Running the Numbers

North Carolina Medicaid Outpatient Pharmacy Program

The North Carolina Medicaid Outpatient Pharmacy Program offers comprehensive drug coverage to ensure that low-income North Carolinians have medication access. Stakeholder collaboration, effective use of drug rebates, and careful selection of drugs from a Preferred Drug List (PDL) are just three ways the North Carolina Division of Medical Assistance provides access to medications at the most advantageous costs. The PDL, which was first implemented for North Carolina Medicaid in 2010, has allowed the state to achieve a higher percentage of savings for covered outpatient drugs through manufacturer rebates. The percentage of outpatient drug costs offset by manufacturer rebates has steadily increased over time [1, 2]. This has blunted the effect of rising drug costs to the state, leading to a situation where overall net drug costs have remained relatively constant over the most recent fiscal years. In total, post-rebate prescription costs across the state in fiscal year 2016 accounted for about 7% of total Medicaid costs in North Carolina [3].

For almost 30 years, federal legislation has mandated that drug manufacturers sign a rebate agreement with the US Department of Health and Human Services, guaranteeing a minimum Medicaid rebate in exchange for drug coverage by state Medicaid programs [4]. As drugs become available on the market, these drug rebates become an important component of determining how drugs are classified on the PDL in North Carolina. By federal law, when new brand name medications enter the market, a minimum rebate of 23.1% of the average manufacturer price (AMP) is required [4]. A Consumer Price Index for All Urban Consumers penalty may occur on top of the required federal rebate for brand name medications. This penalty is used to protect states against drug price inflation if a manufacturer raises its price faster than the rate of inflation. In addition, states may receive supplemental rebates that average 3%-6% of a state's gross spending, depending on state practices, including clinical criteria for prior approvals, reimbursement algorithms, and the drug mix on their PDL. When generic formulations become available, they are generally priced at a small discount of the brand's gross cost, with a fixed federal rebate at 13% of AMP. While generic products can become cost effective alternatives over time, factors affecting the availability of new generic drugs can cause the net cost to remain relatively high for months to years after initial market entry [4].

Figure 1 outlines the impact of rebates on the total net drug spending by North Carolina Medicaid. Rebate reimbursements were received for 52% of the total drug costs in 2015 and 59% in 2016 [5, 6]. These rebates were comparable to that of the federal rebate average, which in 2015 was 54% [4].

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FIGURE 1.

NC Medicaid Pre- and Post-Rebate Drug Costs SFY 2012-SFY 2016

It is important for state Medicaid programs to account for all of these factors that together contribute to the overall cost of a drug. While history may lead one to believe that generic medications are lower cost than their brand equivalents, an effective combination of federal and supplemental rebates offered through manufacturers can drive the net cost to the state lower for brand name products than the generic, allowing the brand name product to achieve preferred status on the PDL. In addition, the rising costs of generics over the last several years is a factor contributing to more brand name products becoming preferred agents on the PDL. Many factors influence the pricing of generic medications, and marketplace competition among generic manufacturers is a primary driver. A recent survey of multiple stakeholders in the drug supply chain indicated that rising generic drug prices are primarily due to manufacturer consolidation and raw material shortages [7, 8].

North Carolina Medicaid Drug Spending Costs

The North Carolina Medicaid population is broken down into various eligibility categories that contribute differently to overall drug spending. Table 1 outlines the total drug costs by program eligibility for Medicaid in SFY 2016. Children collectively make up over 50% of the total Medicaid population; however, children account for only about one-third of total drug costs [3, 9]. Looking more closely, children covered by the North Carolina Health Choice program, which provides coverage for beneficiaries who are children of families whose income is too high to qualify for traditional Medicaid but too low to afford private insurance, accounts for less than 5% of total Medicaid drug costs, yet comprises approximately one-third of total health care costs for Health Choice beneficiaries [3, 9].

On the other hand, while aged/blind/disabled beneficiaries make up only one-fifth of the total Medicaid population, about half of the total drug costs are from those beneficiaries, totaling just over $975 million in 2016 [3, 9].

Other Medicaid populations, including pregnant women, dually-eligible Medicare beneficiaries, refugees and foreign nationals, and other adult populations, such as family planning, together make up the remaining drug spending costs. These groups combined total about 17% of the total Medicaid drug costs in North Carolina [9].

In North Carolina, the net costs from the total Medicaid population for prescription claims have consistently decreased over the last two SFYs. Table 2 provides a summary of these costs across that timeframe. While there was a slight increase in the total payment amount from SFY 2015 to SFY 2016, the decreasing trend in net spending is largely driven by the increase in total rebate receipts from 52% in SFY 2015 to 59% in SFY 2016 [5, 6].

Drug Costs by Class

In discussing Medicaid drug costs, it is important to note trends seen among medications prescribed across this population. Table 3 outlines 10 prescription medications that over the last fiscal year have consistently been within the top 10 medications by cost.

These medications are typically used to treat behavioral health conditions, ADHD, hepatitis C, diabetes, and asthma. The cost of the drug itself, or the number of claims associated with more commonly prescribed medications, such as albuterol, can drive these agents to consistently appear in this list.

Some of the high cost agents for North Carolina Medicaid, specifically behavioral health medications such as Abilify and specialty drugs including Harvoni and Viekira (both to treat hepatitis C), also appeared in the top 10 drugs contributing to an increase in the net cost nationally to Medicaid programs in 2015, showing that these medications, while not prescribed to a high number of individuals, can drive up drug spending costs [4]. This trend also aligns with other national Medicaid spending reports. Per the 2015 Drug Trend Report published by Express Scripts, medications used in HIV, hepatitis C, and inflammatory diseases were the top therapy classes that continue to drive Medicaid specialty drug spending, accounting for two-thirds of the total costs for specialty drugs; specialty medications as a whole accounted for over one-third (36.5%) of total Medicaid drug costs in 2015 [10].