Original Medicaid Favors Brand Insulin; Managed Care Favors Generics

February 20, 2020

Medicaid managed care plans used generic and biosimilar versions of insulin much more often than Medicaid fee-for-service programs, according to a report in the Journal of Managed Care & Specialty Pharmacy, and that preference for brands would likely strengthen if Congress raises or eliminates the inflationary rebate cap. The report says state fee-for-service programs might favor brands because states get significant inflationary rebates, which managed care plans do not receive, but a drug pricing consultant said states are likely paying more in the long run by favoring brands.

The researchers chose two insulin products because the list price for those products tripled over a decade so they were good products for illustrating the effects of Medicaid inflationary rebates. Brand drug companies must give Medicaid base rebates of 23.1%, and they pay additional rebates when they raise prices faster than the rate of inflation.

That inflationary rebate is capped at 100% to avoid making drug companies pay rebates greater than the price of drugs. A few bipartisan drug pricing bills include measures to increase the cap, and the Trump administration supports eliminating it.

When states pay private insurers to administer Medicaid benefits, states collect the rebates, not the plans. Study authors Inmaculada Hernandez and Walid Gellad said managed care plans might prefer generics and biosimilars because they have lower list prices and the plans don’t get those big brand inflationary rebates. States prefer the brands because the inflationary rebates bring the net prices down lower than the list prices.

Results: Biosimilars insulin glargine accounted for 60.5% of the market when private plans administered the drug benefit, compared to 3.7% in fee-for-service Medicaid. Similarly, generic insulin glatiramer accounted for 59.4 % of the market under Medicaid managed care plans and 5.7% in fee-for-service. These results only hold when states don’t use preferred drug lists and, in states that carved out the drug benefit, biosimilar insulin was not used at all and generic insulin accounted for 1% of the market.

“Our results are particularly relevant because these consequences of the current rebate structure will augment, if the Medicaid rebate cap is eliminated, as recently proposed,” the report states. “A larger inflation rebate will make it more attractive for states to continue use of the branded drug. Moreover, states are increasingly implementing PDL requirements for MCOs.”

Some states also took the drug benefit from the private insurers that administer their Medicaid programs, and raising the inflationary rebate cap would likely entice others to also consider so-called drug carveouts, according to Jeff Myers, senior vice president for reimbursement strategy and market access at Catalyst Health Care Consulting, where he consults payers. Myers, who said drug carveouts are bad policy, said some states removed the drug benefit in part because they get to keep the federal share of the rebates a couple of quarters before the federal government claims the money. States can use that money for whatever they want in the meantime.

If the cap were lifted, states would get even more money up front, which could entice more states to consider it, Myers said.

In Medicare, beneficiaries and taxpayers are hurt when the system prefers high list price drugs with big rebates – Medicare Part D plans also prefer high list priced drugs with big rebates. In Medicaid, beneficiaries pay a nominal amount of drug costs so high list prices don’t harm them, but Myers says states likely lose money in the long run when they take the drug benefit from managed care plans.

Myers said over time states don’t negotiate rebates as well as the pharmacy benefit managers that work for insurers. That’s in part because most Medicaid beneficiaries are covered by large insurers with plans in Medicare and the commercial markets, and their PBMs use that vast volume and sophistication to drive better bargains. Also, drug companies are good at applying political pressure to get favorable positions on state formularies, which eventually erodes states’ ability to negotiate rebates.

States officials that have carved out drug benefits say they did it primarily to learn how much drugs cost because PBM rebates are secret and states cannot operate multi-billion-dollar programs without knowing where taxpayer money is going. The plan in Washington state is to give the drug benefit back to private insurers once state officials know their costs so they can set accurate capitation rates.

Insurers often argue that they reduce overall costs by coordinating the pharmacy benefit with other health care services. When plans manage drug benefits, they know whether patients are taking their medicine and whether their blood pressure and cholesterol are controlled, and they lose that information when the drug benefit is carved out. Myers said the researchers did not study whether the total cost of care is lower when states favor brands. Managed care plans have the incentive to coordinate care between drugs and other services, and in fee-for-service there is not coordination. -- John Wilkerson (jwilkerson@iwpnews.com)