State Strategies for Costly Drugs with Unconfirmed Clinical Benefits

The recent approval of the Alzheimer’s drug Aduhelm under the U.S. Food & Drug Administration’s (FDA) Accelerated Approval Program is controversial for a range of reasons, including its projected impact on state Medicaid budgets which will be required to cover the drug, priced at $56,000 a year, despite inconclusive evidence of its clinical effectiveness. While Aduhelm is the latest prescription drug to make headlines, state Medicaid programs have been seeking policy solutions to address high cost accelerated approval drugs for some time. 

The Accelerated Approval Program

Created in 1992 in response to the HIV/AIDS crisis, the FDA’s Accelerated Approval pathway is intended for drugs that address unmet medical needs, often showing a previously unseen benefit or targeting a disease with few or no available treatments. These drugs are approved based on surrogate endpoints which may not reflect the true clinical outcomes of interest. In the case of Aduhelm, approval was based on the drug’s ability to prevent the build up of certain plaques in the brain, though it has not demonstrated an ability to limit the memory impairment associated with Alzheimer’s. Manufacturers of accelerated approval drugs must conduct post-market confirmatory trials to verify the anticipated clinical benefit, however they have limited incentives to do so in a timely fashion. Biogen has until 2029 to complete confirmatory trials indicating whether Aduhelm is performing as hoped.

Medicaid programs opting to cover outpatient drugs (all do) are required to cover all FDA-approved drugs, including those approved through the Accelerated Approval Program such as Aduhelm. The lower evidentiary standards underlying the approval of these drugs means states are required to pay for drugs with unclear clinical benefits.  Though accelerated approval drugs represent a minimal percentage of Medicaid prescriptions, they account for a much larger percentage of overall Medicaid drug spending net of rebates.  States have long expressed concerns about paying high prices to cover these drugs when clinical outcomes have not been verified.

Though both require federal approval, states have pursued two main policy responses with the ability to alleviate spending on accelerated approval drugs prior to manufacturer completion of post-marketing confirmatory trials resulting in traditional approval:

• Closed formularies, which would allow a state to exclude accelerated approval drugs;
• Higher rebates for drugs approved under the Accelerated Approval Program.

Closed Formularies

Two states have sought approval from the Centers for Medicare and Medicaid Services (CMS) for Section 1115 Medicaid demonstrations to implement closed formularies which would enable a state to exclude certain drugs from Medicaid coverage, such as those approved under the Accelerated Approval Program.  In 2018, CMS denied Massachusetts’ request, stating it would not authorize a closed formulary while still allowing the state to keep the mandatory rebates from the Medicaid Drug Rebate Program. In January 2021 however, CMS approved Tennessee’s Medicaid block grant demonstration which included a closed formulary. It is uncertain if the Biden Administration will seek to limit the approval of Tennessee’s block grant demonstration. Some state officials, however, wonder if former Massachusetts Medicaid Director Dan Tsai, who led the state’s closed formulary initiative, and who is the new Director of the Center for Medicaid and CHIP within CMS, will be supportive of a closed formulary option if additional states request this flexibility.

Increased Manufacturer Rebates

CMS requires state Medicaid programs to cover essentially all FDA-approved drugs in exchange for preferred pricing benefits under the Medicaid Drug Rebate Program, including accelerated approval drugs.

In June 2021, MACPAC made two recommendations to Congress regarding accelerated approval drugs that would alleviate state spending for these drugs. MACPAC recommended:

1. Increasing the minimum rebate on accelerated approval drugs until the manufacturer completes the post-marketing confirmatory trial and the drug is granted traditional FDA approval.
2. Increasing the additional inflationary rebate on accelerated approval drugs if the manufacturer has not yet completed the post-marketing confirmatory trial and has not been granted traditional FDA approval after a specified number of years.

These recommendations would maintain coverage requirements, while providing financial incentives for manufacturers to complete confirmatory trials in a timely manner and mitigating price increases prior to confirmatory trial completion.

State officials interested in further information on accelerated drug approvals, including slides and a recording of a state-only webinar, may contact Jennifer Reck.  Medicaid Pharmacy Directors that may be interested in participating in a brief, anonymous interview with researchers on accelerated approvals may also contact Jennifer Reck to learn more.