State Medicaid Resource Kit: Maintaining Quality and Patient Access to Innovative Pharmaceuticals in Challenging Economic Times

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STATEMEDICAIDRESOURCEKITMaintaining Quality and Patient Accessto Innovative Pharmaceuticalsin Challenging Economic Times

NATIONAL PHARMACEUTICAL COUNCIL December 2006

Prepared by

Mary Kay Owens, RPh, CPh

President, Southeastern Consultants, Inc.


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Many thanks to Rebecca Stephens, Southeastern Consultants, Inc.,

and Kathryn Gleason, National Pharmaceutical Council,

for their greatly appreciated assistance with this project.


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States are struggling to provide quality, cost-effective health care for their Medicaid beneficiaries while making important

choices about which interventions to implement in order to manage health care spending. Appropriate cost containmentstrategies should maintain access to quality care and avoid false savings produced by cost-shifting to other segments

within the Medicaid budget. States first steps must recognize the unique characteristics of the Medicaid population and

identify key elements of spending.

NPC developed the State Medicaid Resource Kit to help states better identify the needs of their populations and to

develop patient-focused cost management interventions while maintaining quality care. The Kit discusses the factors that

influence Medicaid spending, specifically pharmaceutical spending. In particular, the Kit addresses the careful application

of interventions for the aged, blind, and disabled populations their intense use of resources brings close scrutiny of

costs, while their fragile health status requires a special need for individualized care.

The State Medicaid Resource Kit also contains a detailed discussion of the pros/cons and design issues for sixteen specific

strategies that states are exploring in the areas of quality assurance, utilization management, and operational systems.Inclusion of these specific strategies does not signify or imply NPC support. Rather, they are included to provide a

comprehensive overview of the strategies being used to reduce pharmacy costs, enhance program efficiency, and improve

quality of care.

We hope you find the Medicaid Resource Kit helpful as you seek to understand your unique Medicaid population and

ways to provide quality, cost-effective care to the Medicaid beneficiaries in your state.

FOREWARD

1894 Preston White Drive

Reston, VA 20191-5433

Tel. (703) 620-6390

Fax. (703) 476-0904

Web. www.npcnow.org

NATIONAL PHARMACEUTICAL COUNCIL


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Introduction.........................................................................................................................3

Recent Changes Impacting Medicaid .............................................................. ......................3

Medicare Modernization Act of 2003: Part D Drug Benefit ........................................................................3

Deficit Reduction Act of 2005.........................................................................................................................3

State Medicaid Reform Initiatives ..................................................................................................................4

Population Characteristics.................................................................................................................4

Factors that Influence Pharmaceutical Spending ..............................................................................7

Medicaid Budget Strategies ..............................................................................................................7

Quality Assurance Initiatives.............................................................................................................9

A. Disease/Case/Care Management...................... ................................................................................................................9

B. Centers of Excellence.......................................................................................................... .............................................13

C. Enhanced Data Analysis with Medical/Drug Review Management........................................................................14

D. Practice Pattern Analysis................................................................................................................................................15

E. Enhanced Primary Care Case Management (PCCM) ..................................................................................................16

F. Pharmaceutical Industry Value-Add Programs ...........................................................................................................18

Utilization Management Initiatives .......................................................... ..........................19A. Patient Lock-in Program .................................................................................................................................................19

B. Fraud/Abuse Detection System/Audit Program ..........................................................................................................20

C. Co-payments for Prescriptions......................................................................................................................................21

D. Prior Authorization Programs and Clinical Criteria Application............................................................................23

E. Third Party Liability ..........................................................................................................................................................25

F. Prescription Limits ............................................................................................................................................................26

G. Drug Therapy Parameters ...............................................................................................................................................28

Operational Systems Initiatives..........................................................................................29A. Decision Support Systems............................................................................................................................................................................................29

B. Reimbursement Policies.................... ................... ................... ................... ................... ................... ................... ................... ................... ................... ..30

C. Preferred Drug Lists (PDLs)...........................................................................................................................................................................................31

Resources.........................................................................................................................................................37

References........................................................................................................................................................41

TABLE OFCONTENTS


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A number of recent federal legislative changes have occurred that significantly impact the Medicaid program: the Medicare

Modernization Act of 2003, which included the Part D drug benefit; the Deficit Reduction Act of 2005; and reform efforts

proposed and/or implemented by many states to reduce future Medicaid spending growth.

Medicare Modernization Act of 2003: Part D Drug BenefitThe Medicare Prescription Drug Improvement and Modernization Act of 2003 (MMA) created a significant expansion of the

Medicare program by establishing a new prescription drug benefit (Part D). The new benefit has major implications for state

Medicaid programs for the first time, beneficiaries who are eligible for both Medicare and Medicaid (dual eligibles) now

receive prescription drug benefits from Medicare, not from Medicaid.6

Deficit Reduction Act of 2005

The Deficit Reduction Act of 2005 (DRA) contained thirty-nine sections that the Congressional Budget Office (CBO) estimates w

have an effect on federal Medicaid spending.7 These sections include requirements for documentation of citizenship and asset

transfer rules for determining Medicaid eligibility, reimbursement changes for pharmaceuticals, and the flexibility to increase an

enforce enrollee cost sharing requirements and offer alternative benefit packages. The DRA also contained appropriations forspecific Medicaid activities, for example, over $75 million annually between FY2007 and FY2010 for Medicaid program integrity

enhancements and over $75 million annually in FY2007 and FY2008 for transformation grants to states to increase quality and

efficiency of care.8 These generous appropriations should be considered by states as funding mechanisms to design, implement

and enhance various quality assurance, utilization management, and operational system strategies outlined in the State Medica

Resource Kit.

INTRODUCTIONMedicaid is the nations largest health insurance program for low-income families, the elderly, and the disabled, covering

more than 55 million low-income individuals in 2006. The Federal government requires Medicaid to cover a broad range of

basic services, including physician and hospital services, nursing home care, and home health care.1

It also allows states theflexibility to offer many optional services, such as prescription drugs (which every state currently offers), prosthetic devices,

dental care and others.2

The Federal government and the states share responsibility for financing Medicaid. The federal government provides a

guaranteed match to states for services to Medicaid enrollees. The federal matching percentage (Federal Medical Assistance

Percentage, or FMAP) is inversely proportional to a states average personal income relative to the national average and

varies by state from a low of 50 percent to a high of 77 percent.3 Over three quarters of states experienced a reduction in

their FMAP in either 2006 or 2007, with 19 states experiencing a decline in both years. These declines place pressure on

states to allocate additional state general revenues to maintain current program levels.4

In 2006, a dramatic shift occurred across all states as total Medicaid spending increased on average by only 2.8 percent.

