TMA Calls for Simplification of Medicaid Vendor Drug Program

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Cover Story — July 2016 

Tex Med. 2016;112(7):24-32.

By Amy Lynn Sorrel
Associate Editor

Day in, day out Ryan Van Ramshorst, MD, treats Medicaid children with critical conditions that require critical access to medication. The San Antonio pediatrician recently hospitalized one child with autism because his aggressive behavior made him a threat to himself and others. The psychiatrist on call put the boy on certain behavioral medications to calm him down and discharged him with a prescription. 

But when the family went to fill it, the pharmacy denied the drugs because they required additional preapproval despite being on the state's list of covered drugs. The child went three days without his medication because that's how long it took Dr. Van Ramshorst to get the Texas Medicaid Vendor Drug Program, the Medicaid HMO, and its pharmacy benefit manager to sort it out. 

"The child was almost rehospitalized because of that," he said. 

Similarly, Dr. Van Ramshorst treated many kids who for more than a year responded well to a common asthma controller medication and had no trouble getting their prescriptions filled. All of a sudden, pharmacies started denying the drug because it got bumped from the state preferred drug list (PDL).

"I have no way of knowing these things ahead of time until those prescriptions get kicked back to me. It makes it very challenging as a provider to get medications to kids who need them. And my office is not set up to do the prior authorizations, so I do them myself, and it takes a lot of my time," Dr. Van Ramshorst said.

As the legislature takes a wholesale look at whether Medicaid managed care has helped improve costs and quality in the state of Texas, the vendor drug program has taken center stage. The Texas Medical Association's Physicians Medicaid Congress is seizing the opportunity to call for an administrative overhaul of a drug benefit physicians describe as unnecessarily complicated and confusing for physicians and patients. And a major shift may lie ahead as lawmakers consider turning over the program entirely to Medicaid HMO plans that, equally frustrated, say they can do a better job managing it and negotiating lower drug costs to the tune of $100 million in annual savings.

Whoever runs the program must make it more straightforward and user-friendly, says Dr. Van Ramshorst. The member of TMA's Physicians Medicaid Congress praised the Texas Health and Human Services Commission (HHSC) for its cooperation and progress in slicing several areas of Medicaid red tape, part of TMA's advocacy. 

"But the vendor drug program is still a huge issue and has been for many years. It's very frustrating, and this needs to be addressed in the [2017] legislative session," he said. "Whatever happens, if it's only going to increase the administrative burden, it's only going to compound the problem of physicians not wanting to accept Medicaid."

Like many physicians, Dr. Van Ramshorst was disheartened when lawmakers overlooked Medicaid's declining participation rate in deciding against extending the Affordable Care Act primary care pay raise. "And I don't think it can be understated how important competitive payment is to getting providers to participate in Medicaid. But fixing the vendor drug program won't cost a lot, if anything, and because it's so challenging to deal with, it's very low-hanging fruit to get doctors to participate." 

A Splitting Headache

The House Human Services Committee began reviewing the vendor drug program in March as part of its interim charge to assess the overall shift to Medicaid managed care — now responsible for 87 percent of all Medicaid patients in Texas — and find ways to ramp up Medicaid participation. Less than half of Texas physicians, 37 percent, accept all new Medicaid managed care patients, according to TMA data.  

Meanwhile, unless the legislature acts, regulations restricting health plans from fully taking over the drug benefit from the state expire Aug. 31, 2018.

Confusion over the drug benefit stems largely from the fact that program administration is split between the state and the roughly 20 contracted Medicaid HMOs. 

HHSC oversees development of the Medicaid formulary, including the statewide PDL, a list of preferred drugs that generally do not require prior authorization. Per federal rules, if pharmaceutical manufacturers want Medicaid to cover their products, they must agree to pay rebates to the states to offset the drug costs. As another cost-saving measure, Texas and a handful of states require companies to pay additional, or supplemental, rebates to be considered a preferred drug — a process that has drawn criticism for favoring more expensive brand-name drugs over already discounted generics.

A state-appointed board of physicians and pharmacists regularly reviews which drugs end up on the PDL based on available rebates, as well as quality and safety information. The committee also evaluates the need for additional quality and safety checks — referred to as clinical edits — before doctors can prescribe preferred drugs. 

