Cost, Payment, and Delivery Reform – Page 10 – The National Academy for State Health Policy

Oklahoma Promotes Healthy Child Development through Increased Well-Child Visits and Screenings Using Innovative Funding

Maine Forges New Ground and Enacts Comprehensive Drug Package

July 1, 2019/in Policy Maine Blogs, Featured News Home Administrative Actions, Cost, Payment, and Delivery Reform, Health System Costs, Newly-Enacted Laws, Prescription Drug Pricing, State Rx Legislative Action /by Sarah Lanford and Maureen Hensley-Quinn

Last week, Maine Gov. Janet Mills signed into law a comprehensive package of prescription drug cost control legislation that addresses pharmaceutical prices throughout the supply chain. The four new laws include:

Stricter requirements on pharmacy benefit managers (PBMs);
Updates to its drug transparency program to require more prescriptive data collection and enforcement mechanisms;
Establishment of a drug affordability review board; and
Support for the state to pursue a wholesale drug importation program.

This report explores state initiatives to curb health care costs by:

Leveraging Medicare’s well-established reimbursement rates as reference prices for state employee plans to address rising health costs;
Harnessing collective buying power of state purchasers across agency and state lines to lower drug costs; and
Establishing state authority to limit hospital rate increases, promote cost transparency, and limit spending growth.

By developing a comprehensive and integrated package of new laws, Maine is forging new ground in the fight against high drug prices.
Comprehensive PBM Regulation – LD 1504
Maine’s new law regulating PBMs essentially replaces opaque PBM business practices by imposing more transparent, clearly defined fiduciary relationships that include state enforcement and oversight through the health insurance carriers with whom PBMs contract.
As other states have done, the law requires PBMs to obtain a license from the Superintendent of the Bureau of Insurance. Licensure is a critical component of effective PBM regulation because it allows the state to know how many and what entities are operating as PBMs in the state. This also gives the state power to suspend or revoke a license should the PBM break the law or engage in fraudulent activity.
Maine’s new law also includes provisions that haven’t been enacted by any other state. Under the law, if health insurance carriers use PBMs to manage their prescription drug benefits, the carrier is responsible for monitoring all activities performed by its contracted PBM. By tasking carriers with PBM monitoring responsibilities, Maine is leveraging its Bureau of Insurance to enforce these provisions of the law. The law also stipulates that PBMs have a fiduciary duty to their insurance carriers when managing their prescription drug benefits and as such, carriers are empowered to hold PBMs accountable for their financial dealings.
Monitoring PBM financial practices can be challenging. For example, PBMs often use maximum allowable cost (MAC) lists that document the maximum amount a plan will pay for generics and brand-name drugs that have generic alternatives. It is standard industry practice for PBMs to use prices from one MAC list to pay a pharmacy for dispensing a drug to a consumer and then use a different MAC list’s price to bill the carrier. Using multiple MAC lists allows PBMs to practice “spread pricing” — they reimburse pharmacies using a low price from one MAC list while charging the health carrier a higher price from a different MAC list and keeping the difference. To combat this practice, Maine now mandates the use of a single MAC list that must be identified by the PBM so prices are transparent to all parties, including pharmacies and the carrier. Additionally, using a single MAC list provides more clarity to all parties about how MAC pricing is determined and updated and how PBMs select products for inclusion on a MAC list.
To lower costs for consumers, the law requires carriers to use the prescription drug rebates that PBMs negotiate to either lower health plan premiums or to reduce out-of-pocket costs for consumers when they purchase prescription drugs. Without the ability to retain a portion of the rebate, PBMs will now be paid for managing the prescription benefit directly by the carrier. Maine’s law includes provisions that explicitly classify PBM expenses as administrative costs for purposes of calculating a health plan’s anticipated loss ratio. The classification of PBM expenses as administrative rather than as a health benefit encourages carriers to monitor these costs carefully and keep them low. Under federal law, health carriers’ administrative costs are limited to 20 percent of the total amount of premiums collected from consumers.
This law requires carriers to take on a more active role in PBM oversight, provides enforcement authority within the Bureau of Insurance, and requires a fundamental change in PBM business practices to reduce prescription drug costs for consumers.
Drug Affordability Review Board and Pharmaceutical Spending Targets – LD 1449
With this new law, Maine joins the ranks of states working to leverage the purchasing clout of state purchasers. Similar to a law recently passed in Maryland, the Maine law establishes a Drug Affordability Review Board (DARB), charged with setting prescription drug spending targets for public entities including state, municipal, state university, and community college employees and teachers. Each group currently operates its own health plan. The five-member DARB, with advice from a 12-member advisory council representing public payers, will set drug spending targets and monitor how effectively public payers meet them. The law spells out a number of strategies the board can consider to help public purchasers meet their expenditure goals, including collaborating with other states and consortia to purchase drugs in bulk, restructuring formularies for public payers, procuring common expert services for public payers, and securing deeper rebates. Of particular interest, the law also allows the board to consider expanding the purchasing pool for prescription drugs and allowing carriers who cover small businesses and individuals to buy into a public payer drug benefit plan. The first report on drug spending targets is due in 2021.
While the DARB cannot compel a public purchaser to meet its target, it must report whether public purchasers have met their cost targets annually to the state Legislature, which is responsible for approving their budgets. The first report on drug spending targets is due in 2021.
Revamped Drug Transparency Requirements – LD 1162