This marked the lowest growth rate in Medicaid spending since 1996. Additionally, state revenues grew at a faster rate thantotal Medicaid spending since 1998, further assisting states with the burden of financing Medicaid. A major factor in

dramatically slowing the program spending growth was a low enrollment growth rate of 1.6 percent (attributable mostly to

the improved economy) that resulted in fewer people becoming eligible for Medicaid services.5

RECENTCHANGESIMPACTINGMEDICAID


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The DRA includes net savings of $4.9 billion and gross savings of $11.5 billion over the next five years. 9 The CBO estimates

that DRA provisions related to premiums and cost sharing will reduce federal Medicaid spending by $1.9 billion over the nexfive years and by $9.9 billion over the next ten years with approximately 70 percent coming from increased cost sharing

and the remaining 30 percent from premiums. The CBO estimates that the DRA will generate $3.9 billion in savings

attributable to changes in prescription drug payment policies, accounting for one-third of the Medicaid savings in the bill.10

State Medicaid Reform Initiatives

A number of states have designed and submitted Medicaid reform proposals to the Centers of Medicare and Medicaid

Services (CMS) via Section 1115 waivers or via state plan amendments under DRA provisions. Section 1115 waivers give state

the federal approval to alter the way they provide coverage and/or deliver Medicaid services outside the federal standards an

still receive federal matching funds. Recent waiver and state plan amendment activities have focused on reducing coverage

by reducing enrollment and benefits for segments of the population as well as by making broad structural changes to the

program.

State reform initiatives seem to have a common theme which includes introducing consumer-directed and market-based

principles into the Medicaid program. Many states reform proposals include features such as performance incentives,

outcomes monitoring, and consumer satisfaction surveys, to prompt individual providers and health plans to proactively

manage medical conditions, use preventative services, and follow recognized treatment guidelines and best practices. Health

plans and providers will have an incentive to provide quality care to attract consumers and obtain financial performance

rewards. These reform plans include the expansion of managed care to provide services through private health plans. States

such as Florida, South Carolina, Kentucky, and West Virginia are implementing plans that have similar characteristics and

themes.

The factors with perhaps the greatest influence on Medicaid spending include demographics and special population

characteristics. As a whole, the Medicaid population uses health care services more intensively than the general population.

One study found that 61 percent of adult Medicaid enrollees have chronic or disabling conditions and that these enrollees a

15 times more expensive to treat ($6,672 annually) than those adult enrollees without such conditions ($432 annually).11 In

fact, the elderly and disabled Medicaid population (13 million people) account for 23 percent of enrollees and 68 percent of

expenditures while children and adults represent 70 percent of enrollees and 28 percent of expenditures (Figure 1). Nationall

Medicaid provides health care coverage for 60 percent of long-term care residents, 44 percent of those living with HIV/AIDS,

and 20 percent of those with severe disabilities.12 These population groups are less likely to be in Medicaid managed care

programs due to their special needs, thus remaining in the fee-for-service setting.

Almost 7.5 million Medicaid beneficiaries are dual eligibles individuals eligible for Medicaid and entitled to Medicare, the

federal health insurance program. Dual eligibles represent only 14 percent of Medicaid enrollees, but account for 40 percent

of total Medicaid spending. The shift of drug coverage for dual eligibles to Medicare Part D in January 2006 will only reduce

overall state Medicaid spending for the duals by 6 percent as Medicaid continues to provide long-term care services, some

acute care services, and Medicare premium and cost sharing payments for the duals.13 Providing health care to the dual

eligible population poses considerable challenges: approximately 62 percent of the dually enrolled population have less than

high school education and three-quarters of the duals report some functional limitation with 28 percent reporting three to

six affected activities of daily living (e.g., eating, bathing).14

POPULATIONCHARACTERISTICS


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Within Medicaid the elderly, blind, and disabled populations are responsible for over 80 percent of state Medicaid drug

spending nationally (Figure 2).15 Average annual drug expenditures for the elderly and disabled enrollees are more than twelve

times the adults average annual drug expenditures and nearly twenty-four times those of a child.16 There are approximately

5.4 million elderly and disabled, non-dual enrollees that continue to receive drug coverage under the Medicaid program.17 The

elderly and disabled are faced with unique health variables, including a higher prevalence of multiple diseases that may

require more prescriptions, different reactions to medicines because of changes in metabolism and organ function that

demand individualized drug therapy, and age- and illness-related compliance and persistency challenges.

In addition to the elderly and disabled populations, Medicaid reflects our culturally and ethnically diverse national population.

Currently 38.8 million Hispanics live in the U.S. and represent 14 percent of the U.S. population.19 The U.S. Census Bureau

projects that, within the Medicare eligible population, the minority population will increase at twice the rate of non-

minorities in the next two decades.20 In the next three decades, the non-white and Hispanic populations are expected to

double, while the white population is expected to remain comparatively stable.21 Racial and ethnic groups can have different

physiological responses to drugs (e.g., differences in metabolism, clinical effectiveness and side-effect profiles) as well as

different psychosocial views of disease and the medications used to treat them.

Because individualized care and access to a broad variety of pharmaceuticals is extremely important for elderly and ethnically

varied populations, some traditional cost containment strategies may not be appropriate for Medicaid populations or may

need to be modified.22 For example, the development of preferred drug lists and formularies with mandatory prior

authorization for drugs not on the list can pose serious delays in access to treatment and result in negative patient outcomes

Percent Beneficiaries and Expenditures by Enrollment Group

Elderly/Blind/Disabled = 23% Enrollees and 68% of Expenditures

*Beneficiaries are recipients of actual services.**Total expenditures exclude administrative expenses. Source: CMS, MSIS 2003 data. Table 9

Beneficiaries*

Figure 1

Expenditures**

Children 48%

Children 17%

Adults 22%

Adults 11%

Elderly 8%

Unknown 7%Elderly 24%

Unknown 4%Blind/Disabled 15%

Blind/Disabled 44%


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if there are no appropriate safety nets and provider-friendly operational processes to quickly and effectively allow for

individualized care. Elderly and disabled enrollees, who are seriously ill, need acute treatment with antibiotics and/or other lif

saving drug therapies, or need individualized treatment to carefully manage a chronic condition, often require immediate

access to the medicines selected by their doctor. Sociological factors and Medicaid enrollees limited understanding of drugs

and health care also compound the negative effects of delaying drug therapy and create patient confusion. Therefore, an

expeditious process for physicians to obtain exceptions to restrictive drug lists is essential.

Clinicians generally agree that specific groups should be exempt from the formulary, preferred drug list (PDL) or priorapproval process, such as patients with transplants, HIV/AIDS infection, serious mental illness, multiple chronic diseases, and

other high-risk groups. For those not exempt, a broad choice of covered products in each therapeutic class is particularly

necessary due to the complex utilization and disease patterns of the elderly, disabled, and chronically ill populations, as well

as the special needs of minority populations. Private managed care plans have used formularies and other strategies such as

co-payments and limits on prescribed drug benefits for years. However, it is important to understand that the elderly,

disabled, and chronically ill Medicaid populations are very different from the typically young, healthy managed care

population and therefore require a different approach to managing utilization and costs. Also, members of private plans ofte

have the money to buy the drugs they need regardless of the barriers presented, while impoverished Medicaid beneficiaries

have no choice but to accept what the program offers them. Creating barriers to treatment in a Medicaid population can

yield adverse clinical events and unnecessary program costs.

National Medicaid Drug ExpendituresPre-Medicare Part D Shift for Duals, Jan. 2006

Percent Expenditures by Eligibility Group Pre-Part D*

*Aged, blind, and disabled account for 82% of drug spending.Duals account for 50% of total drug spending.**

Source: CRS, Prescription Drug Coverage Under Medicaid, February, 2006

**2004 Expenditure Report, National Association of State Budget Officers

Children 9%

Adults 9%

Aged 25%

Blind &Disabled

57%

Figure 2


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FACTORS THATINFLUENCEPHARMACEUTICALSPENDINGWhile it is important to understand the factors that generally influence overall Medicaid spending and the challenges they

present, it is also important to understand the factors that specifically influence drug spending, even though drug spendingrepresents a very small percentage of total Medicaid expenditures.

