Breaking the Bottleneck: Modernizing Medicaid Drug Access in the Million Dollar Therapy Era

I vividly remember my first day at NAMD when I started in the spring of 2014. The then-Executive Director met me at the door, welcomed me to the team, and then – before I’d made it a few steps into the office – told me what one of my first projects would be: supporting Medicaid agencies in managing a new, exciting, and expensive curative treatment for hepatitis C. From that moment on, navigating the challenges of high-cost drugs has remained a core part of my work and the work of several teams at NAMD. As I reflect on the high-cost drug issues NAMD tackled in 2014 and the decade since, I grow concerned that too little progress has been made while the challenges grow more acute.

The innovation we see in life sciences is undeniable. Where for years many rare diseases and conditions had limited treatment options, we’re now seeing major steps forward with therapies that hold the promise of substantially extending life or even offering cures. That innovation should be celebrated.

But clinical innovation is only half of the story. The other half is providing access to these new treatments for those who most need them – which is where Medicaid and other payors come in. Medicaid’s coverage obligations for pharmaceuticals are unique compared to private payors or other government programs like Medicare. While under Medicaid statute prescription drugs are an optional benefit, in practice every Medicaid program provides drug coverage. They do so under the parameters of the Medicaid Drug Rebate Program (MDRP), where Medicaid receives a range of mandatory rebates on covered outpatient drugs in exchange for mandatory coverage of those drugs.

Since its inception in 1990, the MDRP has been highly effective in supporting fiscal sustainability for Medicaid programs and generating substantial rebates for states and the federal government. This is particularly important for states as Medicaid is one of the largest areas of state general fund spending in any given budget cycle, and state budgets must be balanced in each cycle. The MDRP over its lifespan has played a stabilizing role for Medicaid budgets and promoted access to therapies for the people served by Medicaid.

That said, today’s pharmaceutical landscape looks very different from 1990. High-cost specialty drugs are increasingly the norm rather than the exception, especially as we look at what’s in the development pipeline. Cell and gene therapies (CGT) stand out for both their potential and their extremely high upfront costs. The MDRP, with its mandatory rebates off of list prices, wasn’t designed to account for these price points of several million dollars, which are typical for CGT. As more of these high-cost therapies come to market, Medicaid programs are under increasing pressure to strike the delicate balance between appropriate access and fiscal sustainability of their program budgets.

This is a trend that’s been all too apparent over the past decade. Now it’s an acute challenge. Bluntly put, the future is now – responding to these dynamics is not something that can be deferred ongoing. The growth in Medicaid’s pharmaceutical spend is alarmingly high, growing by 72% from 2017 to 2023 to total $51 billion according to recent data from KFF. This cost growth constitutes a major source of fiscal pressure on overall state Medicaid budgets, as explained by my colleague Neda Jasemi and our partners at the National Association of State Budget Officers.

For those in the health policy community who track pharmaceutical issues, none of this should be a surprise. We’ve seen this train coming down the tracks for years. In my roles at NAMD, I’ve been involved in numerous panels and conversations acknowledging the challenge, recognizing the need for different financing and coverage solutions for Medicaid, exploring the opportunities for value-based payment models…and yet progress remains limited.

That’s not to say that we’ve all been sitting on our hands. Good work has been done by a variety of partners. Nonexclusive examples include:

• White papers from the Institute for Clinical and Economic Review and the NEWDIGS project out of Tufts University

• The deployment of “subscription models” in Louisiana and Washington with the goal of eliminating hepatitis C in those states

• A final rule modifying the MDRP to allow multiple “best prices” for the same drug if some of those prices are realized through an outcomes-based arrangement

• A demonstration under development by the Center for Medicare and Medicaid Innovation which will test the viability of a federally negotiated outcomes-based arrangement that states may participate in to enhance access to curative gene therapy for sickle cell disease.

Despite this, what remains elusive is an agreed-upon set of models and approaches that are applicable across delivery systems, therapeutic categories, and Medicaid programs. Most outcomes-based arrangements for drugs today are individually negotiated directly between states and manufacturers, with their own specific measures. This approach is working in the short term, but as we look ahead to the hundreds of specialty drugs and CGTs in the approval pipeline, it’s increasingly unlikely that bespoke arrangements will be sustainable across the board. Administrative capacity is a finite resource – especially in Medicaid agencies whose hands are already full with implementing new federal regulations, advancing their own priorities, and in many cases dealing with staff vacancies.

The need is pressing. Without all the players in the pharmaceutical space – payors, providers, manufacturers, managed care entities, and others – coalescing around agreed-upon approaches to address the major clinical breakthroughs at our doorstep, consistent access to those breakthroughs will remain elusive.

NAMD has offered blue-sky thinking on what could be helpful in the decade since I first began working on these issues. Many of these remain salient options, as articulated again by NAMD’s Executive Director Kate McEvoy in February – options like enhanced federal match, enhanced MDRP rebates, or new and distinct federal coverage programs comparable to the Ryan White program for HIV/AIDS drugs. Medicaid Directors, their teams, and NAMD remain ready and eager to solve the problems of pharmaceutical cost and coverage. Sustainable access to the radical potential of life sciences innovation depends on it. Let’s get to work.