than the brand-name gross pharmacy reimbursement . In these cases, after federal and supplemental rebates (if applicable) are applied, the net cost of the brand-name product is often less than that of the corresponding generic (see Figure 2) .

Continuing to prefer the brand over its generic can lead to substantial cost savings for states and the federal government . In the fourth quarter of 2015, brand over generic programs accounted for $86M in savings, at an average savings of $158 per claim .

Brand DrugPrice

New DrugIntroduction

State Net Drug Cost

State Net Drug Cost

Supplemental Rebate

Brand Federal Rebate(Greater of 23 .1% AMP or AMP – Best Price) +

CPI Penalty

Time

Generic DrugPrice

Generic Federal Rebate(13% AMP)

Patent Expiration /Generic Introduction

$100 .00

$50 .00

$23 .10

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Medicaid Drug Cost Drivers

MEDICAID DRUG COST DRIVERS

MEDICAID DRUG COST DRIVERSTo examine and identify drivers of net cost per claim, we calculated the total net cost per claim at the aggregate and at the therapeutic class (TC) level . The TC level values were calculated as a component of the total net cost per claim . When summed, all the TCs added up the same net cost per claim as the aggregate . Additionally, MRx calculated the increase or decrease in net cost per claim and identified the specific dollar amount that contributed to the change in net cost per claim at the TC level .

Of the over 170 therapeutic classes examined, 24 percent positively contributed to the $1 .26 increase in net cost per claim . Increases in utilization, net cost per claim, or a combination of both metrics caused an increase in total net cost per claim of $2 .69 . Antipsychotics were the main driver, contributing $1 .01 of the $1 .26 change in net cost per claim . Conversely, 22 percent of the classes negatively contributed to the $1 .26 increase in net cost per claim . These classes had a total decrease of $1 .43 . Neuropathic pain contributed a $0 .39 decrease to the total $1 .26 change where utilization, net cost per claim, or a combination of both metrics decreased . The majority (54 percent) of the classes had no impact on the $1 .26 increase in net cost per claim (see Figure 3) .

Although in total, 40 classes contributed to the increase net cost per claim of $1.26, we identified the 10 classes that had the largest influence on increasing the net cost per claim and the top 10 classes that counterweighted the overall increase in net cost per claim (see Figure 4) .

POSITIVE CONTRIBUTORS: $2 .69 NEUTRAL CONTRIBUTORS: $0 .00

NEGATIVE CONTRIBUTORS: ($1 .43)

FIGURE 3: 2015 Contributions to Net Cost per Claim

24+54+22+S54%

24%22%


MEDICAID DRUG COST DRIVERS

These top 10 classes account for 50 percent of the total net spend . The antipsychotic class was the largest contributor based on use of aripiprazole . Although a generic, aripiprazole had a significantly higher net cost than its brand counterpart, Abilify . States that elected to prefer the brand over the generic

FIGURE 4: 2015 Top 10 Classes Contributing to an Increase in the Net Cost per Claim (Positive Contributor) and a Decrease in the Net Cost per Claim (Negative Contributor)

800= $1.01

210= $0.25

125= $0.15

125= $0.15

115= $0.13

110= $0.12

110= $0.12

70= $0.07

70= $0.07

50= $0.05

Steroids, topical

Anticonvulsants

HIV/AIDS

Antihemophilic factors

Antipsychotics

Mucopolysaccharidosis

Cystic fibrosis, oral

Anesthetics, topical

Opiate dependence treatments

Oncology, oral - breast

Positive Contributor Negative Contributor

50=

50=

70=

80=

100=

100=

111=

130=

201=

250=

Stimulants and related agents

Lipotropics, other

Analgesics, narcotics short

Leukotriene modifiers

Antiemetic/antivertigo agents

Neuropathic pain

Antivirals, oral

Multiple sclerosis agents

Antiviral monoclonal antibodies

Hypoglycemics, insulin and related agents

($0.05)

($0.05)

($0.07)

($0.08)

($0.10)

($0.10)

($0.11)

($0.13)

($0.26)

($0.39)

experienced significant savings, while clients that did not prefer the brand over the generic saw an increase in the net cost per claim for the class (see Figures 5 and 6) .

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FIGURE 5: 2015 Top 10 Drugs Contributing to an Increase in the Net Cost per Claim (Positive Contributor)

805= $1.05

110= $0.12

108= $0.11

200= $0.20

90= $0.09

Chlorpromazine (oral)

Invega Sustenna (intramusc .)

Aripiprazole tablet (oral)

Eloctate IV

Koate-DVI Kit IV

Antipsychotics Hepatitis C

Antihemophilic Factors

565= $0.67

210= $0.28

210= $0.28

180= $0.18

200= $0.20Guanfacine ER (oral)

Viekira Pak (oral)

Harvoni (oral)

Stribild (oral)

Triumeq (oral)

HIV/AIDS

Stimulants

FIGURE 6: 2015 Top 10 Drugs Contributing to a Decrease in the Net Cost per Claim (Negative Contributor)

Antipsychotics Neuropathic Pain

Hepatitis C

Stimulants

MS Agents

Antivirals

Hypoglycemics

108= Olysio (oral)($0.11)

140= Methylphenidate ER (Concerta, oral)($0.14)

95= Lantus Solostar pen (sub-q)

($0.09)202= Copaxone (sub-q)($0.21)

600= Sovaldi (oral)($0.82)

205= Abilify tablet (oral)($0.23)

108= Synagis (intramusc .)($0.11)

180= Intuniv (oral)($0.18)

180= Cymbalta (oral)($0.18)

190= Duloxetine (Cymbalta) (oral)($0.19)


MEDICAID FEE-FOR-SERVICE COST TREND

GROSS PHARMACY REIMBURSEMENTOver the last year, Medicaid’s FFS average gross pharmacy reimbursement (GPR) cost per claim (Rx) was $85 .90 in 2014 and $95 .08 in 2015, while the net cost per claim for Medicaid

Medicaid Fee-for-Service Cost Trend

FIGURE 7: Cost per Claim 2014-2015

2014Q32014Q22014Q1 2014Q4 2015Q1 2015Q2 2015Q3 2015Q4

was $42 .08 in 2014 to $43 .34 in 2015 . This represents a 10 .7 percent ($9 .17) increase in GPR and a 3 .0 percent ($1 .26) increase in net cost per claim (see Figure 7) .