Pharmaceutical expenditures accounted for less than 11 percent of total Medicaid spending in 2004 when adjusted for

manufacturer rebates paid to the program.23 This small percent will decline in 2006 by almost 50 percent due to the shift of

drug coverage into Medicare Part D that occurred for dual eligibles. Drug spending is often assumed to be a significant

component in rising Medicaid costs. However, many misconceptions exist about drug spending growth rates. A peer-reviewed

study examined in detail the contributing factors of increased drug spending within seven major drug classes over a three-

year period for several health plans. The results showed that volume factors (e.g., population size and utilization) contributed

significantly more to overall expenditure growth rates than price factors (e.g., inflation of price of existing drugs, price of new

entrants).24 Indeed, even where price is a factor, the Medicaid rebate formula holds states harmless from price increases that

exceed the consumer price index.

Population factors include total number of patients, including caseload and patient type, such as elderly,

disabled, adults, and children. Small increases in Medicaid caseloads of elderly and disabled patients can

significantly increase drug expenditures and overall Medicaid expenditures in the states.

Disease severity, disease prevalence, and the presence of co-morbidities (multiple diseases) greatly influence utilization

factors. Additional components of utilization include treatment intensity (e.g., the number of drugs prescribed) and the

addition of newer drugs and combination drugs to an existing regimen all dictated by the disease and characteristics of the

treated population. Treatment intensity has recently been affected by the integration of disease management principles,

increased adherence of providers to national treatment guidelines, and through the recognized benefits of early drug

intervention for such diseases as diabetes, asthma, congestive heart failure, and HIV/AIDS. And, while these influences may

increase the spending on pharmaceuticals, they are often accompanied by decreasedinpatient and emergency/urgent care

costs and increasedquality of care.

States need to be aware of all the population and utilization factors as they consider and implement cost and quality

initiatives to improve their Medicaid programs without compromising the quality of patient care.

According to the National Conference of State Legislatures, most cost containment strategies consist of one of four options:

do less, pay less, do for fewer people, or do better.25 The do less and do for fewer people options involve cost-shifting as

patients without the necessary and appropriate care find their way into emergency rooms when their condition becomesserious. The pay less option works only until underpaid providers refuse to treat Medicaid patients, participate in the

program, or simply shift the costs to private insurance26 or to the states charity care system.

The best approach is obviously to do better. Costs may be saved by giving care more efficiently, eliminating unnecessary

and wasteful systems, and keeping people well by preventing rather than treating illness. 27 This Kit outlines sixteen specific

strategies states have used to reduce pharmacy costs and/or improve the quality of patient care. States need to evaluate the

pros and cons of each intervention to determine which ones are best suited to their Medicaid population. Because the growth

in Medicaid spending is influenced by many factors, each states response will be equally varied.

MEDICAIDBUDGETSTRATEGIES


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These strategies are divided into three categories: Quality Assurance Initiatives, Utilization Management Initiatives, and

Operational Systems Initiatives. Some studies show that spending on drug benefits can provide up to a four-fold returnthrough cost avoidance in other modalities of health care (e.g., ER visits, hospital admissions, etc.). States should seek to

obtain the maximum benefits of drug spending in Medicaid by first focusing on program management techniques that

have the least impact on reducing the delivery of individualized patient care. A comprehensive patient-centered approach

for the vulnerable Medicaid population should be preferable to, and ultimately more fiscally prudent than, an approach

that segregates and manages drug costs apart from other higher cost elements of health care delivery. This Kit is

intended to provide assistance in evaluating and implementing the best strategies.


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A. Disease/Case/Care Management

Disease management (DM) is a strategy of delivering health services using interdisciplinary clinical teams, continuous analysis

of relevant data, and cost-effective technology to improve the health outcomes of patients with specific diseases.28 It also

includes self-care management techniques, patient education, and provider training. Disease management provides

individualized care plans based on clinical guidelines and evidence-based medicine to manage individuals with chronic,

treatable diseases such as asthma, congestive heart failure, and diabetes.29

Pros

Disease management programs enhance the communication between practitioners and patients, facilitate feedback necessary

for behavior modification (which may prevent disease progression), and measure the effectiveness of interventions. When

properly structured, disease management involves an integrated, comprehensive approach to patient care that extends

beyond a focus on the drug line-item. Disease management:

Improves health outcomes and better measures the value of drugs and other services being provided;

Takes a patient-centered approach to providing care by addressing psychological aspects, caregiver issues, and treatment of

multiple diseases using nationally recognized standards of care; and

May lower costs by reducing the use of unnecessary services or avoiding costs completely due to improved clinical

outcomes.

Cons

Disease management often results in cost savings as many states have reported; however, these savings may take time to

materialize. Patients may suffer from more than one chronic disease making coordination of services essential. Patient care

should not be isolated in its own silo based upon the disease management focus area. Substantial improvements in thestates data collection and analysis may be necessary to accurately target a population or to calculate the medical and cost

outcomes of the intervention. Some patients may leave the Medicaid program before the benefits of their better care are

evident in cost savings. Disease management programs should be reviewed annually and revised as necessary based upon

new treatments and innovations in the standards of care.

States Experiences

For FY2007, the number of states planning to undertake new or expanded disease/case/care management programs increased

to 26.30 Figure 3 contains a program history of states engaged in disease management programs. In addition, Disease

Management Health Outcomespublished an article detailing findings from three leading state Medicaid programs.31

Florida

Of all the programs currently implemented, Floridas disease management program is considered the most ambitious. The

1997 Medicaid Reform Task Force recommended the implementation of a disease management program to enhance the

quality of care and to reduce unnecessary expenditures. The initial programs were then authorized in the fiscal year 1997-98

General Appropriations Act for asthma, diabetes, HIV/AIDS, and hemophilia. In the past few years, Florida has continued to

expand disease management services through disease management organization direct contracts and value-added

agreements with drug manufacturers. Florida Medicaid has implemented disease management programs for managing

beneficiaries with asthma, autoimmune disorders, congestive heart failure, diabetes, end-stage renal disease/kidney disease,

hemophilia, HIV/AIDS, hypertension, and mental health.32

QUALITYASSURANCEINITIATIVES


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Pfizer operated three independent programs over two years which guaranteed savings to the state of $33 million andrenewed another two-year agreement for those programs with an additional guaranteed savings of $45 million.

The disease management program targeted approximately 113,000 and actively managed 15,000 Medicaid enrollees

with four diseases (congestive heart failure, hypertension, diabetes, and asthma) and all co-morbid conditions.

The health literacy program develops and studies new, culturally appropriate interventions for Medicaid patients with

cardiovascular disease and diabetes.