The Maine transparency bill goes beyond other states’ because it requires reporting from each entity in the supply chain about past and projected costs and revenues at the individual drug level. A more robust set of data from the entire supply chain will help the state identify which players contribute most to drug price increases.

Using NASHP’s recently released prescription drug transparency model legislation 2.0, Maine revamped its drug pricing transparency program. The law requires drug manufacturers to report to the Maine Health Data Organization (MDHO) — the state’s all-payer claims data program — when they increase the wholesale acquisition cost (WAC) of brand-name and generic drugs by certain thresholds. The law establishing the DARB, noted above, makes reference to using this data base in setting state drug spending targets.
This law also authorizes the MDHO to require pricing component data for specific prescription drugs from manufacturers, wholesale drug distributors, and PBMs and compels those entities to share that data. This bill also has more stringent enforcement mechanisms. If these entities fail to report the requested data, the state has the authority to audit data and can require a reporting entity to submit a corrective action plan for reporting deficiencies.
The NASHP transparency 2.0 model encourages states to adopt a common data set, which will reduce reporter burden and yield standardized, actionable data. The Maine bill goes beyond other states’ transparency bills because it requires reporting from each entity in the supply chain about past and projected costs and revenues at the individual drug level. A more robust set of data from the entire supply chain will help the state identify which players contribute most to drug price increases.
Wholesale Prescription Drug Importation Program – LD 1272
Maine is the fourth state to pass a law seeking implementation of a wholesale importation program, along with Vermont, Florida, and Colorado. Maine’s Department of Health and Human Services must submit a request for approval from the federal government no later than May 1, 2020. This bill is unique in that the program design must consider whether the program can be developed on a multistate basis through collaboration with other states.
Maine has taken a big step to hold the entire supply chain accountable for the rising cost of prescription drugs. Lawmakers have demonstrated their commitment to holding all parties in the prescription drug supply chain accountable for rising drug costs. These four bills will work in conjunction with each other to achieve fair dealings from PBMs, standardize transparency reporting requirements, set pharmaceutical spending targets for public payers, and develop a plan for the importation of prescription drugs from Canada.
For more information about what states are doing to address drug costs, explore NASHP’s legislative tracker and read about newly-enacted laws.