$82.72 $85.91 $87.85 $87.17 $91.99 $94.20 $98.09 $96.17

GROSS COST PER RX AVG . NET COST PER RX

$120 .00

$100 .00

$80 .00

$60 .00

$40 .00

$20 .00$41.04 $42.63 $43.01 $41.66 $41.32 $42.20 $45.51 $44.43


TOTAL NET SPEND: CATEGORY ANALYSIS A deeper dive into the top 10 categories affecting total net spend illustrates which drugs within these categories had the most impact on cost . Discussion of these trends reveals common scenarios in Medicaid FFS and how states manage them .

#1: ANTIPSYCHOTICS Although much of the utilization has moved to generics, this class remains among the high-cost categories in Medicaid . This is largely due to utilization of expensive generics and a utilization shift toward long-acting injectables .

Cost DriversThe management of Abilify and its generic equivalents was essential to Medicaid budgets for this time period as limited supply and high cost of the generic made the brand far more cost-effective for states.

Abilify share fell 4 .1 percent from 2014 to 2015, where most of that share moved directly to aripiprazole. Despite state efforts to drive prescribing to the brand, Abilify contributed only a negative $0 .23 to the average net cost for Antipsychotics while the generic contributed a positive $1 .05 to the overall cost of this class . This was the key driver in maintaining this class’ high ranking . Other cost drivers that contributed to the increase in net spend were the long-acting injectables, Invega Sustenna and Abilify Maintena . Abilify Maintena’s 2015 utilization nearly doubled that of the prior year, while Invega Sustenna’s was slightly elevated . The positive contribution from chlorpromazine resulted from an unexpected price spike with little change in utilization (see Figure 8) .

At the treatment level, in 2015, 10 drugs had the largest impact on total net spend, accounting for 14 .5 percent (see Table 4) . Not surprisingly, nine of the top 10 drugs corresponded with the top five categories listed above. Hepatitis C agent Harvoni is the only exception, with hepatitis C being ranked sixth out of 10 .

TABLE 4: 2015 Top 10 Drugs Contributing to Total Net SpendRank Drug Category

1 Aripiprazole tablet (oral) Antipsychotics

2 Abilify tablet (oral) Antipsychotics

3 Advate (IV) Antihemophilic factors

4 Harvoni (oral) Hepatitis C agents

5 Invega Sustenna (intramusc .) Antipsychotics

6 Stribild (oral) HIV/AIDS

7 Adderall XR (oral) Stimulants and related agents

8 Divalproex ER (oral) Anticonvulsants

9 Vyvanse (oral) Stimulants and related agents

10 Methylphenidate ER (Concerta) (AG) (oral)

Stimulants and related agents

TABLE 3: 2015 Top 10 Classes by Net SpendRank Category

1 Antipsychotics

2 HIV/AIDS

3 Stimulants and related agents

4 Antihemophilic factors

5 Anticonvulsants

6 Hepatitis C agents

7 Neuropathic pain

8 Short-acting narcotic analgesics

9 Glucocorticoids (inhaled)

10 Cephalosporins and related antibiotics

TOTAL NET SPENDTotal net spend in Medicaid fee for service (FFS) looked at a state’s total cost for administration of a treatment . In 2015, 10 categories made up 50 .1 percent of total net spend amongst state Medicaid programs (see Table 3) . These categories, independent of changes in net cost per claim, had market shifts within the category that significantly affected spend associated with the class . Although not completely parallel with total net spend, four of the five top categories, (antipsychotics, HIV/AIDS, antihemophilic factors, and anticonvulsants) contributed to the positive total increase in net cost per claim .



FIGURE 8: Antipsychotics Market Share Changes and Dollar Impact 2014-20152

2. Only drugs with > 0.5 percent market share were included on the list.

199= 19.9%214= 21.4%

211= 21.1%186= 18.6%

177= 17.7%136= 13.6%

75= 7.5%79= 7.9%

51= 5.1%47= 4.7%

0= 0%44= 4.4%

31= 3.1%42= 4.2%

Seroquel XR (oral)

Olanzapine tablet (oral)

Abilify tablet (oral)

Risperidone tablet (oral)

Quetiapine tablet (oral)

Aripiprazole tablet (oral)

Latuda (oral)

Ziprasidone capsule (oral)

Invega Sustenna (intramusc .)

Clozapine (oral)

Haloperidol (oral)

Invega (oral)

Haloperidol decanoate (injection)

Chlorpromazine (oral)

Risperidone solution (oral)

Olanzapine ODT (oral)

Risperdal Consta (intramusc .)

Perphenazine (oral)

Saphris (sublingual)

Fluphenazine tablet (oral)

Risperidone ODT (oral)

43= 4.3%40= 4.0%

38= 3.8%39= 3.9%

27= 2.7%28= 2.8%

13= 1.3%16= 1.6%

16= 1.6%15= 1.5%

13= 1.3%14= 1.4%

9= 00.9%10= 1.0%

11= 1.1%10= 1.0%

9= 0.9%9= 0.9%

9= 0.9%8= 0.8%

8= 0.8%8= 0.8%

9= 0.9%8= 0.8%

7= 0.7%7= 0.7%

7= 0.7%6= 0.6%

30= 2014 Market Share 30= 2015 Market Share Change in $ Impact

($0 .02) ($0 .08) ($0 .00)

($0 .03) $0 .00 $0 .01

($0 .23) ($0 .01) ($0 .02)

($0 .02) $0 .12 $0 .00

($0 .04) $0 .03 ($0 .02)

$1 .05 $0 .11 ($0 .02)

$0 .05 $0 .01 ($0 .01)

Management StrategyA lingering brand presence brings attention to the net cost of the remaining on-patent oral products . Seroquel XR generics are expected in the near future . Particularly as the price of generic Abilify tablets decreases, though, MRx’s focus on net

spend moves primarily to long-acting injectables . Increased competition is expected to provide lower net costs for this route of administration .


#2: HIV/AIDSHIV/AIDS treatment ranked as the second highest category contributing to total net spend . The HIV/AIDS category saw the largest increase in market share for Stribild, Tivicay, Complera, and market newcomer Triumeq, with the largest dollar impact on the first three (see Figure 9) .

