The Medicare Drug Benefit

Impact on States, and
Medicaid Cost Containment
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Map for Today
 Key MMA Issues for:
 Medicaid
 State Pharmaceutical Assistance Programs (SPAPs)
 Other Agencies
 State Retiree Benefits
 Medicaid Cost Containment Options
 Eligibility
 Benefits
 Unit Costs
 Utilization
 Managed Care
 Revenue enhancement & cost avoidance
 Administrative Efficiencies

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State Concerns in General
 Access and continuity of care for individuals
dependent on state programs
 States are safety net providers if Medicare fails
 Potential for impact on non-drug costs born by
states if Rx access is inadequate
 Burden on state resources to educate and assist
beneficiaries and to adapt state programs to MMA
 Impact on State Budgets:
 Will costs outweigh savings? Hidden and known costs
 Will predicted savings all materialize?
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Medicaid Issues & Options
 Clawback
 Based on (2003 per capita payments) x (inflation) x
(# of duals) x (90 to 75%)
 Need to assure base year cost report reflects all
audits, rebates, etc.
 Annual inflation factor may erode built-in savings
 Different states pay different amounts per capita for
same Medicare benefit – Will formula change over

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Key Issues for Medicaid: Costs vs. Savings
What is the “Clawback”?

State Clawback Rate by Year
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
and on
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Key Issues for Medicaid: Costs vs. Savings

2001 2002 2003 2004 2005 2006 2007
PDL Initiation
• State enacts PDL in 2003
• Savings realized in ’04-’05
• Projected reductions beyond ’05
Clawback Provision
• 2006+ costs are per capita calculations
based on 2003 spend
• Savings realized in ’04-’05 are irrelevant
• State has lost control of spending
Actual state Rx
drug spend
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Enrollment: Implications for Medicaid
 Screening of LIS applicants for Medicare Savings Programs
 May increase enrollment in these Medicaid programs
 Info and assistance to duals in selecting PDPs and others in applying
for LIS
 Some states supplementing CMS efforts
 Info to duals about best formulary match to drug profile
 Important to train related agency case managers to help clients with
choices: MH, MR, Aging, AIDS programs, H&CB waiver programs, etc.
 Training for NFs, ICF-MRs, pharmacists, MDs
 Collaboration with SHIPs, AAAs, senior insurance advice programs, etc.
 LIS limited to average PDP premium – should Medicaid pay difference
for higher cost plans?

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Take-Up Rates for Assistance Programs
Note: Medicare Part D includes employer coverage. Medicare Part D and low-income subsidies begin in January 2006. Part D rates are estimates from CBO.
Numbers appearing as a range were averaged. Take-up rates for Medicare Parts A and B, Medicaid, and SSI are from 1975-1996.
SOURCE: Medicare Part D, Part D Low-Income Subsidy, QMB, and SLMB rates from CBO, July, 2004; National Bureau of Economic Research, March 2001.

Note: Medicare Rx Card participation WITH auto-enrollment and including MA plan cards = ~20%
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Medicaid Coverage Options
 Medicaid can cover drugs excluded from Part D
with FFP
 Benzodiazepines, barbiturates, OTCs, etc.
 No FFP for covering duals‟ copays or non-
formulary drugs, but not prohibited from doing so
 Not practical to process claims for copays - but
Pharmacists can waive copays
 Fear coverage of non-formulary drugs will encourage
PDPs to be restrictive

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Consumer Protections for Duals Diminished
 No 3 day emergency supply
 Slower turn around on PA and exceptions
 No coverage during appeal
 Psych drugs exempt from most state PDLs and
access limits
 Potential for impact if therapy interrupted
 Clinical and financial
 Copays can be higher under MMA
 In Medicaid, bene served even if can‟t pay copay

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Medicaid Program Aspects to Reconsider
 Drugs in managed care contracts
 Duals‟ drugs must be carved out
 Drug copays on non-dual population, pregnant women
and EPSDT kids all exempt
 PDLs
 Not cost effective to start one now for duals
 Existing PDLs will save less once duals, who use most chronic
drugs, move to Medicare
 May not be able to negotiate as big rebates with smaller drug
 Reconsider which drugs to put on PDL – focus on drugs used by
remaining population
 Do NF per diems or HH encounter rates include drug

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SPAP Issues
 Few SPAP programs in Western States: TX,
WY, WI, NV – small programs
 TX only state here with an SPAP – So TX can
talk to me later about changes they should
consider in their program that will save money!
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Review AR laws
 Many duals not capable of navigating appeals process
without help
 AR = “individual appointed by the enrollee or authorized
under state law to act on behalf of…”
 Individuals, case managers, doctors, etc can become
appointed representatives (AR) for purposes of appeal
 Check states laws re: conservators etc to assure
compatability with Medicare rules on AR
 Educate AR‟s about MMA requirements: e.g. send in
signed form annually