How to Build the Wright Stuff: Behavioral Health Integration

June 21, 2019/in Policy Annual Conference Chronic and Complex Populations, Cost, Payment, and Delivery Reform /by NASHP Staff

Ten States Selected to Attend Palliative Care Summit in Chicago

June 18, 2019/in Policy Arizona, Colorado, Hawaii, Kentucky, Massachusetts, Minnesota, Ohio, Oklahoma, Pennsylvania, Texas Blogs, Featured News Home Care Coordination, Chronic and Complex Populations, Chronic Disease Prevention and Management, Cost, Payment, and Delivery Reform, Health Coverage and Access, Long-Term Care, Medicaid Managed Care, Medicaid Managed Care, Palliative Care, Physical and Behavioral Health Integration, Population Health, Primary Care/Patient-Centered/Health Home, Quality and Measurement /by NASHP Writers

NASHP is pleased to announce the 10 states selected to attend the State Policymakers Palliative Care Summit, supported by a grant from The John A. Hartford Foundation. Policymakers, including legislators as well as Medicaid and public health officials from Arizona, Colorado, Hawaii, Kentucky, Massachusetts, Minnesota, Ohio, Oklahoma, Pennsylvania, and Texas, will participate in the day-long summit where they will learn from national and state experts about strategies to improve access to and quality of palliative care. For more information about palliative care, explore NASHP’s Palliative Care Resource Hub and sign up for its palliative care listserv.

Changes to Poverty Measure Could Disqualify Thousands from State and Federal Programs

June 17, 2019/in Policy Blogs, Featured News Home CHIP, CHIP, Chronic and Complex Populations, Chronic Disease Prevention and Management, Cost, Payment, and Delivery Reform, Eligibility and Enrollment, Eligibility and Enrollment, Health Coverage and Access, Health Equity, Maternal, Child, and Adolescent Health, Medicaid Managed Care, Medicaid Managed Care, Medicaid Managed Care, Medicaid Managed Care, Population Health, Social Determinants of Health /by Anita Cardwell and Christina Cousart

The Office of Management and Budget (OMB) is seeking public comment on possible changes to how the federal poverty measure is annually adjusted for inflation. The changes would impact individuals’ eligibility for multiple programs because the US Department of Health and Human Services uses the poverty measure to establish poverty level guidelines. A wide range of government assistance programs would be affected, including:

Alternative methods proposed by OMB … could reduce the poverty line by up to 3.4 percent over the next 10 years.

Medicaid
Children’s Health Insurance Program (CHIP)
Advanced Premium Tax credits (APTCs) and cost-sharing reduction payments (CSRs) allotted through state health insurance marketplaces
Supplemental Nutrition Assistance Program (SNAP)
Women, Infants, and Children (WIC) program
Health Professions Student Loans
AIDS Drug Assistance Program
Community Health Center funding
Low Income Home Energy Assistance Program (LIHEAP)

Currently, the poverty measure is adjusted by a factor known as the Consumer Price Index for all Urban Consumers (CPI-U), which has been in place since the measure was implemented. While changes could affect long-standing eligibility for state and federal programs, OMB states that an alternative inflation index would more accurately measure inflation. Alternative methods proposed by OMB include use of the “chained” CPI or the Personal Consumption Expenditures Price Index (PCEPI) — these two measures grow more slowly than the CPI-U and could reduce the poverty line by up to 3.4 percent over the next 10 years.
Over time, a slower rate of inflation would significantly impact individuals’ eligibility for the programs listed above. At particular risk would be individuals whose income hovers at the margin of eligibility, who would lose eligibility if the calculation was modified. For example, estimates indicate that more than 500,000 would lose eligibility for Medicaid or CHIP, including 300,000 children. In addition, the millions of Americans who qualify for subsidies to purchase coverage through the insurance marketplaces would see a reduction in the amount of subsidies they receive that make coverage more affordable, or they could become ineligible for those subsidies altogether. Similar reductions in eligibility would occur across programs critical to social determinants of health, including food assistance programs (SNAP and WIC) and early education programs such as Head Start.
An increase in the number of low-income individuals who are no longer eligible for health and other social supports could have significant repercussions on states’ safety net programs. There will be a rise in the number of uninsured as individuals lose eligibility for, or are priced out of coverage. Some may use their limited income for necessities like food, child care, and utilities instead of health care. These changes could result in increased uncompensated care costs. Additionally, states’ health care system costs could increase if individuals without coverage delay seeking care and wait to seek treatment for conditions only when they become urgent — and more costly to treat.
Additionally, using the chained CPI may not fully account for the rising price of necessities that low-income households spend a larger percentage of their income to purchase, such as housing, which in recent years has increased faster than overall CPI. Many analysts, as well as the National Academy of Sciences, have noted that the current poverty measure already does not accurately capture important costs such as child care that strain many low-income families’ budgets.
Comments on the OMB proposal are due Friday, June 21, 2019 and can be submitted here. Following this comment period, it is unclear whether the administration will conduct a more formal rule-making process related to these potential changes, or simply seek to implement them through OMB guidance.

