Prescription Drug Spending: What’s Coming Next for Medicaid and How Can States Prepare?

In fiscal year 2021, Medicaid programs spent $38.1 billion on outpatient prescription drugs – a 45 percent increase since 2018. This trend is projected to accelerate as new high-cost drugs enter the market. Because State Medicaid Agencies must cover almost all Food and Drug Administration (FDA) approved drugs, per the Medicaid Drug Rebate Program, these new high-cost drugs will strain Medicaid budgets – and do not always offer meaningful clinical benefits to patients.

At the 2022 NAMD Fall Conference, Dr. Mariana Socal, Associate Scientist at the Johns Hopkins Bloomberg School of Public Health, Amir Bassiri, Medicaid Director in New York, and Dr. Jen Strohecker, Medicaid Director in Utah, explored these challenges and provided three takeaways going forward:

1. Prescription drug spending will increase as new high-cost drugs enter the market. Drug manufacturers are releasing drugs more quickly and with smaller clinical studies. Many drugs in the development pipeline are cell and gene therapies or address conditions like Alzheimer’s where there are no good alternatives, which leads to higher launch prices. Medicaid stakeholders should expect to see drugs entering the market more quickly and with less certain clinical benefit.
2. States have launched strategies to control prescription drug spending and improve patient outcomes. In 2017, New York implemented a Medicaid Drug Cap program, which gives the state more leverage to negotiate supplemental rebates for drugs that contribute the most to increased spending. Although this program is a big administrative lift, it has saved the state over $600 million. Utah has launched programs to ensure that patients who receive high-cost drugs – like hepatitis C therapies – successfully complete their course of treatment. These programs have translated to cost savings and improved patient outcomes.
3. The federal government must act to give Medicaid Agencies additional tools to control prescription drug spending. Many new drugs go through the FDA’s accelerated approval pathway, which uses surrogate clinical endpoints instead of actual treatment outcomes. Even though these drugs have uncertain clinical benefit, State Medicaid Agencies still have to cover them – often at jaw-dropping price points. Congress should consider new mandatory federal rebates on these drugs until manufacturers can show meaningful clinical benefit. Other new drugs, however, may cure or otherwise transform care for previously intractable medical conditions. It is crucial to ensure that Medicaid members have access to these new therapeutics, but Medicaid Agencies will face severe budgetary challenges when these drugs enter the market, which could lead to benefit cuts elsewhere in the program. Our federal partners should develop strategies to ensure Medicaid Agencies can cover these drugs at appropriate price points.

Pharmaceutical innovations have the potential to transform care for Medicaid members, but these new drugs will come with shocking price tags. Due to the constraints of the Medicaid Drug Rebate Program, Medicaid Agencies do not currently have the tools they need to ensure that they are paying a fair price for these drugs. The federal government must act to ensure that Medicaid Agencies can provide innovative new therapies to their members while still balancing their budgets.