EFFECTIVE PREFERRED DRUG LISTS

1. EFFECTIVE PREFERRED DRUG LISTS National State Attorneys General Program of Columbia Law School Presented by J. Kevin Gorospe, Pharm.D. Chief, Pharmacy Policy California Medicaid

2. Formularies v. Preferred Drug List • Terms often considered to mean the same thing • Perspective different between private sector and Medicaid • Statutory differentiation in the Social Security Act • Method of PDL implementation is different in private and public sector • Medicare Part D is a hybrid of public and private sector PDL implementation

3. Formularies • Traditionally a formulary can be closed or open • Open – everything is available with few or no restrictions • Closed – products can be excluded , i.e. non-benefits • Social Security Act, section 1927 provides specific requirements for a formulary under Medicaid

4. Formularies • Provides ability to exclude drugs from coverage • Requires written explanation available to the public • Provides for prior authorization • Committee meetings are generally open to the public

5. Preferred Drug Lists • Benefits are typically tiered (private sector) • Tier selection primarily a financial decision • Typical 4 tier benefit – generic, preferred brand, non-preferred brand, and non-covered drugs • Co-payments provide patient centric decision making through lower co-payments for less expense drugs • Drug selection in various therapeutic categories can be limited

6. Preferred Drug Lists • Private sector relies heavily on mail order to lower costs • Drug selection in various therapeutic categories often limited • Cost more often the primary driver of decisions • Generic heavy (only?) PDL

7. Medicaid PDL • Prior authorization programs as described in the Social Security Act • Almost all drugs are benefits • Typically two tiers, prior authorization and non-prior authorization • Lack of co-payments and entitlement do not provide for cost-effective patient decision making

8. Medicaid PDL • Utilization control driven by the Medicaid program • PDL created differently • Two general designs: • Non-PA to PA vs. PA to Non-PA • Both are acceptable to CMS • One should provide better control

9. Non-PA to PA • All drugs start out available without PA • May have some utilization controls • Individual drug or categories of drugs reviewed • Drugs moved to PA only based on review • Decisions based on evidence and cost factors

10. PA to Non-PA • All drugs start out available through PA only • Individual drug or categories of drugs reviewed • Drugs moved to PDL only based on review • Decisions based on evidence and cost factors • This is Medi-Cal’s design

11. Drug Reviews • Begin with: • Manufacturer petitions – a letter, FDA approval document and official labeling • Medi-Cal self initiates drug or category review • AMCP dossier and other documents follow • Request for input is sent to the Medi-Cal Contract Drug Advisory Committee (MCDAC) for input • Physicians (3) • Pharmacists (3) • Beneficiary representative (1) • MCDAC provides written input – advisory only

12. Drug Review • A pharmacist is assigned as primary reviewer • Meeting arranged with manufacturer representatives • Therapeutics – Evidence Based! • Cost proposal • Primary reviewer prepares documents to address the 5 criteria

13. The Criteria • Efficacy – how well does it work? • Safety – how safe is it? • Misuse Potential – overuse or inappropriate use? • Essential Need – does it need to be available without PA? • Cost – what is the cost effectiveness?

14. Evidence Based • Clinical features are reviewed using a variety of literature resources • Studies – published and un-published • Compendia – statutorily mandated • Personal contact with practitioners • Input from MCDAC

15. Evidence Based • Provides a clinical assessment of 4 of the 5 criteria • Any single criterion can be the overriding emphasis on approving or denying a drug addition to the PDL • Discussions are internal – pharmaceutical consultant staff only

16. Cost as THE Criterion • When the efficacy, safety and misuse do not distinguish one drug from another • Lack of an essential need for a drug • Less costly alternatives available • Can a manufacturer buy their way onto the PDL • What does “COST” truly mean • Manufacturer’s definition • Medi-Cal’s definition

17. Cost as THE Criterion • What does “COST” truly mean • Manufacturer’s definition • Price competitive with other drugs OR • Other health savings • Sometimes both? • Net cost to the manufacturer is their primary concern

18. Cost as THE Criterion • Medi-Cal’s definition • Price competitive with other drugs/medical interventions AND • Provides improved outcomes which lead to • Improved health resource use AND • Cost effectiveness is sustainable over time

19. Addressing Drug Cost • Net Cost has two components • Payment to pharmacies • Discounts from manufacturers • Pharmacy reimbursement • Contractual in the private sector • Set by statutes and state plans for Medicaid • Profit margins for pharmacies small compared to manufacturers

20. Manufacturer Rebates • Discounts = Rebates • Federally required rebate in Medicaid • State supplemental rebates obtained through contracting associated with drug review • Allowed by state and federal statutes • How successful has Medi-Cal been?

21. Medi-Cal Budget Numbers • Pre-Medicare Part D • Expenditures - $4.8 Billion • Federal Rebates - $1.4 Billion • State Rebates - $0.7 Billion • Post Medicare Part D • Expenditures - $3.1 Billion • Federal Rebates - $0.8 Billion • State Rebates - $0.4 Billion

22. Rebates • Rebates 38% of gross expenditures • Supplemental 13% of gross expenditures, previously 15% • Not all drugs have supplemental rebates; primarily brand name drugs on the PDL • 82% of expenditures are for brand name drugs, but only 37% of the drug claims • Shift to generic drugs – reimbursement changes needed

23. Barriers to an effective PDL • Ineffective prior authorization program • Non-PA to PA design – continuing care • Mandatory coverage of drug categories • HIV/AIDS • Cancer • Mental Health • Diabetes • Lack of a evidence based review

24. Barriers to an effective PDL • Cost is THE criteria trap • Use of Pharmacy Benefit Management companies • Inability to move market share • Group purchasing (multi-state) coupled to individual state PDL • Lack of follow-up analysis

25. Follow-up • Was the decision correct? • What are the clinical outcomes? • System to capture and analyze data • Use of standards to apply data findings to • Establishing new standards • Educating providers and patients • Medi-Cal recognized this deficiency and is changing the dynamic

26. Outcomes • Commit resources to analysis • Data tools to enable work • Rebate Accounting and Information System • Data Mining software • Commitment of staff • Use of outside consultants (DUR) • Education of providers, patients and family – CalMEND as a model

27. Innovation “A government that robs Peter to pay Paul can always depend upon the support of Paul.” -George Bernard Shaw