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Governor Baker (center), and Health Secretary Sudders (left) at an opioid abuse conference in April.

Massachusetts has a budget crisis, and Medicaid is the primary suspect. Since 2010, prescription drug costs have increased by 13 percent every year, and the state’s Medicaid program, MassHealth, makes up nearly 40 percent of the state’s budget.

In a September letter to the  Center for Medicare and Medicaid Services, Marylou Sudders, Massachusetts Secretary of Health and Human Services noted, “MassHealth’s continued growth will constrain the state budget unless significant reforms are implemented and key aspects of the program are restructured.”

To reduce costs, Massachusetts is requesting federal approval to give the state greater discretion over the drugs MassHealth covers. Specifically, the state plans to establish a closed formulary, a list of medications for various conditions, to determine which drugs MassHealth covers. Under this program, if two drugs cover the same condition equally well, the state can choose to only cover the less expensive drug. Furthermore, by increasing insurers’ demand for cheaper options, the formulary incentivizes drug companies to provide less expensive medication.

If approved, this reform could significantly lower healthcare costs in the state, and set the stage for nationwide efforts to develop formularies and lower drug costs. However, if the plan fails to consider the unique needs of all patients, some consumers could be stuck with inadequate coverage.

Currently, MassHealth has little discretion in determining which drugs it covers. If a pharmaceutical company offers the federally mandated discount, the Medicaid program likely covers the drug to some extent. Compared to private insurance agencies that use formularies, states have little room to lower costs.

The state’s formulary request includes patient protections: insurers must cover at least one medication for every condition, and they must allow exceptions if the covered drug does not work for a patient. In other words, if a patient experiences adverse side effects from a covered drug, the insurer must offer coverage on an alternative medication.

Furthermore, in order to eliminate newer, more costly drugs from the program, the state wants to eliminate coverage of some drugs that the FDA approved through a looser testing process. Currently, Medicaid covers any drug approved by the FDA as long as it provides the federally mandated rebate. With the federal government’s approval, the state would work with the University of Massachusetts Medical School to develop a stricter approval process.

Still, it remains unclear whether Massachusetts will receive permission to implement the program. The CMS has not said when a final decision will be reached. Several states made similar requests under the Obama administration and were denied. Earlier, the Trump administration seemed interested in tackling rising drug prices, but has done little to work on the problem. Even if the waiver is granted, writing and implementing a formulary could take a long time.

If Massachusetts is able to develop a formulary, it could greatly reduce costs for the state and taxpayers. “Some medications are valuable and helpful and others are not. We see these in Medicare Part D. We use this tool in most other types of health insurance,” Benjamin Sommers, associate professor of medicine at Brigham and Women’s Hospital and Harvard Medical School, told the HPR. Medicare Part D plans create their own formularies that are approved by the CMS. These plans can also incentivize consumers to purchase the less expensive drugs by charging a higher copay for some drugs. With a formulary, drug companies would have to lower prices in order to receive Medicaid coverage.

However, if executed improperly, the changes pose risks to both consumers and producers in the healthcare market. As Sommers noted, while Massachusetts has shown great support for offering strong healthcare, “implementation in other states could be used as an excuse to cut back on spending.” Drug companies will also oppose this plan, as Medicaid won’t have to cover their products.

Moreover, the waiver will face opposition from consumers who may be left without coverage. Drugs are not always interchangeable, and a formulary could limit patient options. The changes could adversely affect a vulnerable population of low-income Americans who rely on Medicaid to cover their prescription drugs. so covering patients with exceptional circumstances will be crucial to maintaining the system’s fairness.While Sommers noted that that a waiver system is in place to ensure that all patients can access the drugs they need, “what it looks like on the page versus in practice is not clear.”

Ultimately, the application of this policy comes down to the details. If done correctly, the state could reduce costs and implement a strategy used in most other areas of health insurance.

With its strong healthcare system, Massachusetts offers a sound laboratory for experimenting with this coverage. If the plan proves effective, other states could implement the changes as well, forcing drug companies to lower drug costs across the country.  

However, as states develop their own formularies, the CMS remains critical to protecting patients’ needs.  In order to achieve the desired reduction in costs without removing patients’ much-needed coverage, the CMS must hold all states to the same standards as Massachusetts.   

Image Credit: Flickr / Massachusetts Executive Office of Health and Human Services / Lucyus Fevrier 

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