Status Report: Medicaid Preferred Drug List Program and Maximum Allowable Cost (MAC) Pricing

1. 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, Director Department of Medical Assistance Services January 26, 2004 Richmond, Virginia

2. Presentation Outline Background Development of Preferred Drug List (PDL) Program Status of PDL Program Maximum Allowable Cost (MAC) Pricing Program

3. 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.

4. Fee-For-Service (FFS) Pharmacy Costs Have Increased 111% Since 1997 Annual FFS Pharmacy Costs (Millions) Net of drug rebates Source: Statistical Record of the Virginia Medicaid Program

5. FFS Pharmacy Costs As A Percentage of Total Medical Costs Is Increasing FFS Pharmacy Costs As A Percentage of Total Medical Costs Source: Statistical Record of the Virginia Medicaid Program

6. Presentation Outline Background Development of Preferred Drug List (PDL) Program Status of PDL Program Maximum Allowable Cost (MAC) Pricing Program

7. 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.

8. 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

9. Role of P&T Committee • The P&T Committeeshall 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

10. Members of P&T Committee MemberBackground • 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

11. 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 Cost Consideration Preferred Drugs NO PDL PA Required Non-Preferred Drugs Drug requires PA PDL Development Process

12. 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

13. 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

14. 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

15. Presentation Outline Background Development of Preferred Drug List (PDL) Program Status of PDL Program Maximum Allowable Cost (MAC) Pricing Program

16. 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

17. 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

18. 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 Drug Classes To Be Added to PDL Program in April 2004

19. 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

20. 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

21. 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?

22. Presentation Outline Background Development of Preferred Drug List (PDL) Program Status of PDL Program Maximum Allowable Cost (MAC) Pricing Program

23. 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

24. 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