Medicaid spending growth up as enrollment surge slows

National growth in Medicaid enrollment and total Medicaid spending slowed substantially in fiscal year (FY) 2016 and are projected to continue to slow, despite record increases in FY 2015. The decline occurs as the initial enrollment surge under the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) coverage expansions tapers off and prices for high-cost and specialty drugs rise, according to the Kaiser Family Foundation’s annual 50-state Medicaid Budget Survey.

Medicaid spending on the rise

The survey projects an increase in state Medicaid spending growth in FY 2017 related to the requirement that Medicaid expansion states begin paying a five percent share of expansion costs on January 1, 2017. Before this date, the federal government committed to paying 100 percent of expansion costs. In expansion states, the median growth in Medicaid spending is estimated to be 5.9 percent in FY 2017, up from 1.9 percent in FY 2016. In non-expansion states, state Medicaid spending is projected to increase by 4 percent in FY 2017, compared to 3.9 percent in FY 2016. Thus, the differential in rates across expansion and non-expansion states is narrowing continually. As growth in overall state revenues slows or declines, pressure to control Medicaid spending increases.

Continued delivery system reforms 

The survey also found that the majority of states are refining their pharmacy programs to control costs and are adopting or expanding strategies to deal with the opioid crisis. States are increasing reliance on managed care, with at least 75 percent of Medicaid beneficiaries enrolled in risk-based managed care organizations (MCOs) in the majority of states that contract with MCOs. Additionally, 29 states are adopting or expanding delivery system reforms, such as patient-centered medical homes and accountable care organizations (ACOs). Nearly every state reported actions to expand the number of people served in community settings.

Unit prices for drugs rising rapidly; more competition needed

Drug costs for hospital inpatients increased more than 38 percent per admission between 2013 and 2015, with unit pricing increasing both low- and high-volume branded and generic drugs, according to a report by the University of Chicago commissioned by the American Hospital Association (AHA) and the Federation of American Hospitals (FAH). Almost half of the drugs evaluated for the study had no generic competition.

The researchers conducted a survey of all U.S. community hospitals and analyzed the results of 712 that responded. Additionally, two group purchasing organization (GPOs) representing more than 1,400 community hospital contributed price and spending data on a subset of drugs to the study. Of the drugs sampled, many were high-volume drugs, and in most cases the drugs were not new entrants into the market.

Increases in unit prices outpace Medicare reimbursement

Between fiscal years 2013 and 2015, annual inpatient drug spending saw an increase of 23.4 percent on average—a per-admission increase of 38.7 percent. More than 90 percent of the hospitals involved in the study reported that the price increases had a moderate or severe effect on the ability to manage the cost of patient care overall; one-third reported that the effect was severe. Growth of the unit prices for drugs, and not volume, was the primary cause of the increase in drug spending. The report noted that, because of delays in updating the pharmaceutical index, Medicare reimbursement cannot keep up with the rapid rise in drug prices, and the method of reimbursement for hospitals—based on a single prospective amount for all non-physician services—compounds the impact of rising drug costs. In these cases, hospitals must absorb the excess costs.

AHA’s recommendations

To address these issues, the AHA recommends an increase in generic competition, improved transparency, the adoption of a value-based payment model for drug purchasing, increased access to needed drugs, and the alignment of incentives toward high value. With the goal of increasing generic competition, the federal government should appropriate additional resources to the FDA to process new drug applications and consider fast-tracking generic applications when no or limited generic competition exists. The AHA also recommends deeming pay-for-delay tactics presumptively illegal. Additionally, the lack of information available regarding drug pricing challenges payers’ abilities to make decisions regarding coverage and pricing. To address the issue, the AHA suggests increasing disclosure requirements related to drug pricing, research, and development at the time of application. Consumer- and provider-facing reports on drug pricing would help providers and consumers to make informed decisions.

The AHA argues that a value-based payment model for drug purchasing, under which payment varies for a drug based on clinical effectiveness for the indications for which it has been approved, would help drugs become more affordable for patients and providers. Thus, a comparative effectiveness evidence base would be critical to supporting providers in making care decisions. To improve access to needed drugs, the AHA recommends that the government allow providers and patients to reimport drugs that were manufactured in the U.S. and sent to other countries for sale and distribution and require mandatory, inflation-based rebates for Medicare drugs. Finally, the AHA argues aligning incentives toward high value by implementing stricter requirements on direct-to-consumer advertising, removing tax incentives for drug promotion activities, and developing prescriber education and clinical decision support tools.

Federal EpiPen® spending up 463 percent, Mylan misclassified drug as generic

Medicare and Medicaid spending on Mylan’s EpiPen increased by 463 percent from 2011 to 2015 not accounting for rebates and other point-of-sale concessions, from $86 million to $487 million. In a letter to the Senate Finance Committee, CMS Acting Administrator Andy Slavitt also indicated that the EpiPen has been improperly classified as a generic, rather than a brand-name, drug under the Medicaid Drug Rebate Program since the fourth quarter of 1997. CMS “expressly told Mylan,” which acquired the EpiPen from Merck in 2007, that the drug is misclassified. The misclassification has financial consequences for federal and state governments and could subject the manufacturer to liability under the False Claims Act (FCA) (31 U.S.C. § 3729, et seq.) and other penalties.

