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

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

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

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

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

7. Medicaid PDL Prior authorization programs as described in the Social Security Act Prior authorization programs as described in the Social Security Act Almost all drugs are benefits Almost all drugs are benefits Typically two tiers, prior authorization and non-prior authorization Typically two tiers, prior authorization and non-prior authorization Lack of co-payments and entitlement do not provide for cost-effective patient decision making 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 Utilization control driven by the Medicaid program PDL created differently PDL created differently Two general designs: Two general designs: Non-PA to PA vs. PA to Non-PANon-PA to PA vs. PA to Non-PA Both are acceptable to CMS Both are acceptable to CMS One should provide better control One should provide better control

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

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

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

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

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

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

15. Evidence Based Provides a clinical assessment of 4 of the 5 criteria 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 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 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 When the efficacy, safety and misuse do not distinguish one drug from another Lack of an essential need for a drug Lack of an essential need for a drug Less costly alternatives available Less costly alternatives available Can a manufacturer buy their way onto the PDL Can a manufacturer buy their way onto the PDL What does “ COST ” truly mean What does “ COST ” truly mean Manufacturer ’ s definition Manufacturer ’ s definition Medi-Cal ’ s definition Medi-Cal ’ s definition

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

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

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

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

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

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

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

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

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

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