The product donation program expanded Pfizers medication assistance programs by contributing free Pfizer

medications to Medicaid patients receiving their primary care in more than 20 federally qualified community health

centers across the state.34

Bristol-Myers Squibb guaranteed savings of $21 million in the first-year period and another $9 million for an additional

two-year term. Bristol-Myers Squibbs disease management program targeted 1,700 and actively managed 500 diabetic

Medicaid patients to emphasize patient empowerment and care management in behavioral health and in the treatment

and prevention of diabetes in African-American and Hispanic populations.35

Clinical Results

The Florida Medicaid agency reported to the legislature that in the first year of the value-add programs 34 percent of

severe asthmatics demonstrated improved outcomes, 48 percent of hypertensive patients lowered blood pressure, and 54

percent of heart failure patients lowered their clinical severity.36

Value of Value-Add Programs over Supplemental Rebates

Florida Medicaid further reported to the legislature that value-add programs offer more value through improved long-term treatment outcomes and secure potentially greater

savings through reductions in hospital and ER use than

offered by supplemental rebates.37

Virginia

Virginia implemented one of the nations first disease

management programs, which showed that improving the

management of asthma can reduce emergency and urgent

care services and increase the appropriate use of asthma

medications. The rate of emergency and urgent care

service claims for patients who participated in the

program declined by an average of 41 percent after theprogram was implemented.38 Furthermore, a cost-

effectiveness analysis projected direct savings of $3 - $4

for every one dollar spent providing disease management

support to physicians in the Virginia Health Outcomes

Partnership (VHOP) project.39Investment in Disease

Management Support ofPhysicians

Projected DirectSavings to Medicaid

The Virginia Health Outcomes Partnership

Source: Rossiter, et al. The Impact of Disease Management onOutcomes and Cost of Care: A Study of Low-Income AsthmaPatients, Inquiry, Summer 2002.

$1

$3 - $4

Figure 4


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How are outcomes measured? Outcome measures are difficult and expensive to measure; therefore, disease management

programs usually measure performance or process indicators. Performance (process) indicators measure the intermediatesuccess of a specific action or intervention, whereas outcome measures seek to determine the end result of an action or

intervention. Effective disease management programs will assess specific performance indicators at defined intervals

throughout the entire process and again terminally. These indicators include regular assessments and benchmarking that

measure, track, and compare performance to pre-defined target measures and baseline measures. For example,

performance indicators in a cardiovascular disease management program would measure blood pressure and lipid levels of

patients over time. Performance measures can be easily and quickly tracked, allowing disease management programs to

forecast the anticipated outcome based on the performance of specific intermediate measures.

Outcome measures, on the other hand, seek to determine the end result of the action or intervention. For example, in a

cardiovascular disease management program, outcome measures would include the incidence of strokes, heart attacks, and

death in the intervention patient group. As stated earlier, outcome measures take longer and are more difficult and

expensive to measure, which is why most disease management programs rely on performance measures to assess theireffectiveness.

Federal and State Involvement/Constraints

Patient privacy is a concern as disease management and other third party vendors use patient records to develop targeted

interventions and assess outcomes. However, compliance with privacy regulations has been successfully accomplished by

states without jeopardizing administration of disease management programs. States should consider the funding sources to

be used for DM programs and consult with CMS regarding the options available to maximize use of state funds as well as to

maximize the portion of savings from the programs that accrue to the state. A communication was issued by CMS which

details suggested intervention and funding models for states to consider when implementing DM programs.42

B. Centers of Excellence

Centers of excellence are facilities or programs, such as hospitals, university medical centers, or specialized group practices

that have been selected, based on the level of quality and management of costs, to have patients channeled to them for

specialized treatment. For example, many managed care plans refer all transplant patients to a single hospital in a region that

has the best track record for success.

Pros

Centers of excellence ensure better adherence to national treatment guidelines for selected conditions and improved patient

outcomes, may enable scarce specialized resources to be focused for optimal cost and care efficiency, and can facilitate better

data collection and comparisons on outcomes enabling careful monitoring of care and services.

Cons

Centers of excellence require that patients be referred by their primary care providers for treatment, plan development, andmonitoring; however, primary care providers may feel that they are losing patients to other providers and may be reluctant to

refer. Patients may also be reluctant to change providers after establishing a relationship with a primary care physician.

Centers of excellence are not always conveniently located so coordination of transportation may become an issue. Creating

centers of excellence statewide, as discussed later, can increase costs in the short-term, but should have long-term savings.

States Experiences

In an effort to improve services for youth in state custody and those at-risk of state custody, Tennessees expanded Medicaid

program, TennCare, has committed an additional $1 million to expand the states Centers of Excellence for Children in State

Custody Program in the East Tennessee region. The Centers of Excellence work with children who have extremely complex

behavioral and medical problems by providing direct services, treatment plan review and development, and case consultation

and coordination.


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States Experiences

All states are required to have drug utilization review (DUR) programs, surveillance and utilization review (SUR) programs, andpeer review organization (PRO) programs. However, these programs are not usually coordinated in terms of common criteria

and goals and operate independently of each other limiting their effectiveness. For example, DUR programs are most often

confined to drug utilization issues and are not conducted as part of a comprehensive approach to disease and utilization

management of targeted outlier patients limiting their effectiveness and validity. Some states, such as Florida, have begun to

conduct telephonic medical and drug selection reviews with providers as part of an enhanced utilization and cost

containment strategy. Many states are now conducting disease-focused DUR activities that involve physician consultation

and education by other health care professionals under contract with the state to perform these activities. States could

benefit from integrating the activities of their compliance and monitoring programs, often performed by different vendors, to

achieve common goals and coordinate efforts that will increase the cost effectiveness of these programs.

Design and Policy Issues

Does the state have the administrative and contract resources and expertise to expand data analysis and integratemedical and drug management review programs? States need to consider a cost/benefit analysis of conducting these

activities and will need to assess the availability of contractors/staff to perform these activities. Existing computer systems

such as clinical decision support systems may be used to develop a specific methodology to identify patients for review

using detailed criteria, rather than random sampling, to ensure more success and cost effectiveness. The use of academic

health professionals on a contract basis in various regions of a state can be less costly for the state but requires a program

administrator to coordinate the review activities and ensure timely completions. For example, physician consultants can be

contracted to review claims histories and medical records via web secured communications and then consult with primary

care providers treating high utilization patients to improve care and reduce costs.

Does the state and or its contractors have the computer hardware and software and expert staff to perform

detailed clinical and claims based analyses for the program? The use of a relational claims database that analyzes

claims across providers and sites of care, also known as a clinical decision support system, can be very useful for applyingspecified criteria to the entire population and identifying targeted patients for review. States must have dedicated staff or

contracted vendors with expertise in complex claims analysis, Medicaid policy and reimbursement, and clinical expertise to

develop criteria and analyze the data.


States should review and have legal counsel interpret provider agreement provisions, patient enrollment requirements, and

patient confidentiality issues outlined in the Health Insurance Portability and Accountability Act (HIPAA) prior to

implementing or expanding this type of program to assure that the program procedures are in compliance with state and

federal regulations. Many of these compliance and review activities are already addressed in federal plan requirements, but

may vary by state depending on provider agreements and patient rights. Under the DRA, approximately $75 million was

appropriated in both FY2007 and FY2008 as transformation grants to states that can be used specifically to increase quality

and efficiency of care through strategies such as enhanced data analysis and medical/drug review management.