In September 2016, Senate Finance Committee Ranking Member Ron Wyden (D-Ore) and House Energy and Commerce Committee Ranking Member Frank Pallone, Jr., (D-NJ) notified HHS of its concerns that the EpiPen—the source of public outcry stemming from its shocking price increase—was improperly classified under the Medicaid Drug Rebate Program and that Mylan was receiving improper payments from Medicaid (see Mylan CEO highlights EpiPen® access improvement efforts before House committee, Health Law Daily, September 22, 2016; Mylan attempts to mitigate EpiPen® cost hike controversy, Health Law Daily, August 25, 2016). It asked HHS pointed questions about EpiPen’s classification under the Program, which requires participating drug manufacturers to enter into and maintain national rebate agreements with HHS in exchange for state Medicaid coverage of most of the manufacturer’s drug, and helps to offset federal and state costs of most outpatient prescription drugs dispensed to Medicaid patients.

In the October 2016 letter, Slavitt stated that the EpiPen is misclassified as a generic—non-innovator, multiple source—drug, despite the fact that it is approved under a New Drug Application (NDA) by the FDA, has patent protection, and has no therapeutic equivalents, making it properly classified as a brand—single source—drug. Slavitt indicated that brand drugs pay a rebate of the greater of 23.1 percent of the average manufacturer price (AMP) or the difference between the AMP and the drug’s best price. (The difference is increased by a rebate if the rate of increase of the AMP outpaced the rate of inflation.) The rebate for generic products, however, is only 13 percent of the AMP. Mylan thus paid less in rebates than it should have. Slavitt noted that manufacturers that fail to accurately report product and pricing data and pay inadequate rebates may be subject to FCA liability, penalties of up to $100,000 per item of false information, and other government claims.

In February 2016, CMS issued the covered outpatient drug final rule, which stated that covered outpatient drugs approved by the FDA under an NDA must be reported as brand drugs, and will be classified as brand drugs by default, until the manufacturer applies for, and CMS grants, an exception to classify the drug as generic (see CMS paves the way for bigger, better Medicaid drug rebates, Health Law Daily, February 1, 2016). Manufacturers of drugs currently reported as generic, but marketed under an NDA, have until March 31, 2017, to submit an exception request before CMS takes administrative action.

In response to CMS’ letter, Wyden and Pallone noted, “While Mylan irresponsibly raised the price of EpiPen, they were also bilking taxpayers out of millions of dollars” (see Mylan calculatedprofitability using 37.5% tax it doesn’t pay, Health Law Daily, September 27, 2016; Mylan and Congress agree:the epinephrine auto-injector market needs a generic, Health Law Daily, August 30, 2016). They stated that Mylan and other drug companies must take responsibility for their actions to keep “essential medicines” from families, and pledged to get taxpayers their due.

Highlight on Georgia: State focused on promoting access to care

Georgians have received several pieces of good health care access news lately as the state works ensure that young adults and those living in rural areas get the care they need. Despite constant financial concerns surrounding health care, the state seems to be making it a priority.

Rural Healthcare 180

Rural Healthcare 180 is an effort to promote the new donation program that gives tax credits to both individuals and corporations that make donations to rural hospitals. Kim Gilman, chief executive of Phoebe Worth Hospital and Southwest Georgia Regional Medical Center, said that the hospitals need to upgrade expensive equipment and provide raises to employees.

In total, 48 rural hospitals are eligible to receive the donations. Tax credits will be supplied for donations of up to $4 million, with caps starting at $50 million in 2017 and increasing by $10 million each year for the next two years until program expiration. The potential of additional funding will hopefully address the crisis, as many rural hospitals seem to be set for the same fate as the five that have closed in the past four years.

Mental health center expansion

A new Atlanta campus of a mental health facility will open in October, adding 32 beds for young adults aged 18 to 26. This Rollins Campus, named for a gift received from the O. Wayne Rollins Foundation, is Skyland Trail’s second Atlanta campus. The nonprofit treatment organization operates 48 beds, and 60 percent of patients treated are young adults. Older adults have found Skyland Trail to be a lifeline, including a 63-year-old physician who reported experiencing her first psychotic episode at 56 years of age. She spent five months at Skyland Trail, where she attended to more than her mental health and was able to lose weight through the organization’s nutritional program.

State could be an example for EpiPens® in schools

In the wake of the EpiPen pricing controversy and stories about children in schools denied access to their own pens, Georgia’s approach may offer solutions to ensure safety in situations where students might be unknowingly exposed to food allergens. Karen Harris, mother to three children with severe allergies, founded Food Allergy Kids of Atlanta (FAKA) in 2007 in order to unite families like her own. Her goal is to ensure that this “first-line treatment” is accessible to everyone with any type of allergies.

In 2013, Georgia Governor Nathan Deal (R) signed the Emergency Epinephrine Act, which was introduced by Senator Chuck Hufstetler (R-Rome) and backed by FAKA. The law encourages (but does not require, unlike some states’ legislation) schools to stock EpiPens for emergency use, and authorizes providers to write a prescription in the name of a school. The law also protects anyone who uses the medication in good faith through its good Samaritan provision. A second piece of state legislation allows professionals to prescribe EpiPens for many public entities, including churches, restaurants, and arenas, provided that they register with the state. According to Georgia Health News, only 12 non-school entities have registered, and the article points out that no discount programs are offered to these entities.

Although some are concerned about parents depending on school-stocked pens and failing to provide for their children’s needs, a Georgia school nurse was thankful that they were able to receive donated pens through Mylan’s school program. She noted that in rural settings, quick access to epinephrine is vital when hospitals are some distance away. She has trained 25 teachers to administer the medication in the event of anaphylaxis.