System Wide Strategies: Controlling Costs in Medicaid

1. System Wide Strategies: Controlling Costs in Medicaid Brendan Krause National Governors Association Illinois Health Forum Wednesday, December 7, 2005

2. What’s causing Medicaid growth • Increase in caseloads • Slowdown in economy (after effects of recovery) • Nursing homes and LTC • Increase in Rx and medical technology utilization • Expensive caseloads/Chronic Illness

3. Cost Containment Approaches • Control Long-Term Care Costs • Improve Administration/Management (purchasing strategies, brokerage models, purchasing pools). • Enhance Fraud and Abuse Efforts • Increase cost-sharing • Decrease reimbursements • Change Benefits, Eligibility • Disease/Care Management/Prevention • Rx Benefit-PDLs, Supplemental Rebates

4. Prescription Drug Trends—What’s Happening in the States and Why? • Rx spending is about 11 percent of healthcare spending overall—a little more than 10 cents of the health care dollar • Rx spending grew 9.1 percent in 2003 – (substantially lower than the 2002 increase of 13.2 percent and less than half the 1999 peak increase of 18.4 percent)—Health Affairs • Role of Rx in Medicine increasing

5. Medicaid Rx Management • Medicaid Rx Purchased through a Rebate Agreement between Medicaid and Rx Manufacturers) • Medicaid gets the “best price” • Limits to purchasing arrangements that Medicaid can form • Limits to utilization management • Limits to cost sharing for beneficiaries—amount and enforceability • No closed formularies

6. What are the Tools? • Prior Authorization • Preferred Drug Lists and Supplemental Rebates (about half) • Generally exemptions for mental health, cancer, HIV/AIDS drugs • Evidence based • PAL—Prescription Advantage List (ie. NC—list of prescriptions preferred by Medicaid—no PA)

7. What are the Tools? • Generic Substitution (rebate caveat, mandatory vs. encouraged) • When available, the average price of a generic is 70 percent less than that of a brand name drug. • Cost Sharing (nominal rates $0-3 apply) • Prescription limits and Drug Exclusions • At least 40 states limit the amount of a medication dispensed to a patient at one time, 24 limit refills, 12 limit the number of monthly or annual prescriptions, and one uses a spending cap. • Mail Order Pharmacy for Maintenance Medicines

8. Purchasing Strategies • Multi- or Inter-State • Across state Medicaid Programs • MI, VT, AK, NH, NV, MN, HI, MT • LA, MD, WV • Across State Employee/Retiree Benefit Programs • DE, MO, NM, WV • Intra-State • Across State Agencies and Programs • Negotiated Discounts for Low-Income and/or Uninsured Residents • Other

9. Disease/Care Management of the Chronically Ill • Chronic disease as a cost driver • Patients who have chronic illness Chronic disease changing face of primary care practice • Lack of adherence to evidence based standards • State role in convening, facilitating standard setting, measurement

10. State Options • Make • Build infrastructure, generally through PCCM model • Buy • Contract with a vendor for case management services, software • Assemble • A make/buy combination

11. State Models • Indiana • Chronic Disease Management Initiative with Diabetes, Asthma, and CHF. • Future initiatives—hypertension,HIV/AIDS • North Carolina • Community Care of North Carolina (CCNC) • Provider networks that manage asthma, diabetes, ER use, and Rx utilization for Medicaid patients statewide

12. What’s Next? • The Medicare Modernization Act and the States • Medicaid • SPAPs • Clawback/Phased Down State Contribution • Retiree Benefit Subsidy • More interest in multi-state purchasing and benefits management • More focus on quality and outcomes—and purchasing accordingly