Eliminating Hepatitis C: New State Payment Models for Treatment and Emerging Evidence

June 3, 2019/in Policy Louisiana, Washington Blogs Administrative Actions, Behavioral/Mental Health and SUD, Chronic and Complex Populations, Chronic Disease Prevention and Management, Cost, Payment, and Delivery Reform, Health Coverage and Access, Health IT/Data, Health System Costs, Maternal, Child, and Adolescent Health, Medicaid Managed Care, Medicaid Managed Care, Medicaid Managed Care, Medicaid Managed Care, Population Health, Prescription Drug Pricing, Value-Based Purchasing /by Maureen Hensley-Quinn

With hepatitis C infections on the rise and curative, but expensive, prescription drugs now available, state leaders across the country are compelled to address this public health crisis, and Louisiana and Washington are developing innovative drug-purchasing strategies within their efforts. At the same time, the Patient-Centered Outcomes Research Institute (PCORI) is investing in patient-focused studies into hepatitis C treatment to help fill gaps in our knowledge with a patient focus to help guide future state efforts to combating this deadly liver disease.

During this National Academy for State Health Policy (NASHP) webinar, officials from Louisiana and Washington share their approaches to using negotiated fixed price payments to ensure unlimited access to hepatitis C drugs for individuals with public health coverage.

Since 2010, the number of new infections has tripled, which experts attribute to the opioid crisis and an increase of people who inject drugs. A growing number of states are committing to eliminating hepatitis C as the World Health Organization, the US Centers for Disease Control and Prevention, and others are advocating. Such a commitment is possible due to drugs introduced in 2011 that can achieve cure rates above 95 percent when the 12-week treatment regimen is followed. However, the costs of these drugs in the United States remains high even though prices have dropped since their introduction. Although prescription drugs are just one component of states’ comprehensive public health hepatitis C elimination campaigns, the high cost of these drugs is the one of the biggest challenges facing states as they address this growing public health crisis.
Although their payment strategies are slightly different, Louisiana and Washington are exploring agreements with drug manufacturers to pay a flat fee over a contracted time period to gain unlimited access to hepatitis C drugs, rather than pay on a per unit basis, which is how most drugs are purchased. In Louisiana, corrections system populations and individuals enrolled in Medicaid and will have access to the drugs. In Washington , incarcerated individuals, Medicaid enrollees, public and school employees, individuals covered by workers compensation, and those in state hospitals will have access to the drugs as needed.
During this National Academy for State Health Policy (NASHP) webinar, officials from Louisiana and Washington share their approaches to using negotiated fixed price payments to ensure unlimited access to hepatitis C drugs for individuals with public health coverage.
As states forge ahead to design and implement strategies to eliminate hepatitis C and find ways to ensure access to treatment while working to contain costs, PCORI research is seeking to learn more about:

Effective screening to identify more cases;
What harm results, compared to no treatment;
Direct comparison of treatments in the real world; and
Effectiveness of care delivery models.

As results from these ongoing patient-centered research studies become available, they will help inform evolving state efforts to address the hepatitis C crisis. The introduction of the effective drug treatment has changed states’ public health approaches and incentivized Louisiana and Washington’s innovative purchasing strategies.
According to an overview of PCORI’s hepatitis C research highlighted during the webinar, researchers are hoping to learn how to most effectively engage people living with hepatitis C who use injection drugs to provide treatment that works. Patient-centered research is also seeking to learn more about the prevalence of re-infection. The evidence from these studies will help with clinical interventions, but could also be taken into consideration as states design, implement, and review their public health campaigns and treatment payment strategies.
Emerging issues, such as public health crises, require immediate attention and innovative cost-effective solutions from state officials. States’ call to action to address the rise in hepatitis C infections is an example of how they must react quickly using the information, appropriate lessons learned, and resources they have to address current crises. State officials are designing their drug contracts and plans to be as flexible as possible so they are able to adjust their approaches as new information becomes available, such as new PCOR evidence. As Louisiana and Washington learn from their prescription payment model and evidence becomes available from PCORI about treatment outcomes and approaches, state efforts will continue to evolve.