D. Practice Pattern Analysis

Practice pattern analysis is performed by a panel of physicians using set criteria to identify provider outliers for educational

intervention and to determine any necessary provider practice limitations. A vendor or specialized staff can be used to

generate provider profile data from a clinical decision support system. The profiles look for performance indicators such as

the rate of compliance with the National Council on Quality Assurances Health Plan Employer Data and Information Set

(HEDIS) measures (e.g., appropriate prescribing of ACE inhibitors, the average costs per patient, the appropriate use and

frequency of HbA1c testing, etc.).


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Pros

States can identify providers who fall outside of normal or target performance/process goals and may be incurringunnecessary costs for the system. The review can also identify gaps in care coordination and/or failure to use accepted

treatment guidelines. Often providers who are not prescribing drugs appropriately will be highlighted by the analysis.

Targeted interventions can be designed to educate and assist each outlier physician to comply with expected performance.

Cons

Physician practice performance is influenced by many variables that can be easily misinterpreted resulting in incorrect

conclusions. Complicated issues such as case mix and condition severity are examples of variables that must be factored into

the analysis. States should develop staff or hire consultants with experience in practice pattern analysis methodology to

assist with the development and update of program evaluation and intervention procedures. Provider backlash against this

type of program can occur if providers are not informed and incorporated into the development process. Emphasis must be

placed on helping providers enhance the level of care they provide with the goals of improving patient health outcomes and

reducing inappropriate costs.

States Experiences

Private health plans and managed care plans have used various types of practice pattern analysis or provider profiling for

years. Medicaid fee-for-service programs have not embraced this concept, but several states are now exploring these

programs. Florida implemented a practice pattern analysis program in 1999 and continues to operate the program with the

assistance of a third party contractor and a panel of appointed clinical advisors. Tennessee conducted a large retrospective

claims analysis to measure baseline standards of care in various disease areas. The goal was to disseminate centers of

excellence treatment guidelines to improve the standards of care and patient outcomes throughout the system.


Does the state or its contractor have the computer hardware and software needed to conduct practice pattern

analysis? This type of analysis requires the integration of medical and pharmacy claims data in a relational database ordecision support system platform that many states already have in place.

Has the state consulted with providers and experts to develop the practice pattern analysis design and evaluation

plan? The analysis design should include the application of accepted statistical methods, specialty peer and regional

comparisons, and a severity of illness or case mix adjustment. An intervention and action plan should be developed and

applied to providers identified as true statistical outliers based on the agreed definition.


States should consider what, if any, action can be taken with providers who fail to comply with peer-based educational

interventions and are deemed extreme outliers that continue to contribute to poor outcomes and unnecessary costs to the

system. States have begun to create credentialing processes for providers as a condition of program participation and to

conduct peer review activities as required by federal law. States may wish to examine and/or modify provider participationagreements and auditing procedures in tandem with the development of a practice pattern analysis program. Under the DRA

approximately $75 million was appropriated in both FY2007 and FY2008 as transformation grants to states that can be used

specifically to increase quality and efficiency of care through strategies such as practice pattern analysis.

E. Enhanced Primary Care Case Management (PCCM)

Medicaids PCCM program links each Medicaid beneficiary to a single primary care physician (or practice) who is responsible

for managing all of the medical care services consumed by that beneficiary. PCCM programs usually pay for all care on a fee

for-service basis. States ability to reinforce the primary care providers role in managing care requires the use of internal

system edits.


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Pros

Enhanced PCCM ensures that beneficiaries receive coordinated care by having one physician responsible for the authorizationand oversight of all their services, which reduces unnecessary service duplication, utilization, and costs.

Cons

Enhanced PCCM adds complexity to the primary care physicians provision of care because they become responsible for

authorizing and overseeing multiple treatment plans and services such as pharmacy services. If not implemented properly,

enhanced PCCM can create service access issues, such as delays in obtaining prescriptions or urgent care.

PCCM as it currently exists in Medicaid does little to truly manage care unless the state monitors individual practices since

providers/provider groups are paid a small monthly fee whether they manage care aggressively or not at all. Furthermore,

PCCM is often seen merely as a gatekeeper engaged primarily as a tool to enforce prior authorization of some specialist

services rather than as a way to intensify the involvement of the primary care physician or physician group in managing the

unique health circumstances of an individual patient.

States Experiences

Most states have PCCM programs that assign and compensate one provider/group as the primary care provider. These

providers are paid only a few dollars per member per month (PMPM) administration fee for performing the coordination of

care activities and they can have as many as a thousand patients assigned to them. Additionally, in most states, there are few

internal claims processing edits to prevent a patient from using any other Medicaid provider or service. This may soon change

as states embrace and develop reform plans that promote and even mandate better coordination of care, patient

accountability, provider incentive programs, and enhanced technology.

Florida was the first state to implement and pilot a new model of care which contracted with a regional pediatric physician

provider group to provide 24-hour nurse triage and enhanced primary care case management services to reduce unnecessary

emergency room visits and total health care costs for the pediatric population. The physician group receives fee-for-servicepayments plus a PMPM administrative fee for primary care case management and also collects shared savings incentive fees

based on reduced costs. Results of this program show significant reductions in ER visits and increased medication

compliance. States should consider adopting this model to save dollars and improve the quality of care.


Has the state solicited provider involvement in the design, participation criteria, and fee schedules for proposed

enhanced primary care case management programs? States can examine modifying the PCCM program to adequately

compensate providers for coordination activities and ensure that patients are using services in an efficient and coordinated

manner. These programs need to reward providers for achieving systemic savings rather than managing line item costs. This

can be accomplished through a contractual case management agreement with providers such as in the Florida pediatric

pilot program discussed previously.

Does the state have the systems capability and provider buy-in to activate edits and coordinate authorizations for

the program enforcement? Other avenues to enhance primary care case management include more internal system edits

that prevent specific services from being approved without authorization by the primary care provider. Physicians would

have to be accessible to other providers on a 24-hour-a-day basis to ensure there are no access barriers (except for

emergency services).

Has the state developed a provider incentive program with defined criteria measures and shared savings

methodology? States should consider shared incentive fees and larger PMPM administrative fees to providers for reducing

inappropriate costs and improving health outcomes. Specific cost and clinical criteria must be defined using statistically

sound evaluation and cost saving methodologies.


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A. Patient Lock-In Program

An analysis is conducted to identify patients with unexpected utilization patterns such as excessive drug use, excessive use of

multiple providers, frequent ER visits and other increased use of medical services. Patients are then notified of the programs

concerns and required to select a single prescribing physician and/or a single pharmacy where their services will be covered

by Medicaid. Theoretically, claims from other providers will not be paid. The patient has the opportunity for a fair hearing to

contest this approach, which is often referred to as a lock-in. The goal of a lock-in program is to prevent inappropriate

utilization of services and adverse clinical outcomes. The program is typically used to address drug abusers, but may also be

considered for patients who visit multiple doctors and obtain many different prescriptions or otherwise have inappropriate

utilization patterns.

Pros

Expansion of a lock-in program for patients who are high utilizers or who have very complex conditions involving care from

multiple providers can be an effective mechanism to provide management and oversight.

Cons

This program may require claims processing system modifications and fiscal outlays to design and implement the required

edits. Providers may need education on the program goals and the operation of the system edits.