Health plans, on the other hand, are responsible for handling drug approvals, typically through third-party pharmacy benefit managers (PBMs). The HMOs must follow the uniform statewide PDL but have leeway in adopting certain state prior authorization criteria. Of the more than 50 clinical edits, for instance, plans have to implement only four, such as restrictions on use of antipsychotic drugs in young children. Plans have discretion to implement the remaining preapprovals and can make them more lenient, but not stricter. TMA officials say most plans' PBMs have adopted the clinical edits wholesale, but not all, creating confusion for doctors.   

TMA currently has no position on who should run the vendor drug program, although TMA's Select Committee on Medicaid, CHIP, and the Uninsured began deliberating the subject in April at TexMed 2016, TMA's annual policymaking conference held in Dallas. TMA's main goal is getting rid of what Medicaid Congress chair and San Antonio pulmonologist John R. Holcomb, MD, describes as "rank silliness" causing physicians major headaches.

Because the rebate system tends to favor more expensive brand-name drugs, physicians accustomed to prescribing lower-cost generic medications — standard medical practice — often get hit with unexpected preapproval requests before patients can get their drugs, he says. "That's just nuts. It's amazing to me the vendor drug program evolved itself into this mess where a doctor and a patient are penalized for prescribing the generic rather than the brand name. It's foreign to our training to write a generic prescription and have it rejected." 

For example, it was too late when Dr. Holcomb found out the prescription he wrote for a common skin patch containing a pain medication was not the state's preferred drug, even though the generic has the same therapeutic benefit. 

"I got a call an hour later that the patient was going home but could not get her prescription filled because I was supposed to put the formulary-approved Duragesic brand name down. I had to go back to the hospital because it was a Schedule II drug," he said, adding that when the state develops the formulary, it provides no explanation as to why certain drugs make the list. "Doctors and patients are not privy to that information. Is it cost? Is it new evidence? All I know is I can't use certain drugs. And [per federal Medicaid rules] states must make all FDA [Food and Drug Administration]-approved drugs available to patients. But the rebate system [in Texas] allows the state to dodge that by making doctors and patients jump through hoops."

Clinical edits only fuel further confusion. Even though state prior authorization criteria must be published on the vendor drug program website, "you have to be a technocrat to find it," said TMA Governmental Affairs Director Helen Kent Davis. Because physicians don't have a single location to look up the information, they must comb through each plan's website to figure it out.

Edits are developed with quality and safety in mind, she explains. For example, some drugs are so expensive that clinical criteria are built in to ensure only qualified specialists prescribe them to patients who need them. TMA also has supported restrictions before prescribing antipsychotics to young children. 

"But the way the clinical edits interact with the PDL is not transparent at all," Ms. Davis said. "And since the state does not require use of all the clinical edits, it begs the question whether all of them are really necessary in the first place."

Much like the PDL, Dr. Van Ramshorst says, the state does not explain the reasoning behind a particular clinical edit so doctors can make informed and efficient decisions. Because many edits are automatic, a prescription won't go through unless physicians hit what he calls all the "magic" codes. Nor are health plans required to follow all of the edits, "which undermines the concept of a uniform statewide PDL." 

Kaufman pediatrician Charles Turner Lewis, MD, says his practice "averages five commercial prior authorizations a week and 50 Medicaid prior authorizations a week."

"No other payer has such a Byzantine pharmacy benefit, thus fueling physicians' reluctance to participate in the program. Making the pharmacy benefit more transparent and easier to use will reduce program hassles for physician practices," TMA and the Texas Pediatric Society (TPS) commented in stakeholder input HHSC solicited last fall as part of a broad legislative directive to simplify Medicaid and improve physicians' and patients' experiences in the program. 

Among TMA's and TPS' top recommendations: Create a single location for physicians to look up prior authorization criteria instead of having to search plans' individual websites, and provide the rationale for changing a drug's status on the preferred list and for any associated clinical edits. (See "Revamping the VDP" and "Rx Red Tape.")

Plans: "We Can Do a Better Job"

Medicaid plans say their hands are tied, too, by a state system that is slow to respond to quality and safety considerations and has created administrative challenges for everyone. Instead, they've offered up a proposal to give them more control over the drug benefit and, in the process, save the state money and eliminate many of the same complaints they hear from physicians. 

Beholden to the PDL, plans don't have discretion to switch to a generic asthma drug, for instance, even if it works better to prevent hospitalizations, says Mary Dale Peterson, MD, a member of TMA's Physicians Medicaid Congress, and president and chief executive officer of Driscoll Children's Health Plan in Corpus Christi.