NASHP Awarded New Grant on Family Caregiving from The John A Hartford Foundation

June 3, 2019/in The RAISE Act Family Caregiver Resource and Dissemination Center Blogs Care Coordination, Chronic and Complex Populations, Chronic Disease Prevention and Management, Community Health Workers, Cost, Payment, and Delivery Reform, Council Meeting Materials and Resources, Housing and Health, Long-Term Care, Medicaid Managed Care, Medicaid Managed Care, Palliative Care, Population Health, Primary Care/Patient-Centered/Health Home, Quality and Measurement, The RAISE Family Caregiver Resource and Dissemination Center /by NASHP Writers

NASHP has been awarded a three-year grant from The John A. Hartford Foundation to develop a comprehensive resource and dissemination center on family caregiving. The grant will fund NASHP’s RAISE Act Family Caregiver Resource and Dissemination Center, a national focal point for resources, technical assistance, and policy analysis for states and the broader community of stakeholders interested in this important and timely issue. The initiative builds on the Recognize, Assist, Include, Support, and Engage (RAISE) Family Caregivers Act, which was passed by Congress last year and establishes an advisory council charged with crafting the country’s first national family caregiver strategy. Under the auspices of the Administration for Community Living, the council will provide a framework for how the federal government, states, and communities can better address the needs of family caregivers.
Family caregiving is a timely and critical issue for state policymakers: state Medicaid programs cover six of every ten of the country’s nursing home residents, and spend $58.5 billion per year on home and community-based services (HCBS) for older adults and people with disabilities. As savings for US families decline and long-term care costs increase, state Medicaid programs will continue to serve as the de facto long-term care safety net for older Americans, including middle-class families who spend down assets. Research shows that engaged family caregivers can reduce the need for home health services, delay the need for nursing home care, and lower an individual’s overall risk for nursing home placement. However, to be successful, caregivers – who may be juggling a range of work, financial, and other family responsibilities – require appropriate policy and programmatic support. The current issue of Health Affairs, which focuses exclusively on long term and end of life care, notes that more innovation is needed at the state and federal levels to truly support older adults and their caregivers: “Ultimately, the focus of serious illness care must be expanded from the patient to the family unit.”
NASHP is excited to work with state leaders, federal partners, and other stakeholder organizations in their efforts to address the needs of family caregivers, and looks forward to supporting and disseminating the important work that results from the RAISE Act Advisory Council. Watch for more news of this innovative project in the coming weeks and months.

States Lead on Surprise Medical Billing Protections, Congress Poised to Follow

June 3, 2019/in Policy Charts Cost, Payment, and Delivery Reform, Health Coverage and Access, Health IT/Data, Health System Costs /by Christina Cousart

State Surprise Medical Billing Laws Can Inform the Congressional Debate

May 28, 2019/in Policy Blogs Cost, Payment, and Delivery Reform, Health Coverage and Access, Health IT/Data, Health System Costs /by Christina Cousart, Trish Riley and Maureen Hensley-Quinn

As Congress and the Trump Administration propose strategies to address surprise balance billing – charges for unexpected, out-of-network medical care – states have significant experience in implementing surprise billing laws that can inform the discussion. Importantly, state authority cannot protect individuals covered by self-insured plans, which are pre-empted by Employee Retirement Income Security Act (ERISA,) from state oversight. To extend protections to consumers covered by these plans federal action is needed either through mandated protections or a change in law to enable states’ laws to apply toward ERISA plans.
States’ approaches to addressing surprise balance bills vary in how they:

Define what services are covered by these protections;
Address how reimbursement for services should be resolved; and
Define provider and insurer transparency requirements.