States Experiences

Many states have used lock-ins as a management tool following identification of patients through retrospective and

concurrent analysis, who are engaged in the abuse and misuse of pharmaceuticals and other medical services. This can be an

effective mechanism to control inappropriate utilization of medical and drug services such as reducing polypharmacy and

therapeutic duplication.

Design and Policy Issues What other related edits, programs, and data should be integrated with the lock-in program? Lock-in program edits

need to be integrated with the prospective and retrospective system edits to maximize efficiency and prevent system errors.

States may consider using both a pharmacy lock-in program in conjunction with a mandatory primary care physician lock-

in program. Patients enrolled in the traditional PCCM programs are typically assigned to one primary care physician for care

coordination, but analysis in various states shows this assignment is not enforced and is contributing to decreased

coordination of care and significantly increased expenses for a small percentage of identified patients. Lock-in programs are

most successful when used in combination with disease/case/care management activities and provider directed incentive

programs.

What system modifications and related costs should be evaluated during the design and prior to implementation?

Most state systems do not have internal claims processing edits that can cross-check the primary care physician

assignment files to prevent pharmacy claims that have not been authorized by the lock-in physician. And, even if a patientis locked-in to a single pharmacy, they may be obtaining prescriptions from multiple physicians. It is therefore important for

states to evaluate the system costs required to design and program the various edits needed to implement this procedure.

The implementation of electronic prescribing devices with clinical decision support capabilities can tremendously enhance

the use of a lock-in program and could be used as an enforcement mechanism as well.


States have the ability to expand existing lock-in programs. Additionally, many efforts at the federal level are encouraging

and even mandating that electronic prescribing and enhanced technologies be employed to better coordinate care and

achieve cost and quality improvements in the system. The DRA appropriates $75 million for FY2007 and FY2008 in

transformation grant money to states for developing and implementing programs that enhance quality and coordination of

care. In fact, several states that have applied for the grants plan to use the monies to implement various information

technologies to better coordinate care.

UTILIZATIONMANAGEMENTINITIATIVES


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B. Fraud/Abuse Detection System/Audit Program

The DRA includes specific appropriations that CMS and the Office of the Inspector General (OIG) can use to fund activities to

support anti-fraud and abuse efforts with states through a combination of oversight and technical assistance. CMS has

developed a comprehensive Medicaid Integrity Plan to strengthen its leadership of state and federal efforts to control fraud,

waste, and abuse in the Medicaid program. Congress has provided funding for CMS fraud and abuse activities: $5 million for

FY2006, $50 million for FY2007 and FY2008, and $75 million in FY2009 and each year after. In addition, the DRA provides OIG

with $25 million each year FY2006 through FY2010 to expand Medicaid fraud activities.43

A good fraud and abuse detection and audit program uses state-of-the-art software systems to detect and prevent patient

and provider fraud and abuse. Previous efforts by Medicaid that relied solely on investigator claims reviews to recognize frau

and abuse patterns were largely ineffective due to the sheer volume of claims processed. Specially programmed software

relies on advanced logic and relational database design to identify potentially inappropriate claim billing patterns. Software

systems have been used effectively in the private sector to minimize the losses associated with these kinds of problems.

Redesigning pharmacy audit procedures is an effective and necessary activity for states due to the shift of outpatient

prescribed drug usage to expensive, specialized and complex biological therapies. This process also involves reviewing current

pharmacy audit procedures for completeness and effectiveness based on dispensing patterns by practice setting and by type

of drugs. States may need to develop in-house capabilities and/or contract with vendors to implement new audit procedures

and conduct on-site provider audits.

Pros

These systems utilize advanced software systems to identify patterns of provider and recipient fraud and abuse much more

effectively and faster than an investigator is able to review claims. These systems can identify pharmacy, lab and other

medical claims billing anomalies and patterns that can indicate potential fraudulent and inappropriate activities that need

further targeted auditing and investigation. The new appropriations under DRA provide money and support to states in ordeto expand their fraud and abuse efforts.

According to the OIG, a state can expect that approximately 10 percent of all claims billed for medical and pharmacy services

are fraudulent or abusive. States can significantly reduce dollars lost to the system by enhancing anti-fraud and abuse effort

Cons

Requires vendor research and staff time to develop requests for proposals/invitations to negotiate (RFP/ITN) for bidding by

firms that offer these software systems and auditing firms with pharmaceutical and medical claims experience. However,

under the new DRA provisions states will receive significant assistance with these activities from CMS and their vendors.

States Experiences

Florida, Indiana, Kentucky, North Carolina, and Washington have enhanced fraud and abuse efforts through intensified auditssoftware detection systems, and aggressive recovery efforts.44 Additionally, the Florida Supreme Court granted a request by

the Governor in January 2003 to convene a grand jury for one year to investigate prescription fraud activities in South Florid

and indict any wrongdoers.45 In 2002, the jury heard testimony in one such case where the Bureau of Statewide Pharmacy

Services (BSPS) inspectors found prescription labels belonging to ten Medicaid recipients. The cost to Medicaid for the

prescription drugs listed on the labels amounted to over $18,000. Those ten recipients alone had received over $280,000 in

drugs from Medicaid in just the previous six months. Some of the recipients had been selling their medications for years,

making as much as $5,000 a month selling their drugs to wholesalers. Two interim reports have been issued by the grand jur

detailing the findings and recommendations of the investigation.46


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In 2004, a case arose against 20 dentists in California who were charged with conspiracy to defraud the states Medicaid

program of $4.5 million. The dentists are alleged to have billed Medicaid for unnecessary or inappropriate services that placedpatients at risk of pain, infection, loss of teeth, and bodily injury. In 2005, a North Carolina pharmacist was sentenced to 33

months in prison and ordered to pay more than $2 million in restitution for defrauding the Medicaid program by submitting

claims for long-term care patients prescriptions that had not been delivered, or even requested by their caregivers. Similarly,

a New York hospital agreed to pay $76.5 million to resolve allegations that it over billed the Medicaid program for services

provided in its clinics.47


Are the current audit procedures and methodology for conducting fraud and abuse audits and

investigations effective? States should examine their current audit process and procedures to assess cost

effectiveness. States can increase the number of audits as well as develop new in-depth audit procedures and

methodologies to target specialized providers, such as long-term care and infusion providers, dispensing

complex therapies.

Is the state using any software system analysis tools for identifying patterns of fraud and abuse in

the claims database? Several software companies offer tools to identify aberrant and suspicious billing

patterns within the state claims database. States may need to issue a request for proposal to solicit and

evaluate programs that best meet their needs and the specifications of their claims processing system.

Does the state have the in-house resources and expertise to conduct audits? States may need to

consider contracting the audit function to a vendor who can facilitate the workload and provide the necessary

expertise of medical, statistical, and pharmacy professionals.


The implementation of new audit procedures may require administrative and statutory changes as well as provider agreementchanges. HIPAA compliance must also be considered. States must evaluate all of these prior to vendor contracting. States

should coordinate their activities with CMS and OIG in light of the new DRA provisions and appropriations. Fraud and abuse

efforts can be significantly enhanced with ongoing cooperation among state, local, and federal law enforcement agencies and

administrative government agencies such as Medicaid and Departments of Health.