Cost DriversMarket share leaders in the category reflected regimens recommended by medical treatment guidelines, including relative newcomer Triumeq . Overall, Truvada led in market share as a backbone of antiretroviral treatment as well as the primary option in pre-exposure prophylaxis . The utilization increases of Triumeq, Tivicay (a component of Triumeq), and

Stribild ― the three newest products ― drove the growing spend in this class .

Net costs in this category will likely continue to increase . By the time generics become available in this class, they are usually no longer part of recommended regimens due to evolving resistance patterns . Brand-over-generic opportunities will continue to be virtually nonexistent . Contribution to the average cost per claim is positive, likely due to the constant introduction of new products in recent years and the shift in prescribing toward these products . New products frequently have lower resistance profiles among other theoretical advances .


FIGURE 9: HIV/AIDS Market Share Changes and Dollar Impact 2014-20153

165= 16.5%164= 16.4%

154= 15.4%135= 13.5%

101= 10.1%96= 9.6%

85= 8.5%75= 7.5%

Complera (oral)

Atripla (oral)

Prezista (oral)

Norvir tablet (oral)

Truvada (oral)

Epzicom (oral)

Stribild (oral)

Tivicay (oral)

Reyataz capsule (oral)

Isentress (oral)

38= 3.8%60= 6.0%

69= 6.9%59= 5.9%

75= 7.5%58= 5.8%

24= 2.4%43= 4.3%

($0 .05) $0 .18

($0 .02) ($0 .07)

($0 .07) ($0 .08)

($0 .07) $0 .08

$0 .05

$0 .28

($0 .04)

32= 3.2%40= 4.0%

48= 4.8%40= 4.0%

2= 0.2%32= 3.2%

Triumeq (oral)

Management StrategyAs new products enter the market through 2016 (Descovy, Genvoya, Odefsey, and Prezcobix, for instance), states will be challenged to spend dollars wisely and determine whether

the current market share leaders need to be supplanted by products that feature chemical alterations of currently existing compounds .




#3: STIMULANTS AND RELATED AGENTS Despite the availability of generic extended-release stimulants, low net cost brands prevail in the market share battle .

Cost DriversPatent expirations for popular brands such as Focalin XR, Adderall XR, and Intuniv have not answered state problems with spend in this class as net costs for the generics remain high . Guanfacine ER, the generic for Intuniv, remained at a higher net cost than the brand through most of 2015 . Adderall XR and Focalin XR retain market share based on their relatively low net cost while their generic equivalents are typically non-preferred .


FIGURE 10: Stimulants Market Share Changes and Dollar Impact 2014-20154

187= 18.7%184= 18.4%

164= 16.4%154= 15.4%

132= 13.2%140= 14.0%

95= 9.5%108= 10.8%

82= 8.2%78= 7.8%

108= 10.8%56= 5.6%

Focalin XR (oral)

Amphetamine salt combo (oral)

Adderall XR (oral)

Methylphenidate ER (Concerta, oral)

Vyvanse (oral)

Intuniv (oral)

Dexmethylphenidate XR (oral)

Methylphenidate (oral)

Quillivant XR (oral)

Guanfacine ER (oral)

Strattera (oral)

Amphetamine salt combo ER (oral)

Dexmethylphenidate (oral)

Clonidine ER (oral)

Focalin (oral)

Daytrana (transdermal)

Metadate CD (oral)

51= 5.1%53= 5.3%

50= 5.0%53= 5.3%

2= 0.2%45= 4.5%

11= 1.1%19= 1.9%

17= 1.7%12= 1.2%

13= 1.3%12= 1.2%

11= 1.1%12= 1.2%

9= 00.9%11= 1.1%

11= 1.1%9= 0.9%

5= 0.5%8= 0.8%

9= 0.9%7= 0.7%

5= 0.5%5= 0.5%

($0 .02) ($0 .04) ($0 .02)

($0 .17) $0 .00 $0 .00

$0 .02 $0 .20 ($0 .01)

($0 .08) $0 .03 $0 .00

$0 .03 $0 .01

($0 .18) $0 .00 $0 .02

($0 .01)

Methylphenidate ER (oral)

Eroding generic prices and competitive net prices for brands make this class a negative contributor overall to the average cost per claim . As with Abilify, most states managed the expiration of Intuniv’s patent to their advantage by keeping the generic non-preferred . Nevertheless, guanfacine ER was a positive contributor to average net cost per claim due to increased utilization at a high cost to states . Meanwhile, Concerta ER generics and other methylphenidate ER products experienced lower prices and negatively impacted the average (see Figure 10) .

Management StrategyStates will continue to favor lower net cost brands while they await competitive generic pricing that will come with an increased number of generic labelers in this class . The extended-release focus has shifted to non-solid oral

formulations for pediatric patients, as products like Quillivant XR fill a niche in the market. Competitive net prices for these liquids and orally disintegrating tablets can expand the selection for states .



#4: ANTIHEMOPHILIC FACTORSAntihemophilic agents ranked fourth in net spend for 2015, accounting for a total of $0 .25 of the total $1 .26 change in net cost per claim .

Cost DriversAntihemophilic factor VIII products dominated utilization in this class, with Eloctate experiencing the biggest market share gain since its 2014 launch . The increased average cost


FIGURE 11: Antihemophilic Factors Market Share Changes and Dollar Impact 2014-20155

360= 36.0%331= 33.1%

107= 10.7%102= 10.2%

104= 10.4%87= 8.7%

76= 7.6%60= 6.0%

15= 1.5%80= 8.0%

Kogenate FS (IV)

BeneFix Kit (IV)

Recombinate (IV)

Eloctate (IV)

Advate (IV) ($0 .02)

$0 .02

($0 .03)

$0 .00

$0 .20

per claim contribution for these products comes largely from increased prices . The number of claims and units did not change appreciably during the evaluated period .

The increased market share for Eloctate was the main contributor to the increased average cost per claim (see Figure 11) . Antihemophilic products did not have generic options .

Management StrategyThis is another class that will see expanded provider options in the coming years . Products with theoretical clinical advantages

will need to have them manifest as outcomes in clinical practice if states are to consider granting preferred status to them .




#5: ANTICONVULSANTSAnticonvulsant agents ranked fifth in net spend for 2015, accounting for a total of $0 .15 of the total $1 .26 change in net cost per claim .