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Impact on Other State Agencies
 An interagency task force is advisable

 Mental Health Agency
 Assist in PDP selection based on drug needs & formularies
 Assist in navigating the PDP rules to get benefits – PA, etc
 Impact on clinics to switch drugs
 Potential for impact on patients if therapy interrupted…
Provide emergency supplies of meds?
Assist with appeals?
 Revise discharge planning procedures for inpatients
 Become AR for clients
 Provider training
 MR/DD Agency
 Assist their dual clients to pick a good plan and navigate the system to
get benefits
 Become AR for clients
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Impact on Other State Agencies
 Insurance Dept:
 PDPs to have state insurance license
 Questions and complaints: no real authority, but good
to track and try to resolve anyway
 Role of ombudsman
 Consumer info on how to compare plans
 Report cards on plan performance
 Dept on Aging, Dept of Health
 Be prepared to offer info and advice, & receive many
 Impact on Ryan White AIDS drug progams
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State Retirees: Provisions & Options
 Retiree plans may qualify for a 28% subsidy of their drug payments for
 Retirees must be eligible for but not enrolled in Part D plans
 Plan must be actuarially equivalent to Part D benefits
 Subsidy only on actual costs (excluding rebates) between $250-5,000, so subsidy
is capped at $1330 per person
 Alternative to retain current benefit plans:
 Become a waivered PDP and collect federal premium payment (74.5% of national
average premium) plus risk corridors, reinsurance, & LIS payments
 Need to evaluate if this will result in more state savings than the 28% subsidy
 Had to file letter of intent by mid-March, „05 to do a waiver for „06, but can apply for
 Other alternatives
 Employer pays beneficiary portion of premiums to PDPs
 Employer offers wrap around plan (note payments do not count towards TrOOP,
no subsidy)
 Employer offers non-qualifying plan, no 28% subsidy
 States need actuarial analysis to determine savings and make choice
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 States should establish an evaluation protocol to
assess impact on:
 DMH expenditures and utilization
 Medicaid and SPAP costs, utilization and quality
 Other agencies
 Need full analysis of savings and costs
 (SPAP + Medicaid + Retiree savings eligibility) vs.
(admin. costs + clawback costs + education costs)
 If net savings: how should savings be used?
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Medicaid Cost Containment
 Medicaid Cost Containment Options
 Eligibility
 Benefits
 Unit Costs
 Utilization
 Managed Care
 Revenue enhancement & cost avoidance
 Administrative Efficiencies
 The easy ideas are done, the rest may take
waivers, legislation, political guts
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 Cut back eligibility for optional groups
 Prevent transfer of assets for nursing home
 LTC insurance partnerships
 Strengthen estate recovery
 HIFA waivers: expand (or preserve) eligibility
but for limited benefits for higher income groups
 Reduce # of uninsureds / strengthen employer

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 Eliminate optional services – many restrictions –
EPSDT, pregnant women, etc
 Replace high cost services with low cost
alternatives: H&CB waivers
 Reform partnership with Medicare to better
manage continuum of care for elders & save
state $

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Unit Costs
 Selective contracting
 MFN language in all provider contracts
 Multi-state Centers of Excellence contracts for
tertiary hospital services
 Cut provider reimbursement rates
 Mandatory generic substitution

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 Provider initiatives
 Profiling and network management
 Fraud and abuse detection & prevention
 Intensive Clinical case reviews when costs or utilization hit
 Prior authorization of services, if cost benefit is documented –
e.g. extensive home health, selected surgeries, extensive PT,
certain drugs
 Drug recycling programs for unused drugs in nursing homes
 Patient initiatives
 Disease management, self care education
 Co-payments for non-emergency use of ER
 Lock-in for inappropriate use of services

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Managed Care
 Capitated Managed care
 Mostly for families, not the sickest populations
 Use managed care principles in FFS program
 Selective contracting & network management
 Case mngmt, disease mngmt for high risk/cost folks
 Performance based provider payment
 Copayments for upper income groups
 UM, where cost benefit is demonstrated

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Administrative Efficiencies
 Sometimes complicated by civil service & labor
 Admin overhead very low in Medicaid, cuts in
admin can result in higher cost of health care
 Beware of stove pipes: evaluate impact of carve
outs on full budget not just line item

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Revenue enhancement & cost avoidance
 Buy-in for employer sponsored insurance
 Enhance TPL activities
 Medicare recoveries
 IGTs, DSH, and provider taxes much more
tightly scrutinized & controlled by CMS

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Final Pearl:
 Invest in solid evaluation of each initiative‟s
impact on total costs & on quality:
 beware of line item savings that increase costs
elsewhere in the program or in other agencies.
 Beware of cost shifting….what can be shifted can be
shifted back through utilization, state employee health
costs, etc.

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