Through National Academy for State Health Policy’s (NASHP) work with states, it has identified the following themes and lessons from state laws and experiences that could help inform future federal action on surprise balance bills.

Broadly define services covered by the law.

Balance billing protections are strongest when they extend to both all emergency circumstances and situations where the consumer does not have control over the out-of-network (OON) services provided. Such situations can occur without consent of the patient when an in-network physician is unavailable, because of an unforeseen medical situation, and/or because of a direct referral to an OON provider or facility rendered by an in-network provider. Surprise balance billing laws that include provisions to extend protections broadly across multiple provider and facility types, including specialists, labs, imaging centers, and air and land ambulance transport, offer the strongest consumer protections.

Consider multiple factors when determining the law’s dispute resolution process.

Essentially, state laws take two approaches to resolve billing disputes for surprise balance bills – setting a specific reimbursement rate for such bills and/or defining an arbitration process through which providers and insurers can resolve payment disputes. Because many state balance billing laws are nascent — and have been implemented during a time of considerable policy change affecting health care markets — there is a lack of evidence identifying the ultimate effects, either positive or negative, of either approach on state health insurance markets, including their impact on premium costs and provider network composition. Both approaches have challenges. Setting reimbursement rates for balance bills can be challenging given the multiple stakeholders involved and there is time and expense to consider in establishing fair mediation or arbitration systems. Whatever strategy Congress adopts, states’ experiences suggests the following factors for consideration:

Remove consumers from billing disputes. To maximize consumer protection from surprise balance bills, the process for resolving reimbursements should be kept between the insurer, the provider, and any agency appointed to aid in resolution. To encourage this, additional requirements may be put in place to foster direct communication between providers and insurers, such as a requirement that insurers alert providers about what, if any, ability they will have to balance bill for services rendered to the insurer’s beneficiary. (For example, multiple states require insurers to include this information in their Explanation of Benefits sent to providers.)
Use of data sources that leverage claims data. By using this data, such as that collected by all-payer claims databases (APCDs), reference price amounts for negotiations for medical bills will be based on actual paid amounts, rather than billed amounts. The latter may lead to inflated rates and higher health care spending. However, not all states have APCDs. Including funding to support state APCD programs could be an impetus to improve access to needed claims data in every state. To assure the most robust data collection, however, requires Congressional action to amend ERISA or provide other means for states to mandate the collection of claims data from self-funded plans. The Supreme Court’s ruling in Gobeille v. Liberty Mutual currently prohibits such requirements. While states do encourage voluntary reporting with some success, a mandate would assure more consistency in reporting. One of the issues identified in the Gobeille decision was the burden on self-funded plans created by different reporting requirements in different states. Including reference to the common data layout developed by states would resolve that reporting burden question.
Inadvertent effects on provider networks and contracts. The ultimate reimbursement rates paid to resolve surprise balance bills should provide sufficient compensation to providers, without incentivizing providers to stay OON. For example, a benchmark that provides payments set too high may incent providers to remain OON. However, payments set too low may impose negative impacts on providers already operating on the margins. To protect against the latter, reimbursement calculations may consider a variety of factors, including average payment amounts for similar services, geographic cost variation, provider experience, or other factors unique to the situation of the service performed.
Set a fixed amount for consumer cost sharing. This added protection will guard consumers from potentially exorbitant out-of-pocket costs in the case that final reimbursement rate decisions on a balance bill result in large out-of-pocket cost-sharing for services from deductibles, coinsurance, etc.

Include prohibitions on billing practice and hold harmless protections.

The most protective strategy would be an explicit prohibition on the part of providers or insurers from balance billing patients. While this should absolve consumers from the surprise billing burden, the law should also be clear in holding consumers harmless in situations where a balance bill is being negotiated between insurers and providers. This may take the form of specifying what form of contact, if any, insurers and providers may take with consumers regarding billing disputes and prohibiting certain actions, like credit reporting, against consumers.

Encourage enforcement through federal penalties.

Because of their limited jurisdiction over providers and certain health plans, enforcing surprise billing protections has been a challenge for some states. A successful federal law would include an enforcement mechanism that would support additional compliance with surprise balance billing laws.