Cost Drivers Anticonvulsants category utilization was predominantly in generics, as many brands in the category experienced patent expiration years ago . Even with this, there were opportunities for brand-over-generic savings . Price spikes for key generics (divalproex, for example) in recent years brought this consideration back into the picture . The market


factors influencing generic pricing were reset somewhat for divalproex; the ER formulation of the treatment was the largest contributor to negative impact .

Growth in this class was due to increased utilization of newer brands and, to a lesser extent, increased utilization of high-cost generics. Increased utilization of Onfi suspension was the greatest contributor with a $0 .04 change in cost impact . Although market share gains appeared to be small for brands, the high prescription volume for this class made the impact significant (see Figure 12) .

FIGURE 12: Anticonvulsants Market Share Changes and Dollar Impact 2014-20156

182= 18.2%176= 17.6%

119= 11.9%122= 12.2%

105= 10.5%109= 10.9%

73= 7.3%71= 7.1%

72= 7.2%75= 7.5%

Levetiracetam tablet (oral)

Divalproex ER (oral)

Topiramate tablet (oral)

Lamotrigine tablet (oral)

Clonazepam (oral)

Onfi tablet (oral)

Divalproex tablet (oral)

Phenytoin capsule (oral)

Levetiracetam solution (oral)

Oxcarbazepine tablet (oral)

Carbamazepine tablet (oral)

Onfi suspension (oral)

Vimpat tablet (oral)

Divalproex sprinkle (oral)

64= 6.4%65= 6.5%

60= 6.0%61= 6.1%

36= 3.6%37= 3.7%

26= 2.6%23= 2.3%

23= 2.3%22= 2.2%

15= 1.5%16= 1.6%

12= 1.2%12= 1.2%

9= 0.9%10= 1.0%

2= 00.2%4= 0.4%

$0 .00 $0 .01 $0 .02

$0 .01 $0 .00 $0 .01

$0 .00 $0 .00

($0 .05) $0 .01

($0 .01) $0 .03

$0 .00

$0 .04

Management Strategy The key to managing the net spend in this class is to deter utilization of high-cost brands . New products of late in this class have merely rebranded an existing drug whose original brand

patent had expired . Other brands contain novel compounds, but are not clinically superior to generics .



#6: HEPATITIS C AGENTS

Cost DriversNet spend in this class will be driven by brands for the foreseeable future . To illustrate this, manufacturers have voluntarily discontinued some products (pegylated interferons, protease inhibitors) that no longer find themselves included as first-line treatments in the AASLD guidelines.

There was a 62 percent increase in the utilization of all-oral products in 2015, but significant discounts helped keep cost trends in this class neutral through the period . This class’

contribution to the average cost per claim is neutral, but that does not diminish its overall impact to net spend .

Sovaldi contributed a negative ($0 .82) primarily due to reduced claims volume, which was offset by Harvoni contributing $0 .67 and Viekira $0 .28 to the average net cost per claim (see Figure 13) .

FIGURE 13: Hepatitis C Market Share Changes and Dollar Impact 2014-2015

15= 1.5%317= 31.7%

229= 22.9%229= 22.9%

0= 0%159= 15.9%

321= 32.1%137= 13.7%

101= 10.1%76= 7.6%

Pegasys syringe (sub-q)Sovaldi (oral)

Viekira Pak (oral)

Ribavirin tablet (oral)

Harvoni (oral)

Pegasys proclick (sub-q)Ribavirin capsule (oral)

Olysio (oral)

Daklinza (oral)

Ribapak (oral) 63= 6.3%32= 3.2%

0= 0%12= 1.2%

54= 5.4%11= 1.1%

72= 7.2%8= 0.8%

104= 10.4%6= 0.6%

$0 .67 $0 .00

$0 .00 $0 .02

$0 .28 ($0 .11)

($0 .82)

$0 .00

($0 .01)

($0 .01)




Management Strategy

States want to treat all hepatitis C–infected Medicaid recipients . The problem is that they cannot afford it. Limited resources have forced states to limit access to those patients with advanced disease ― Metavir score of F3 or F4. The demand for treatment (by patients and advocacy groups) continues to grow . Congress investigated Gilead for their pricing of Sovaldi . CMS reminded states that prior authorization is allowed in the Medicaid program, but denial of coverage is not . At the same time, CMS admonished manufacturers for failing to price their drugs responsibly and affordably, especially for the most vulnerable populations .

Fortunately, as more competitive products have come to market, the net cost of treatment is trending down . As costs come down, states are responding by loosening clinical prior authorization criteria . Between February 2016 and July 2016, four PDL states lowered minimum Metavir score criteria for treatment from F3 to F2 . Two states lowered their Metavir score criteria from F3 to F0 . There is a direct correlation between manufacturer net price and prior authorization criteria . Utilization and net spend in this class are expected to increase, but at a lower net cost per claim .

FIGURE 14: Neuropathic Pain Market Share Changes and Dollar Impact 2014-2015

458= 45.8%476= 47.6%

143= 14.3%144= 14.4%

126= 12.6%126= 12.6%

124= 12.4%178= 17.8%

88= 8.8%31= 3.1%

Duloxetine (Cymbalta) (oral)

Gabapentin tablet (oral)

Lyrica capsule (oral)

Gabapentin capsule (oral)

Cymbalta (oral)

$0 .02

($0 .04)

$0 .03

($0 .19)

($0 .18)

#7: NEUROPATHIC PAINNeuropathic pain agents ranked seventh in contributions to net cost per claim, providing a total of ($0 .39) of the $1 .26 .

Cost DriversMost utilization for this class was composed of generic gabapentin, but Lyrica maintains a significant market share in the category . Cymbalta/duloxetine pricing dynamics were monitored for years due to availability issues for the generic . The brand name is only now declining in utilization . Gabapentin formulations have also had a price discrepancy between them for years, which explains the disparity between their market shares . Decreased generic prices made this class a clear negative impact on the net cost per claim . The falling duloxetine price was the biggest driver of negative impact, but the lower utilization of the brand Cymbalta was also a major contributor (see Figure 14) .

Management Strategy With increased utilization in generics, it will be more important to monitor the net price of brands for states that list them as preferred . Otherwise, more states could adopt or expand step-edits that include trials of gabapentin and other cost-effective generics before accessing nonpreferred products .

