Cost Containment in Medicaid

I took some time over the Thanksgiving holiday to think about next year and what may happen from a health care policy perspective.  I've spent the last few months discussing several aspects of health care reform at the national level, frequently focusing on cost containment and quality of service issues from IPAB to comparative effectiveness.  Federal issues tend to grab national headlines, yet health care policy in a state can have just as large of an impact to patients.

We're approaching the holiday season, a record number of newly elected administrations across states are preparing to take office, and existing administrations are continuing to implement their agendas.  Many of these administrations are faced with state budget issues, this in turn greatly impacts Medicaid (Medicaid often makes up 20-35% of a state's budget).

Medicaid can pose a serious challenge to policymakers who are interested in reducing cost while providing quality care to low-income men, women and children and those with disabilities.   While Medicaid is jointly funded by federal and state dollars, it is up to the states to implement the program and thus, determine cost containment measures.  Recently you may have seen the discussions regarding a proposal by Texas Republicans to drop out of Medicaid because of these rising costs.

While the proposal in Texas is one extreme, many states are facing a similar dilemma.  How do they contain costs within Medicaid while providing access to treatments for the Medicaid population?   The most discussed measures include:

  • Implementing a preferred drug list with prior authorization requirements
  • Limiting the number of prescriptions an individual can fill
  • Setting a "fail-first" policy that allows physicians to prescribe medicines of their choice only after a patient fails to improve while on a program determined alternative.
  • Increasing - and mandating the use of generics (generic and therapeutic substitution)

A quick digression about generic substitution versus therapeutic substitution.  Some people may be surprised that at Lilly we support the use of true generic substitution as a method to lower costs.  In many ways this is our legacy. When patent protections on our original discovery expire, our innovation is left to generic companies to market  to patients at lower prices.    What can be harmful to patient care is the use of therapeutic substitution, where a payer attempts to substitute a "similar" but not generic medicine for a branded pharmaceutical based solely on cost.  In other words, under this system the patient gets something that the payer, not the physician, deems close to the prescription, but not identical.  Because people can react differently to the smallest difference in formulations, therapeutic substitution can lead to outcomes contrary to a patients best interest, can be contrary to physician's wishes and can even result in a patient being switched from a medicine which is working well and is well tolerated to one which benefits only the payer as it is less expensive without similar efficacy.  We support generic substitution to lower costs, but believe that therapeutic substitution can have harmful effects and can diminish the patient-physician relationship.

You can read more about cost containment and generic vs. therapeutic substitution in our health policy guide, available here (the link doesn't exist anymore).

When policymakers evaluate these cost-containment measures, it is important to consider both the short and long term effects.  Each option may reduce costs in the short term but can have significant long term consequences, such as limiting access to innovative treatment options.

Later this week, I'll continue exploring this and other issues important to health care across the states.