"A lot of physicians think I'm the one in control of the PDL, and I get it on all my provider satisfaction surveys. I have to manage it. But I have no control over it, and I take the heat for it when physicians don't understand why they are supposed to prescribe a brand-name drug that costs five times more than the generic. It's a frustrating position to be in," she said. "When decisions are made just based on the highest rebate you can get, and not which drug is most effective from an overall cost perspective, it's just frustrating. We need to have more rationale on what's in the formulary."

When it comes to prior authorizations, in some cases the state implements across-the-board edits all plans must follow when they would rather have the flexibility to educate physicians, Dr. Peterson explains. Other times, plans can use less stringent criteria, but not more. Still in other instances, plans prefer to try lower-cost alternatives first, when appropriate, a process called step therapy. 

Parkland Community Health Plan Medical Director and Medicaid Congress member Barry S. Lachman, MD, adds that a closed-door and often cumbersome process to change the PDL or prior authorization criteria has created risks. Texas was the last state to put a new hepatitis C drug on the state formulary — a yearlong process. Meanwhile, other types of outdated medications that do not follow current evidence-based guidelines stick around. "How can you tell me this process works well? It doesn't," he said. "We need more clinical wisdom in the [state drug review] process. And these are not decisions made in public. Instead of talking about rebates, why aren't we talking about getting the best drugs?"

With 75 percent of the Texas population already using commercial formularies through private or employer-sponsored insurance, Medicare Advantage, and state programs like the Employees Retirement System and the Teacher Retirement System, it doesn't make sense to carve out Medicaid, says Texas Association of Health Plans (TAHP) Executive Director Jamie Dudensing. Giving health plans more freedom to choose and align their Medicaid formularies and maximize generics would give physicians and patients more consistency and a better mix of available drugs, and save the state $100 million a year — money she says the state could reinvest into a strained Medicaid program in a constrained budget year. 

"When we're talking about scarce resources, if there's a way to create efficiencies that improve quality of care and create savings that can be much better used somewhere else, say for physician [payment] rates or attendant care wages or mental health benefits, those are all very real benefits," Ms. Dudensing said. 

According to a TAHP-commissioned study conducted by the Menges Group health policy consulting firm, net per-prescription costs in the 30 states that allow health plans to negotiate their own drug costs and use their own PDLs were 10 percent lower than in the four states with a uniform PDL: Florida, Kansas, Texas, and West Virginia. The report also found that Texas Medicaid ranks 45th in the country on the use of generics, with 77 percent of Medicaid prescriptions for generic drugs, compared with 81 percent nationally.   

With the shift to managed care, the state already has turned over many other aspects of care to the health plans, Ms. Dudensing says. "Our concern is we are managing hospital care, physician care, nursing care, and all the other pieces and information that are part of comprehensive, coordinated care management, but we have no role in the formulary piece. Managed care organizations are completely responsible for the financial risks and quality of care outcomes, but they are not given the tools to manage the coverage."  

She also pointed to health plans' recent track record of collaborating with physicians on other areas of Medicaid improvement, most prominently the creation of a single statewide credentialing organization. "The vendor drug program is one of the top complaints we get. Health plans have a responsibility to have a strong and adequate network and to try to get as many providers to participate in Medicaid as possible, and anything we can do to reduce complaints and problems helps us have that adequate network. We all have that common goal."

Dr. Peterson adds health plans already have closer working relationships with the practicing physicians and those serving on their own drug utilization committees. 

"Nobody likes edits, and they are not all bad. But I do think we [plans] can do a better job," she said, highlighting additional proposals for plans to collaborate on a streamlined set of prior authorization criteria. "We are much closer to prescribers and the physician community to make sure edits are there for the right reason, they make sense to physicians, and it's done in a timely manner, versus the state, which doesn't communicate with prescribers at all and prohibits me from communicating in a timely manner because I have to get approval by two entities. And when you have a shortage of psychiatrists, the unintended consequence is patients who can't get drugs for weeks and a third of patients who are discharged without any medications at all." 

Big Decisions, Big Impact

According to pharmaceutical manufacturers, however, drugs only make up 3.5 percent of Medicaid costs in Texas, thanks largely to rebate offsets. That's one of the lowest rates in the country, PhRMA Vice President of State Advocacy and Policy Tara Ryan testified to the House Human Services Committee in March. "Maybe what Texas is doing right is allowing access to brands not available in other states."