30= 2014 Market Share 30= 2015 Market Share

Change in $ Impact


#8: SHORT-ACTING NARCOTIC ANALGESICS

Cost DriversThis category remains heavily generic and sheer claims volume drives the high expenditure for State Medicaid Programs . Overall, prescription claim volume was down 15 percent from 7 .4 million claims in 2014 to 6 .3 million claims in 2015 . Hydrocodone/APAP market share was down 6.3 percent, driven by the reclassification of Hydrocodone from

FIGURE 15: Analgesics Market Share Changes and Dollar Impact 2014-2015

454= 45.4%391= 39.1%

172= 17.2%168= 16.8%

164= 16.4%180= 18.0%

83= 8.3%102= 10.2%

53= 5.3%93= 9.3%

Oxycodone tablet (oral)

Oxycodone/APAP tablet (oral)

Tramadol (oral)

Hydrocodone/APAP tablet (oral)

APAP/codeine tablet (oral)

$0 .00

($0 .01)

($0 .03)

($0 .03)

$0 .01

Schedule III to Schedule II in October 2014 . Unfortunately, the cost of Hydrocodone/APAP increased 28 .5 percent over the period mitigating the reduction in overall cost for this class . Oxycodone tablets and Oxycodone/APAP tablets increased in market share but at a lower cost per prescription in 2015 than in 2014 (see Figure 15) .

Management Strategy Preferred products in this class should be cost-effective generic products . States will continue to address appropriate use and monitor for abuse and dependence associated with these products . Look for states to adopt and enforce

prescribing guidelines and limit daily supply as a hedge against dependence .




#9: GLUCOCORTICOIDS (INHALED)

Cost DriversInhaled glucocorticoids was still a brand-dominated class with a mix of older and newer agents . Utilization is distributed equally among combination and steroid-only inhalers . Respules are typically reserved for pediatric patients and have a lower market share . Many states continued to prefer Pulmicort Respules over the significantly more expensive generic counterpart budesonide respules due to net cost differences.

Efforts at lowering net costs on inhalers, combined with shifting utilization from generic respules to brand respules, has resulted in continued cost control in this class . Advair is the only positive contributor to the class increase in net spend . This is outweighed by the declining net costs of the other inhalers and the lower utilization in all respules (see Figure 16) .

FIGURE 16: Glucocorticoids Market Share Changes and Dollar Impact 2014-2015

202= 20.2%213= 21.3%

226= 22.6%204= 20.4%

168= 16.8%182= 18.2%

138= 13.8%157= 15.7%

Asmanex (inhalation)

Symbicort (inhalation)

Flovent HFA (inhalation)

Advair Diskus (inhalation)

Qvar (inhalation)

Pulmicort Flexhaler

(inhalation)

Pulmicort 0 .25 mg, 0 .5 mg Respules

(inhalation)

Dulera (inhalation)

Budesonide 0 .25 mg, 0 .5 mg

respules (inhalation)

Advair HFA (inhalation)

98= 9.8%80= 8.0%

54= 5.4%52= 5.2%

39= 3.9%36= 3.6%

28= 2.8%34= 3.4%

$0 .00 ($0 .03)

$0 .02 $0 .01

($0 .02) ($0 .01)

($0 .01) $0 .00

$0 .00

$0 .00

$0 .00

17= 1.7%15= 1.5%

14= 1.4%10= 1.0%

6= 0.6%6= 0.6%

7= 0.7%6= 0.6%

Flovent Diskus (inhalation)

Pulmicort Respules 1 mg

(inhalation)$0 .00

Management StrategyAgain, preferred products in this class should be cost-effective, efficacious brands. Generic Advair formulations may be launched by the end of 2016, but limited sourcing will not lead

to advantageous pricing . New brands to this market must be clinically superior and/or net cost neutral to become preferred agents .



#10: CEPHALOSPORINS AND RELATED ANTIBIOTICSCephalosporins ranked 10th in contributions to net cost per claim, providing a total of ($0 .03) of the $1 .26 .

Cost DriversGenerics for products used to treat pediatric ear and throat infections were commonly prescribed from this class . Suprax suspension and other formulations provided value (neutral or negative cost impact) at a relatively low net cost, particularly compared to cefixime, the generic for Suprax. The negative impact of this class ($0.03) reflected the decreased utilization in 2015 compared to the previous year .

The continued declining cost of cefdinir suspension contributes a negative ($0 .03) to the class impact on average spend . The

dispensing of cefixime suspension is not advised in Medicaid, as evidenced by its positive $0 .03 value (see Figure 17) .

Additionally, evidence continued to surface indicating increases in antibiotic resistance . This evidence was likely a contributing factor in the overall reduction of antibiotic usage . According to an update by the FDA, “Antibiotic resistance is a growing public health concern worldwide . When a person is infected with an antibiotic-resistant bacterium, not only is treatment of that patient more difficult, but the antibiotic-resistant bacterium may spread to other people .”7

7. Combating antibiotic resistance. U.S. Food and Drug Administration website. www.fda.gov/ForConsumers/ConsumerUpdates/ucm092810.htm. Accessed July 12,2016.

FIGURE 17: Antibiotics Market Share Changes and Dollar Impact 2014-2015

209= 20.9%224= 22.4%

208= 20.8%198= 19.8%

163= 16.3%164= 16.4%

160= 16.0%170= 17.0%

88= 8.8%88= 8.8%

Amoxicillin/clav . tablet (oral)

Cephalexin capsule (oral)

Amoxicillin/clav . suspension (oral)

Cefdinir suspension (oral)

Cephalexin suspension (oral)

($0 .03)

($0 .02)

$0 .00

$0 .00

$0 .01

Cefixime suspension (oral)

Suprax capsule (oral)

Suprax suspension (oral)

Cefdinir capsule (oral) 50= 5.0%56= 5.6%

48= 4.8%35= 3.5%

3= 0.3%7= 0.7%

0= 0%5= 0.5%

($0 .01)

($0 .01)

$0 .00

$0 .03

Management StrategyThere are few remaining cost-effective brands in this class, so listing generics as preferred is an appropriate strategy . However, there are the brand-over-generic situations to

monitor, such as with Suprax, as well as the opportunity for savings by comparing the cost-effectiveness of generics that are used for the same conditions .



