Michigan Medicaid Pharmacy Cost Containment Paul Reinhart, Director Medical Services Administration Michigan Department of Community Health October 8, 2004

2 Conclusions Preferred drug list program has reduced the rate of growth in Medicaid pharmaceutical spending Savings will grow as more states join the new multi-state initiative No adverse beneficiary impact Medicare pharmacy reform will have both positive and negative impact on states

3 “Medicaid is the bleeding ulcer of state government.” State Rep. Marc Shulman Detroit News, April 19, 2004

4 Growth in Michigan Medicaid Vs. Growth in Michigan Revenue Medicaid Revenue

5 Michigan Medicaid Caseload ,071,900 1,401,800* Previous Record *August

6 Pharmacy Expenditures

7 Michigan Medicaid Pharmacy Cost Containment

8 Medicaid Fee for Service FY03 Pharmaceutical Spending FFS Pharmacy $620 Million All Other Spending $6.4 Billion

9 Medicaid Pharmacy Program Prior to PDL Pre-PDL Preferred DrugsSome Generics Federal RebateYes Supplemental Rebate No Pharmacist Payments AWP, MAC, etc.

10 Medicaid Pharmacy Program After PDL Pre-PDLPost PDL Preferred DrugsSome GenericsLarger List Federal RebateYes Supplemental Rebate NoYes Pharmacist Payments AWP, MAC, etc.Same

PDL Limited to Michigan Pharmacy and Therapeutics Committee identified clinically necessary drugs in 40 drug classes Contractor (First Health) negotiated supplemental rebates Clinically necessary and drugs with supplemental rebates are not subjected to prior authorization

12 Annual Cost Per Script Increase

13 Estimated Pharmacy Cost Containment Savings

14 Preferred Drug List Impact on Beneficiaries

15 Prior Authorization Denials 14,300,000 claims 106,000 prior authorization requests 39,000 approved by technician 61,000 approved by pharmacist 3,500 approved by state physician 2,500 denied by state physician 1 denial reversed after administrative appeal

16 Multi-State Preferred Drug List Program

17 Michigan Multi-State Pooling Agreement Approved by the federal government on April 22, 2004 States in the initial pool: Michigan, Vermont, Nevada, Alaska, New Hampshire Hawaii and Minnesota state plan amendments approved in September

18 “Matrix” Bid Theory: More Lives, More Exclusivity = Lower Cost Lives1 of 11 of 21 of 31 of 4 < 3 m$1.00$1.10$1.20$ – 6 m$.90$1.00$1.10$ – 9 m$.80$.90$1.00$1.10 > 9 m$.70$.80$.90$1.00  More Exclusivity  More Lives

19 Medicare Prescription Drug, Improvement, and Modernization Act of 2003

20 Impact on Medicaid January 1, 2006 federal government assumes responsibility for processing claims for dual eligibles Dual eligibles account for over 2/3 of our fee-for-service pharmacy spending “Clawback” requires states to pay federal government for dual eligibles Could increase state costs

21 “Clawback” Will Increase Michigan’s Costs

22 Other MMA Impacts New state administrative costs Reduced state pharmacy bargaining power State pharmacy assistance program savings State pharmacy assistance coverage expansion opportunities

23 Conclusions Preferred drug list program has reduced rate of growth in Medicaid pharmaceutical spending Savings will grow as more states join the new multi-state initiative No adverse beneficiary impact Medicare pharmacy reform will have both positive and negative impact on states