But shifting to generics or other health plan controls like step therapy could make it harder for patients to access certain drugs and could translate to higher costs in other ways, she says. "You might think that increasing generics by 1 to 2 percent will get you additional revenue, but it might not get you the same health outcomes. One of the things we are trying to do is manage care better with medicines so you don't have higher hospitalizations, emergency care, or doctors' visits because paying more on that side of the equation is more costly."

A uniform PDL also ensures patients across the state have access to the same drugs, regardless of which plan they're in, PhRMA representatives told TMA's select committee in April at TexMed 2016. Nor are commercial plans obligated to have all FDA-approved drugs on their formularies. Meanwhile, some states that shifted their drug benefit into the hands of managed care companies are now fighting to put such consumer protections back into law. 

Consumer advocacy groups like the Center for Public Policy Priorities largely agree Texas' current uniform PDL is much simpler and accessible for patients versus having to follow multiple plan formularies. Some cancer and mental health groups also expressed concern to lawmakers over potentially stringent step-therapy protocols that could make it more difficult to get specialty drugs. 

HHSC officials declined to comment for this story. In March testimony, the vendor drug program's Deputy Director Andy Vasquez told the House Human Services Committee cost is one factor driving the PDL, but not the only one. 

Generic drug use in Medicaid might range slightly lower than in commercial plans, 76 percent to 78 percent versus 80 percent (see "By the Numbers"). But rebates help cover half of Medicaid drugs costs, and state law ensures that money goes back to paying for the drugs. 

In concert with rebates, he says the state Drug Utilization Review Board evaluates the latest clinical information for all drug products they review. "That allows the committee to make an informed decision: Are we providing a good set of products that's preferred that are safe and effective and at the lowest cost to the state?" 

HHSC officials acknowledge, however, there is room for administrative improvements.

"On the one hand, there is some consistency that is beneficial," Mr. Vasquez said, referring to a uniform PDL that is the same for all Medicaid clients regardless of their plan. "On the other hand, because Medicaid is a different beast, we do hear that does sometimes cause some complexity," he said of the prior authorization criteria. "From a provider standpoint, we do see some opportunities there for consistency across plans."

Part of the problem now is health plans already don't play by the same rules, whether in Medicaid or on the commercial side, says Robert Hogue, MD, a family physician in Brownwood and chair of the state Drug Utilization Review Board. Turning the vendor drug process over to them could mean even more complexity and less safety.

The original intent and function of the state board is to serve as a quality and safety mechanism, he says. "The question is, will there be the same kind of oversight to ensure [health plans] are doing things in an appropriate way?"

Dr. Hogue agrees there is more room for transparency in the PDL, which for now is legislatively constrained to the rebate process. And for years he too has advocated a more searchable formulary and prior authorization list. But out of thousands of drugs and drug categories, he estimates less than 5 percent have additional clinical edits, and the process for determining them is open to the public. 

Health plans might be able to respond more quickly to changes than the board, which only meets quarterly. "But you still can't change formularies at a whim. Some things we were slow to approve, like the hepatitis C drugs. But we're talking about $10,000 a day for treatment. We just want to be sure people who need it get it and not just anybody," Dr. Hogue said. "Health plans' primary goal is to save money, but that doesn't necessarily mean improved patient care."

More Debate Ahead

TMA physicians have lingering concerns, too, that with six Medicaid managed care pharmacy benefit managers in charge, they would get stuck in just as much red tape consulting different formularies. Although, of the roughly 20 Medicaid plans operating in the state, more than half say they collectively use the same PBMs ― Navitus or CVS.  

"When I have 300 generics not on the PDL, that's a problem. But I still don't want 20 different formularies. And we still have problems with just one PDL because of all the edits," Dr. Holcomb said. 

Even if some plans' edits are less restrictive, Dr. Lewis says, "three different plans have three different processes."

Ms. Davis says TMA will continue to evaluate the TAHP plan, adding that of utmost importance would be the inclusion of key patient and physician protections that limit use of step-therapy protocols and safeguard continuity of care for patients who want to stay on established prescriptions should they switch health plans, for instance.  

At press time, state Medicaid officials indicated to TMA they were working on a revised website that would make it easier for physicians to determine which restrictions apply to a drug, such as whether it is preferred or non-preferred and subject to additional clinical edits. The changes are not expected to be ready until early 2017. Meanwhile TMA has requested the state allow Medicaid Congress members to test it first.