NOTABLE MARKET EVENTS

Notable Market EventsThe 2014 to 2015 time period was tumultuous for Medicaid administrators . CMS’ release of the average manufacturer price (AMP) final rule (published January 2016) included many new guidelines for states to implement . States continued to deal with other considerations stimulated by the Affordable Care Act (ACA), such as the determination of whether to continue fee-for-service pharmacy benefits or hire managed care organizations (MCOs) to take on that responsibility . However, the top priority of Medicaid pharmacy departments was the management of hepatitis C treatment. Pressure to provide access to new, more effective therapies from providers, advocacy groups, manufacturers, CMS, and politicians continues to make this class a budgetary nightmare for administrators due to the calculus of cost and volume .

Patients and providers eagerly awaited alternatives to existing treatments, particularly interferon-based products . Interferon’s injectable route of administration, prolonged duration of therapy, and spotty effectiveness led providers to warehouse hepatitis C patients in hopes that pharmaceutical advances would lead to greater adherence and effectiveness. Any excitement from Medicaid departments for Sovaldi’s launch in December 2013 was quickly muted by the price charged by the manufacturer . Subsequent oral product launches did nothing to reverse this practice . Instead of relieving the public of a health crisis, states had the issue compounded by a financial one.

States agreed with the clinical guidance on oral hepatitis C products, such as the American Association for the Study of Liver Diseases (AASLD) guidelines . As more products launched, interferon-based regimens were left behind as alternative treatment at best. The financial component forced most states to restrict availability of treatment by use of prior authorization, a common and accepted practice . Because of the extreme financial situation, criteria for approval took the additional step of going beyond clinical considerations . Representative criteria included advanced disease (evaluated by liver fibrosis scores) as states sought to treat the sickest patients first due to limited financial capabilities. This reflected the AASLD guidance at the time that highest priority for treatment be given to patients at high risk for liver-related complications .8 Many states sought long-term financial protection as well. To make sure treated patients were ideally situated for full recovery, states included criteria that mandated patients have negative drug toxicity screens and/or be assigned lifetime

limits of one treatment course with a hepatitis C product . Some states even required physicians to attest that, in their judgment, the patients were ready to treat . While these were fiscally responsible moves by states, their interpretation as a mandate on lifestyle modifications led to other problems.

State Medicaid hepatitis C management blowback caused a nationwide uproar . Advocacy groups organized protests at public meetings. Lawsuits were filed in multiple states over patient access and were threatened in many more . Manufacturers pushed states for increased access to patients . CMS delivered a letter to states that admonished the use of lifestyle modification criteria in their treatment pathways. States have considered all of these arguments and adjusted access to hepatitis C products to varying degrees, but efforts at alleviating the financial burden have not been as successful over the same time period .

CMS did not limit its concern over patient access to just state Medicaid programs . The delivery of CMS’ letter to states was conducted concurrently with formal communication to each manufacturer of an oral product used for hepatitis C genotype 1, which encouraged the lowest prices be given to state Medicaid programs .9 This occurred even before the Senate Finance Committee released its report, “The Price of Sovaldi and Its Impact on the U .S . Health Care System,”10

which admonishes the manufacturer for its pricing practices . The report went on to hint toward future legislative action if manufacturers do not price their drugs responsibly .

Two years into this era of hepatitis C treatment, there are now several oral drugs to treat genotype 1, the most common form of hepatitis C . Competition for market share has driven the cost down for states . As a direct result of lower net cost, access is expanding to larger groups of Medicaid recipients with the disease . However, even with lower net costs, the volume of patients who need treatment continues to make this class of products a huge burden to budgets and Medicaid administrators’ time . From the administrators’ standpoint, a valuable outcome of this experience has been increased vigilance over the pharmaceutical pipeline . There are already other breakthrough therapy drugs poised to become the successors to the hepatitis C experience . Similar manufacturing pricing practices would likely lead to a case of history repeating itself .

8. HCV treatment recommendations now includes information on prioritizing patients under limited resources. Press release. HCV Guidelines. www.hcvguidelines.org/sites/default/files/When_Whom_to_Treat_Press_Release.pdf. Accessed July 12, 2016.

9. All letters located at Medicaid.gov website: www.medicaid.gov/medicaid-chip-program-information/by-topics/benefits/prescription-drugs/hcv-communication.html.

10. The price of Sovaldi and its impact on the U.S. health care system. Committee on Finance, U.S. Senate. www.finance.senate.gov/imo/media/doc/1%20The%20Price%20of%20Sovaldi%20and%20Its%20Impact%20on%20the%20U.S.%20Health%20Care%20System%20(Full%20Report).pdf. December 2015. Accessed July 12,2016.


Medicaid Legislative Updates

MEDICAID LEGISLATIVE UPDATES

AMP/OUTPATIENT DRUG FINAL RULEAverage manufacturer price (AMP) was redefined by the ACA as the average price that (1) wholesalers pay to a manufacturer for a drug distributed to retail community pharmacies, and that (2) retail community pharmacies pay for drugs purchased directly from the manufacturer. This definition excludes such dispensing outlets as mail pharmacies, clinics, and hospital pharmacies. AMP, therefore, reflects the average purchase prices from the largest wholesalers and retail chains . AMP is used primarily to compute a pharmaceutical manufacturer’s Medicaid rebates. AMP also affects a drug’s 340B price. Based on the ACA’s changes to the Medicaid drug program, CMS issued a long-awaited final rule on Medicaid Covered Outpatient Drugs,11 which among other changes, requires use of actual acquisition cost for pharmacy reimbursement for those products without federal upper limits (FULs) and provides more clarity around the implementation of FULs for multiple-source drugs .

Actual Acquisition CostAn acquisition cost approach computes a pharmacy’s ingredient cost reimbursement based on data collected directly from pharmacies. In the final rule, CMS replaced the term estimated acquisition cost (EAC) with actual acquisition cost (AAC) and now requires states to begin paying pharmacies based on the AAC of the drug. Specifically, the regulation establishes that for brand-name drugs and drugs without a FUL,12 reimbursement must not exceed, in the aggregate, the lower of either of the following:

• AAC plus a dispensing fee established by the agency

• Providers’ usual and customary charges to the general public

CMS provides the following guidance in applying this requirement when drugs are purchased through federal programs:

• Purchased through 340B . For drugs purchased through the 340B program, reimbursement should not exceed the 340B ceiling price . The requirement to reimburse at no more than the 340B ceiling price will apply regardless of whether the reimbursement is made to a 340B covered entity or its contract pharmacy .13

• Purchased through the Federal Supply Schedule (FSS) . For drugs purchased through the FSS, reimbursement should not exceed the FSS price .