C. Co-payments for Prescriptions

A co-payment is a flat fee charged to a patient for each prescription received. Under federal law, states can implement co-

payments for prescribed drugs and other covered Medicaid services. These co-payments are nominal fees that cannot exceed

$3 per prescription under Medicaid provisions. An individual who is unable to pay the co-payment cannot be denied a

prescription drug. Specific groups of patients are excluded from co-payments such as children, pregnant women,

institutionalized patients, hospice and those receiving emergency care or family planning services.

New provisions under the DRA allow states the option of imposing cost sharing up to 5 percent of a beneficiarys income.

Because cost sharing is tied to income level, states may charge co-payments from 10 to 20 percent of the cost of medical

services. The DRA also allows states to make co-payments enforceable, meaning that providers or pharmacists could deny

services or access to drugs if a beneficiary cannot pay the cost sharing amount at the point of service. There are special

provisions allowed for prescription drugs under the DRA. For preferred drugs, nominal amounts still apply and exempt

populations have no cost sharing requirements. However, for non-preferred drugs, cost sharing can be up to 20 percent of

the drug cost for those beneficiaries with incomes exceeding 150 percent of the federal poverty level and exempt populations

can now be subject to nominal cost sharing requirements.


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Pros

States may realize small savings through the implementation of a co-payment for beneficiaries. The use of a differential co-payment may encourage prescribing of less expensive drugs, such as generic rather than brand name drugs. For example, a

state may set the co-payment amount for generic drugs at zero and brand name drugs at $3 to encourage beneficiaries to

accept and physicians to prescribe generic drugs more often. Under the new DRA provisions, co-payments are now

enforceable.

Cons

The use of co-payments in the predominately elderly, disabled, and chronically ill Medicaid population may discourage

patients from filling and taking their medications because of the direct cost.48 Patients that dont take their medications

appropriately often incur added expenses due to adverse medical complications resulting from the lack of medication

compliance. This drives up total system cost and results in poor patient outcomes.

States ExperiencesIn the National Pharmaceutical Councils 2005/2006 survey of state Medicaid programs, forty one states reported cost sharin

requirements for prescription drugs. The co-payments for these states range from $0.50 to $3 per prescription with some

states capping the monthly cost sharing amount.49 In most cases, when states impose cost sharing they apply this policy to

all populations eligible for cost sharing, including the elderly, people with disabilities, the medically needy, and adults. 50 State

generally report that patients attempt to pay when asked to share in the cost for their prescription drugs. Other states have

not pursued co-payments due to the administrative hassle for providers to collect the fees and the fact that not much

savings results from the initiative. Additionally, states fear that any access barriers may discourage patients from obtaining

medically necessary treatment and may result in increased costs to the system as well as reduced health outcomes. To date,

not many states have chosen to adopt the optional increased DRA cost sharing provisions and only a few have decided to

make co-payments enforceable.51

Design and Policy Issues How will the state determine the co-pay amounts and what are the goals for the strategy? States can involve

provider and patient advocacy groups in the process of determining the co-pay operational structure and the specific

amounts for different types of products. States will want to consider if the co-pay structure amounts are consistent with

the goals of the policy. For example, if a state wants to encourage use of generics then the co-pay amount set for generics

should be at the lowest level or significantly lower than the co-pay for brand drugs.

How will providers and patients be affected by the policy? States should determine if providers will be responsible for

the co-pay if the patient is unable to pay and how much that will reduce reimbursement levels to the providers. Patients

may not seek necessary services due to their inability to pay the co-pay and thus cost the system more in other acute care

services.

Will there be a maximum monthly cap on the co-pay amount for patients needing multiple drugs each month andif so what will the monthly cap be? States may consider it in the best interest of all parties to cap the patients total co

pay amount to encourage appropriate use of services.


Medicaid programs have had for many years specific regulations that governed the use of co-payments. The DRA now offers

states the option of increasing and enforcing co-payments. Some states will need to make statutory changes to alter the co-

payment provisions under their state law.


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D. Prior Authorization Programs and Application of Clinical Criteria

Virtually all states have implemented some form of prior authorization (PA) program for specific products. PA programs

should be based only on medical, peer-developed clinical criteria and should be targeted only at products consistently

documented as inappropriately prescribed based on audits, DUR activities, clinical indications, and dosing patterns. Some

examples of drugs targeted for clinically-based PA include growth hormones, blood modifiers, immune system stimulators,

and other specialized drugs specific to each states own utilization data. PA criteria should be established with input from

physicians and patient advocates so that coverage for all appropriate uses is not impeded. PA of products not consistent with

documented evidence of inappropriate use through various Medicaid utilization review programs is not warranted and

represents interference in the patient-provider decision making process.

Pros

When based on clinical factors and patterns of inappropriate use, prior authorization programs may be used effectively and

safely to reduce unnecessary and inappropriate use of drugs as well as fraud and abuse by providers and patients.

Cons

PA programs that are not well designed and include large numbers of drugs and many drug classes can create patient access

barriers, increase total health care expenditures, and facilitate poor clinical outcomes. These programs also can create

significant administrative barriers for providers and generate large administrative costs to the Medicaid program. Expansive

PA programs may impede the ability to implement disease/case management for specific populations, and diminish the

capacity of the state to focus on cost-effective outcomes as opposed to line item costs. By denying appropriate care,

immediate short-term drug expenditures will decrease. However, these savings can be outweighed by reductions in patient

health status and cost-shifting to other more expensive service areas.

States Experiences

In a 2006 Kaiser Family Foundation survey of states, 37 states responded that they had a prior authorization program in placefor at least some prescription drugs outside of a preferred drug list.52 Many states do not impose PA on certain drug

categories, such as antiretrovirals for HIV/AIDS and mental health drugs, in order to assure that patient access to these

critical products is not unduly impeded. According to the same survey, 13 states expanded prior authorization programs in

2006 and another 8 states plan expansions in 2007.53 Many include drugs such as growth hormones, impotence agents,

topical acne agents, weight loss drugs, and OTC cough/cold agents. Some of these products are optional agents that Medicaid

is not required to cover. Recently, states have focused on select drug classes based solely on high expenditures, such as

gastrointestinal reflux agents and non-steroidal anti-inflammatory agents, with little consideration for the appropriateness of

therapy or costs associated with restricting access to these drugs in Medicaids predominantly elderly and disabled

population.


Has the state conducted an analysis of the population utilizing prescribed drugs, such as the disease, demographic,and eligibility characteristics of its high utilizers? According to a Congressional Research Service Report to Congress

(Figure 2), the elderly and disabled are the groups responsible for the vast majority of prescribed drug expenditures in all

states; therefore, PA programs would affect these patients the most. Approximately 5.4 million elderly and disabled non-

dual enrollees still remain in the Medicaid population that were not eligible for the Medicare Part D prescription program.54

For this reason, design and policy issues related to a PA program must be carefully evaluated and considered given the

needs of this unique population. Any access that may be hindered or delayed by the PA process could have a profound

impact on (increasing) direct costs and (decreasing) clinical outcomes of such frail patients with multiple diseases. In

addition, most of these patients are on maintenance drugs for chronic conditions and require the continued and

uninterrupted use of multiple agents. The patterns of disease progression, age, and severity commonly necessitate the use

of newer drugs with more favorable side effect profiles. In addition, many elderly patients with multiple diseases have

documented treatment failures on older agents or on agents that are contraindicated in the elderly population.