As for the money, "it ultimately comes down to the LBB [Legislative Budget Board] to determine if the savings are real," Ms. Davis said. 

Nor do lawmakers appear to have their minds made up, and further debate is likely ahead as they seek to balance transparency, cost, and access concerns. 

In hearings, House Human Services Committee Chair Rep. Richard Peña Raymond (D-Laredo) said the 2017 legislative session will most certainly bring "some challenges with the budget. I have no doubt about that. When you start hearing about $100 million savings, that matters to all of us. But what also matters is that we want to set up a system that responds effectively to the people who need it."

Senate Health and Human Services Committee Chair Charles Schwertner, MD (R-Georgetown), an orthopedic surgeon, says he was one of several Sunset Advisory Commission members who saw the need to further review the vendor drug program before immediately turning it over to health plans. He added that the drug benefit, unlike other parts of Medicaid, is an optional one the state has leeway to change. "I'm looking at it in totality: how we administer it for the benefit of patients, taxpayers, and providers." 

A member of the Senate Finance Committee, he also says he's concerned about the "veil of secrecy" around the rebate process and whether it's delivering on its financial promises at a time when Medicaid costs are growing faster than other portions of the budget. On the other hand, he says other states have successfully administered their drug programs through managed care with a balance of consumer protections.

Out of a $60 billion state Medicaid budget, $100 million "is a small percentage of potential savings. But there are absolutely things we can do with that money," Senator Schwertner said, adding that physician payment rates are among a long list of competing program needs, such as Child Protective Services workers. "I'm in the same boat. I treat Medicaid patients, and I understand it's not just a financial factor but a headache factor treating those vulnerable populations, and that's not lost on me." 

House Public Health Committee Chair Rep. John Zerwas, MD (R-Richmond), is skeptical of health plans' purported savings, pointing to recently skyrocketing generic drug costs. "Drug rebates have proven a reliable source of revenue for the state. Whereas even if plans say they can save 'x' amount and reduce the cost of care, does that translate to cash revenue for the state?"

With Medicaid participation rates near "crisis level," the anesthesiologist says payment rates "are something that need to be on the table, regardless of our fiscal situation." Meanwhile, anything the state can do to streamline the Medicaid bureaucracy physicians have to deal with "is worth discussion because my sense is no matter who's going to manage the formulary, it's going to be a headache for doctors." 

Amy Lynn Sorrel can be reached by phone at (800) 880-1300, ext. 1392, or (512) 370-1392; by fax at (512) 370-1629; or by email.


Revamping the VDP

TMA recommendations for streamlining the Medicaid Vendor Drug Program (VDP):  

  • Within each drug class on the preferred drug list (PDL), include a hotlink so physicians can immediately determine if there are any additional associated prior authorization criteria (clinical edits) that the state sets and which HMOs implement them or a less stringent version of them.
  • When the state Drug Utilization Review Board considers a clinical edit, publicize the justification for the proposal and the entity that recommended it. 
  • For physicians using the Epocrates application, establish an electronic mechanism so physicians can quickly and easily access information on clinical edits and which HMOs use them.
  • Limit changing drugs from preferred to non-preferred status to annual, versus quarterly, revisions.
  • When a drug's preferred status changes, provide the rationale.
  • If there is a drug shortage, adopt an expedited communication plan so the Texas Health and Human Services Commission and HMOs can quickly share information with network physicians on medication alternatives. 
  • Allow physicians to prescribe drugs for non-labeled uses in certain patient populations when there is clinical evidence supporting such usage. 

July 2016 Texas Medicine Contents
Texas Medicine Main Page

Last Updated On

November 21, 2016

Originally Published On

June 15, 2016

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Amy Lynn Sorrel

Associate Vice President, Editorial Strategy & Programming
Division of Communications and Marketing

(512) 370-1384
Amy Sorrel

Amy Lynn Sorrel has covered health care policy for nearly 20 years. She got her start in Chicago after earning her master’s degree in journalism from Northwestern University and went on to cover health care as an award-winning writer for the American Medical Association, and as an associate editor and managing editor at TMA. Amy is also passionate about health in general as a cancer survivor, avid athlete, traveler, and cook. She grew up in California and now lives in Austin with her Aggie husband and daughter.

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