• Purchased through the Indian Health Service (IHS)/Tribal providers . States that pay IHS and Tribal providers through encounter rates can continue to pay at that rate since this will satisfy the requirements in §447 .518(a)(2) .

States have until April 2017 to modify their state plan amendments as needed .

Federal Upper LimitsIn the Medicaid program, certain multiple source drugs are subject to a FUL ― the federally established maximum amount that a state Medicaid agency can reimburse a pharmacy for dispensing a multiple source drug to a Medicaid patient. CMS’ final rule made these three important determinations relating to FULs:

1) A FUL would be calculated for each multiple source drug for which the FDA has rated three or more products therapeutically and pharmaceutically equivalent;

2) If the FUL amount is lower than the average retail community pharmacies’ acquisition cost for such drug product, as determined by the most current National Average Drug Acquisition Cost (NADAC) survey, CMS will use a percentage of the weighted average of the most recently reported monthly AMPs that equals the most current average acquisition costs paid by retail community pharmacies as determined by such survey; and

3) States must abide by the upper limit as an aggregate calculated as 175 percent of the weighted average of monthly AMPs, using the most recently reported monthly AMPs and AMP units, and eliminating single-source drugs .

In sum, FULs only apply to certain multiple source products, and CMS establishes NADAC as the FUL floor if NADAC is higher than 175 percent of AMP . However, states are not beholden to individual FULs and can reimburse individual products above or below any individual FUL, as long as payment in the aggregate does not exceed 175 percent of the weighted average of monthly AMPs . A state may pay more than the FUL amount for certain products as long as these payments are balanced out by lower payments for other products .11. Medicaid Program; covered outpatient drugs. Document citation: 81 FR 5170. Federal

Register website. www.federalregister.gov/articles/2016/02/01/2016-01274/medicaid-program-covered-outpatient-drugs. Accessed July 12, 2016.

12. A FUL would be calculated for each multiple source drug for which the U.S. Food and Drug Administration has rated three or more products therapeutically and pharmaceutically equivalent.

13. This effectively carves all Medicaid-purchased 340B drugs out of the Medicaid program, meaning they will not be eligible for rebates under the Medicaid Drug Rebate Program, due to the prohibition of duplicate discounts; however, it ensures that Medicaid itself benefits from the 340B discount.


MEDICAID LEGISLATIVE UPDATES

OPIOID CRISIS AND MEDICAID PRESCRIBING PRACTICES

CMS Recommendations to Medicaid AgenciesIn response to the nationwide opioid crisis, state Medicaid agencies are limiting how providers can prescribe opioids in an effort to curb the disproportionate number of beneficiaries who are at risk of overdose and death.

CMS reports that Medicaid beneficiaries are prescribed painkillers at twice the rate of other patients and are at three to six times the risk of opioid overdose .14

As such, CMS recommends various steps for Medicaid programs to limit unnecessary or dangerous use of opioids, specifically methadone, through the following:

• Provider Education: States can improve opioid medication prescribing and dispensing practices by: (1) supporting training for healthcare professionals (such as pharmacists, nurses, and other prescribers); (2) disseminating opioid prescribing guidelines that include protocols for safer prescribing of methadone; and (3) providing clinician feedback on prescribing .

• Preferred Drug List (PDL): CMS urges that states remove methadone for pain (outside of end-of-life care) from their preferred drug lists, which is consistent with CDC recommendations .

• Clinical Criteria: States may decide that methadone should remain a preferred drug while requiring edits that allow claims to be authorized for payment at the point-of-sale (POS) only when the recipient’s claims and/or diagnosis history satisfy each of the clinical criteria established to ensure appropriate utilization of the drug .

• Step Therapy: A Medicaid program may require the trial of another agent prior to the use of a specific drug. For example, a state that has methadone on its PDL may require that, before authorizing payment, an examination of the recipient’s claims history be performed to ensure that the recipient used another preferred, long-acting opioid for a specified duration before beginning methadone therapy.

• Prior Authorization: The criteria for prior authorization often reflect evidence-based standards. For example, prior authorization can help ensure that prescriptions for pain in doses higher than 30 mg of methadone per day (the recommended maximum daily starting dose) are appropriate .

• Quantity Limits: A state Medicaid agency may impose quantity limits on medications as a way to promote safe and appropriate use of a medication, ensuring that they are not overprescribed .

• Drug Utilization Review (DUR): Retrospective and concurrent DUR measures can be used to identify potentially inappropriate prescribing practices . CMS notes the availability of the Pharmacy Quality Alliance’s three measures of potential opioid misuse and abuse . These measures include

receiving opioids: (1) at high dosage, (2) from multiple prescribers and pharmacies, and (3) at high dosage and from multiple prescribers and pharmacies . CMS encourages states to consider implementing programs that provide ancillary care for beneficiaries diagnosed with chronic pain who have been found to be receiving unusually high doses of opioids and seeing multiple prescribers or pharmacies .

• Increase Access to and Use of State Prescription Drug Monitoring Programs (PDMPs): PDMPs collect data from pharmacies, outpatient hospital pharmacies, outpatient clinics, and other data submitters on dispensed, controlled-substance prescriptions . To oversee its PDMP, each state designates an agency that may include, but is not limited to, health departments, pharmacy boards, or a state law enforcement agency . In addition, each state controls who will have access to the database and for what purpose . Authorized users can obtain this data through a secure and electronically accessible database . PDMPs have been shown to be effective in preventing drug diversion.

• Patient Review and Restriction Programs (PPRs): If a Medicaid agency finds that beneficiaries have used Medicaid services at a frequency or an amount that is not medically necessary, as determined in accordance with utilization guidelines established by the state, the agency may restrict those beneficiaries to obtain Medicaid services from designated providers for a reasonable period of time . Medicaid programs can only impose these restrictions if they: (1) give patients notice and an opportunity for a hearing, (2) ensure that restricted patients still have reasonable access to Medicaid services, and (3) exclude emergency services from the restriction .

