Massachusetts Enhances Ability to Negotiate Medicaid Drug Rebates

  • Massachusetts FY 2020 Budget includes strengthened ability for the state to seek supplemental rebates from drug manufacturers for drugs purchased through MassHealth, the state’s Medicaid program.
  • The effort could be a blueprint for other states seeking to reduce state spending on some of the highest cost drugs purchased through their Medicaid programs.

Overview of Massachusetts Medicaid Supplemental Rebate Negotiation Reform

Massachusetts garnered attention this summer for advancing MassHealth (Medicaid) supplemental rebate price negotiation reforms that in some cases will require an additional layer of price negotiation review for certain outpatient prescription drugs that are most costly to MassHealth. While the reforms were ultimately tempered, they provide a blueprint for other states to consider in implementing similar negotiation requirements for the most expensive drugs paid for through state Medicaid programs, and are considered in more detail below.

The Medicaid and CHIP Payment and Access Commission (MACPAC) has reported $29.1 billion (FY 2017) in net Medicaid spending across all states. Drug costs for MassHealth have nearly doubled over the last five years, prompting Massachusetts to seek mechanisms to reduce spending. Other states facing similar trends are watching Massachusetts closely.

Drug manufacturers participating in Medicaid are subject to the Medicaid Drug Rebate Program and potential supplemental rebates beyond the mandate. Under the Medicare Drug Rebate Program, drug manufacturers are generally obligated to provide the Medicaid program with their best market price for the drug or a mandatory rebate of 23.1% off the drug list price, whichever is lower. Rebate rules may vary based on drug type.

Despite the federal government paying a substantial portion of state Medicaid costs, states have increasingly sought new strategies to manage the rising cost of drugs and secure deeper rebates. Massachusetts’ recent efforts signal growing momentum for states to more aggressively control Medicaid drug spending through direct negotiation, potentially involving state drug pricing commissions and state value determinations of individual drugs. More activity can be expected in this area in 2020 and drug manufacturers should be prepared for differences in Medicaid negotiation strategies depending on the state, where states may consider a drugs’ outcomes and value in negotiations.

What Does the Massachusetts Reform Accomplish?

Although the Medicaid price negotiation provision included in the final FY 2020 Massachusetts budget (Section 46) was less ambitious than Governor Charlie Baker’s original proposal, it establishes but is not limited to the following process:

  • The Massachusetts Secretary of Health and Human Services (Secretary) may directly negotiate supplemental rebates with drug manufacturers for MassHealth through a private process.
  • If that process fails, drugs that cost MassHealth $25,000 (post-rebate) or more per member per year, or $10 million in total state spending (again, post-rebate) for the year, the Secretary may choose to hold a public hearing to establish a payment rate for the drug in question.
  • The manufacturer is not required to participate in those hearings and no proprietary rebate or pricing information may be released to the public.
  • The manufacturer could be referred to the Health Policy Commission if negotiations still fail to further review of pricing in a private session.

While the reforms do not require public disclosure of sensitive pricing information, they do establish a public process to advance pricing negotiations and exert additional pressure that could result in deeper rebates. Future efforts in other states may be more aggressive. There is no timeline in place for Massachusetts to start the new negotiation process but the state will need to annually report outcomes of the new strategy.

Implications and Strategic Considerations for Life Sciences Companies

The shift in Medicaid drug pricing negotiation tactics in Massachusetts represents one of the largest developments in state Medicaid policy since New York implemented a Medicaid drug capping program that authorizes a Drug Utilization Review Board (DURB) to recommend additional supplemental rebates for drugs in the New York Medicaid program based on their own “value assessment” of the product in question. Ultimately, the DURB has authority to remove a limited number of drugs from the state managed Medicaid formulary if patient access is not impacted by the removal. California has also moved to streamline processes for state purchase of drugs.

As federal health drug pricing reform efforts continue to swirl with uncertainty, these state actions will remain important to track and consider, especially regarding state-to-state Medicaid strategy.

DRG Consulting is a leading insights, analytics, and advisory services business focused on helping life sciences companies to advance innovations and navigate the complex global healthcare environment.

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