Include deference to existing state laws.

States, including those with robust balance billing protections, have taken very different approaches to crafting their laws. This wide variation reflects states’ diligent and deliberate work to find solutions to surprise balance billing that work best for their markets.
States’ experiences can inform Congressional proposals and deliberations to address balance billing – from requiring transparency about networks and service costs to establishing the processes to determine the reimbursement rate for an OON provider. States have acted to protect consumers, experimenting with a variety of strategies to protect consumers from unexpected financial exposure. Federal action can extend the reach of those protections to include consumers covered by self-funded, employer-based insurance, but it should consider how any new federal law will impact state progress in this important arena of consumer protection.

A New State Tool to Manage Drug Costs: Experts Share Insights into Outcome-Based Contracts for Medicaid Pharmacy Claims

May 27, 2019/in Policy Colorado, Michigan, Oklahoma Blogs Administrative Actions, Chronic and Complex Populations, Chronic Disease Prevention and Management, Cost, Payment, and Delivery Reform, Health Coverage and Access, Health IT/Data, Medicaid Managed Care, Population Health, Prescription Drug Pricing, Quality and Measurement, Value-Based Purchasing /by Jennifer Reck

Colorado and Michigan have joined Oklahoma to become the nation’s pioneering states with approved State Plan Amendments (SPAs) that enable Medicaid alternative payment models (APMs) for prescription drugs in the form of outcome-based contracts with pharmaceutical manufacturers.
In early May, state experts from Oklahoma, Colorado, and Michigan shared their experiences implementing their APMs during a NASHP webinar. A recording of the webinar is available here.

Experts from Oklahoma, Colorado, and Michigan shared their experiences implementing their outcome-based Medicaid alternative payment models during a recent NASHP webinar. Listen to the webinar here.

The SPAs enable states to negotiate contracts based on agreed-upon outcome measures tailored for specific drugs. Outcomes measures vary but may include measures such as patient adherence or reduced hospitalizations. If the drug’s performance fails to meet agreed-upon outcomes and triggers the need for additional manufacturer payments to the state, those payments are made in the form of supplemental rebates. The contract template was developed with the support of the State Medicaid Alternative Reimbursement and Purchasing Test for High-cost Drugs (SMART-D).
Though these outcomes-based APMs are valuable tools for states to manage escalating drug costs, APMs are best understood as “one more tool in our toolbox,” which are most effective when used in tandem with other strategies rather than in isolation, explained Cathy Traugott, pharmacy office director of the Colorado Department of Health Care Policy and Financing. Though these APMs may help states manage payment for high-cost drugs, the high-list prices themselves remain a problem that states are also attempting to address head on. During this year’s state legislative session alone, 47 states have filed 254 drug-cost-related bills (as of May 22, 2019).
Executing and implementing outcome-based contracting can be a time-consuming endeavor for states because of the necessity for state officials to engage with multiple manufacturers in exploratory discussions to identify drug candidates, followed by the data analysis necessary to design, and then track the outcome-based measures.
Oklahoma, whose work NASHP supported through a subgrant from the Laura and John Arnold Foundation, found that the process took longer than anticipated. Terry Cothran, director of the University of Oklahoma’s College of Pharmacy, advised states that pursue outcomes-based contracting to consider dedicating a project coordinator to execute the work most effectively.
To date, these contracts are with state Medicaid agencies only, and have not included inter-agency efforts. Rita Subhedar, state assistant administrator for Michigan’s Department of Health and Human Services, stressed the importance of broad engagement within a Medicaid department to effectively implement these APMs, including pharmacy, medical, and behavioral health staff. A separate, subscription-based payment approach, known as the “Netflix” model, utilizes a cross-agency approach engaging both Medicaid and a state corrections department. This approach was explored in another NASHP webinar, How States Pay for Hep C Drugs Using a “Netflix-style” Subscription Model.
The first results from outcome-based contracting will come from Oklahoma, whose first, one-year contract is scheduled to end July 2019, with three other contracts concluding soon after. Colorado and Michigan have not yet executed contracts.