Comprehensive Addiction and Recovery Act (CARA)Congress passed the Comprehensive Addiction and Recovery Act (CARA) in July 2016 . CARA authorizes the Attorney General and Secretary of Health and Human Services to award grants to address the prescription opioid abuse and heroin use crisis, and for other purposes; however, CARA does not provide funding . Grants will need to be funded through the appropriations process . While CARA does not focus on Medicaid, it excludes abuse deterrent formulations of prescription drugs from the Medicaid additional rebate requirement for new formulations of prescription drugs .

340B ISSUESCongress established the 340B Drug Pricing Program in 1992, which requires pharmaceutical manufacturers to provide substantial discounts for sales of covered drugs to covered entities as a prerequisite to qualifying for Medicaid reimbursement .15

Since 1992, the program has largely been implemented through guidance instead of formal rulemaking and regulation


like most federal statutory programs . In 2014, the District of Columbia Circuit court held that the U .S . Health Resources & Services Administration (HRSA) does not have rulemaking authority for the 340B program, outside of civil monetary penalties, dispute resolution, and ceiling prices .16 Due to this ruling, HRSA was forced to convert its omnibus regulation ― intended to create clear and enforceable policies to govern the program ― into guidance, because it does not have explicit rulemaking authority . The guidance addresses key issues of the program such as patient eligibility, off-site facility eligibility, and Medicaid/340B duplicate discounts . At this time, it is unclear how HRSA will be able to enforce the guidance, if finalized.

Additionally, the Bipartisan Budget Act of 201517 created a site-neutral payment policy, which establishes that payment for off-campus provider sites built or bought after November 2, 2015, will be made under the Physician Fee Schedule (PFS) instead of the Outpatient Prospective Payment System (OPPS) to establish site-neutral payment . CMS is expected to implement this change in the calendar year 2017 PFS and OPPS rules; however, it is unclear when HRSA will provide guidance regarding 340B eligibility. If HRSA determines that off-campus provider sites paid under the PFS are not eligible for 340B discounts, program growth could begin to slow compared to projections .

HIGH-PRICED DRUGSTotal Medicaid spending for outpatient prescription drugs reflects the amount paid to pharmacies as well as any rebates the program receives from drug manufacturers. In fiscal year 2014, Medicaid spent approximately $42 billion on prescription drugs and collected about $20 billion in rebates, for net drug spending of $22 billion . Net spending for outpatient drugs accounted for about 5 percent of total Medicaid benefit spending.18

Despite program changes that have reduced state responsibility for drug costs (for example, creation of Part D drug benefit and increase in Medicaid drug rebates under the ACA), states are struggling with rising costs of specialty drugs . From 2013 to 2014, states saw significant increases in the annual percentage change for both brand and generic drugs; 17 .3 percent and 7 percent, respectively . The increase in the average spending per brand drug claim is due in part to the increase in use and price of high-cost specialty drugs . Specialty drug spending accounted for nearly 33 percent of the total Medicaid drug spend in 2014, despite only 0 .9 percent of the Medicaid population utilizing specialty medications .19 Hepatitis C, HIV, and rheumatoid arthritis drugs continue to top the list of specialty drugs contributing to high spend amounts . Data shows that competition in the hepatitis C space has driven down costs somewhat in 2015 compared to 2014 .20

States face unique budgeting challenges related to specialty drugs . Unlike the federal government, states must balance

budgets, and it can be difficult to predict how any single drug launch will affect the overall Medicaid budget. Further, due to statutory coverage requirements, states must cover approved uses of drugs regardless of cost, and have little ability to use cost-sharing or other utilization management tools to steer patients to lower cost alternatives . Prior authorization is the most commonly used tool; however, recently patient advocacy groups and CMS have called into question prior authorization requirements that limit the use of hepatitis C products more narrowly than the label (for example, higher level of liver decompensation or requirement of abstinence during coverage) .

There has been robust discussion about value or outcomes-based contracting as it relates to specialty drugs, particularly in Medicaid . However, due to best price regulations, manufacturers are largely unwilling to provide discounts or arrangements that risk breaking best price . As the national conversation over specialty drug pricing escalates, additional policy changes could come to alleviate some of the burden on state Medicaid programs .

ACA LEGACY IMPACT ON MEDICAID RX DRUG PROGRAMThe ACA changed the Medicaid drug program in two significant ways . First, the ACA increased the minimum amount of the rebate required under the Medicaid Drug Rebate Program . For innovator/brand-name drugs, the minimum rebate amount increased from 15 .1 percent to 23 .1 percent of AMP and to 17 .1 percent of AMP for certain clotting factors and drugs for pediatric indications . The ACA also increased the rebate percentage for noninnovator multiple source drugs/generic drugs from 11 percent of AMP to 13 percent of AMP . Second, the ACA extended, and the outpatient drug rule finalized, the application of federal Medicaid drug rebates to covered outpatient drugs provided to beneficiaries enrolled in Medicaid managed care if the managed care plan is contractually required to provide such drugs . Previously, the federal rebates were only available for drugs paid for by the state on a fee-for-service basis . As such, several states that previously carved the drug benefit out of managed care for rebate collection purposes are now carving drugs into the managed care benefit.

14. Best practices for addressing prescription opioid overdoses, misuse and addiction. CMCS Informational Bulletin. January 28, 2016.

15. Public Health Service Act. Pub. L. 78-410, 58 Stat. 682. / 42 U.S.C. § 256b.

16. Pharmaceutical Research and Manufacturers of America v. HHS, 43 F. Supp. 3d 28 (D.D.C. 2014).

17. Bipartisan Budget Act of 2015. Pub. L. 114-74, 128 Stat. 584.

18. MACPAC Medicaid spending for prescription drugs – Issue brief. January 2016. MACPAC analysis of FYs 2011–2014 data as reported by the states. Spending amounts comes from Medicaid drug rebate utilization data, as of September 2015, and rebate amounts come from CMS-64 data, as of February 2015.

19. MACPAC Medicaid spending for prescription drugs – Issue brief. January 2016. MACPAC analysis of CYs 2011–2014 Medicaid drug rebate utilization data as reported by states, as of September 2015.

20. Express Scripts 2015 Drug Trend Report Medicaid. March 2016.

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