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Has the state conducted a thorough retrospective analysis to approximate the PA approval rates and cost benefit

analysis for the proposed drugs and drug classes? States have reported that greater than 80 to 90 percent of all PArequests are approved and a published study documented an average PA approval rate in one Medicaid program of 83

percent for four large classes of drugs.55 A comprehensive meta-analysis of all published studies related to Medicaid prior

authorization programs concluded that overall PA programs appear effective at reducing drug-related costs, but there is

little evidence that they have a positive impact on clinical or humanistic outcomes. Additionally, the authors concluded tha

none of the published studies had a randomized, controlled design and most of the studies had severe methodological

limitations.56Very high volumes of PA requests add large administrative costs to the program. If the approval rates are also

very high, then the large administrative costs are arguably unnecessary and negate any anticipated cost savings. This is

particularly evident when applying PA in major therapeutic classes, such as gastrointestinal, antihistamine, anti-

inflammatory, and other widely used drug classes.

Does the state have the administrative resources and internal or contract staff to handle the volume of requests

for the proposed PA program? Significant time and fiscal resources are required to implement a wide-scale PA programin major drug classes, and the wide-scale program is likely to result in high approval rates reducing the cost benefit ratio

for the state. In contrast, a specialized PA program, directed at small numbers of patients and providers to identify high

users with complex health conditions requiring drug therapy with high probability for misuse and inappropriate dosing, ca

yield a much greater return on investment without undue administrative barriers and costs. Examples of some agents

would include growth hormones, blood modifiers, immune system stimulators, and other agents with narrow indications

and dosing parameters. Some of these agents have been determined to have a high rate of fraud associated with their use

and should be further targeted based on provider auditing and profiling efforts.

Has the state conducted an estimate of the direct and indirect time and expenses associated with the proposed PA

program? Has the state solicited provider, patient advocate, and fiscal agent involvement in design and policy planning?

The PA process can impact large numbers of providers and patients as well as reduce valuable direct patient care time of

practitioners. An extensive PA program could discourage providers from Medicaid participation and could jeopardize thequality of patient care. Additionally, the provider community and the fiscal agent should be actively involved in the

development of PA procedures to ensure buy-in and reduce access problems for patients.

Has the state allocated funds to conduct baseline and future assessments of the health status of those beneficiarie

most impacted by the PA process, specifically across providers and sites of services, to watch for cost-shifting from

the drug line to other medical services? States need to have an independent, experienced party periodically evaluate

their programs to determine whether they are cost-effective, if they are causing cost increases to other parts of the system

and what their impact is on beneficiary health.

Has the state budgeted for administrative costs related to compliance with all state and federal laws and guideline

requiring notification of beneficiaries when PA is denied? States should examine and comply with any requirements fo

notification of denial and rights of appeal that may be applicable to the PA program. States should consider administrativecosts and work load factors that may apply to the notification and appeals processes.


Federal law requires that all drugs included in a CMS manufacturer rebate agreement (with a few exceptions) be covered and

that approval be granted for all drugs that are medically necessary. In addition, a state must respond to a prior authorization

request within 24 hours and must grant a 72-hour emergency supply of medication to patients in immediate need.


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E. Third Party Liability

Third party liability refers to the obligation of another party outside Medicaid to cover costs for enrollees that may have

another source of health care coverage such as private insurance or insurance through an employer. Under federal law,

Medicaid, after any other payer has contributed its share of the costs, is the payer of last resort.

States have implemented third party liability edits that involve the implementation of system edits at the point of sale to

block claims to cost avoid - when patients have insurance coverage in addition to Medicaid. These edits can often replace

the pay and chase process whereby Medicaid pays the claim then seeks reimbursement from other insurers. In addition,

states can attempt to recoup costs from other third parties after the claim has been paid when it is unknown to Medicaid

that other insurance exists or when other insurance was obtained after qualifying for Medicaid.

A provision of the DRA addresses ongoing efforts by the states to cost avoid as well as recover payments made for third

party covered services. Specifically, the DRA now requires that states have legislation requiring health insurers and otherentities legally responsible for paying health claims to:

1. Provide states with information on coverage and other information,

2. Accept the states right of recovery for services and assignment of a Medicaid enrollees right to payment by those entities,

3. Respond to questions by the state regarding a claim for payment submitted within three years after the date of service,

and

4. Agree not to deny claims from the state solely because of the date the claim was submitted or the form that was used.

Pros

Significant savings are available to states that choose to implement and enforce a cost avoidance and recovery procedure

without reducing services to qualified beneficiaries.

Cons

Modifications to the system can be difficult and require a dedication of resources to implement new procedures and edits.

Agencies other than Medicaid may be required to change procedures when qualifying beneficiaries for coverage,

consequently requiring better interdepartmental communication and information exchange. Providers may be subject to more

administrative work when claims are rejected due to cost avoidance procedures.

States Experiences

According to the OIGs 2004 report on cost avoidance waivers, 21 states reported they have cost avoidance pharmacy

waivers.57 Of the $5.5 billion that states reported in third party related savings in FY2004, $4.9 billion was for payments cost

avoided and $524 million for third party recoveries.58


Does the state utilize a cost avoidance or pay and chase process for third party pharmacy claims? Many states

obtained a cost avoidance waiver from CMS that allowed them to waive the cost avoidance procedures and policy

implementation.


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If the state uses a pay and chase process, approximately how much is unrecoverable annually? The U.S. Departmen

of Health and Human Services (HHS), Office of the Inspector General, released a report in August 2001 that examined statereported data on pharmacy claims in FY1999 that were paid by Medicaid and identified for recovery from other liable third

parties. Approximately $440 million was eligible for recovery, while only $73 million (17 percent) was recovered. In

pharmacy claims alone, the total loss to states was approximately $367 million or an average of $11.5 million per state.

Over ten years, the loss in taxpayer money could exceed $5 billion. 59 Additionally, a Government Accounting Office report i

September 2006 identified problems states have experienced in regard to verifying coverage and collecting all types of thir

party payments. Specifically, 10 states estimated combined annual losses of $54 to $60 million due to problems verifying

coverage and 14 states estimated combined annual losses of $184 to $196 million due to payment collection problems.60

What changes should be considered to make cost avoidance a success and what other agencies or

departments will be affected by a change in policy? The success of a cost avoidance system depends on

the accuracy and completeness of information gathered from beneficiaries at the time of Medicaid eligibility

determination. Many states have two or three different departments/agencies involved in the process ofeligibility determination and processing/adjudication of claims. This can further complicate the coordination

of information. Medicaid agencies could check Social Security Administration wage and earnings files, and

files on child support, motor vehicles, and workers compensation to determine the existence of other

insurance. In addition, the DRA provisions will assist states with coverage verification via enhanced electroni

data exchange and reporting requirements with other payers.


States are required to use cost avoidance for most services unless the state has a waiver allowing it to pay and chase.

According to 42 CFR 433.138, CMS regional offices may grant these waivers when states demonstrate that pay and chase

is as cost-effective as cost avoidance. The State Medicaid Manualrequires states to renew their cost avoidance waivers

every three years. New provisions under the DRA address various issues that present obstacles for states in verifying and

collecting third party payments.

F. Prescription Limits

This strategy involves placing limits on the number and/or type of prescriptions a beneficiary may receive, such as limiting

beneficiaries to six total prescriptions per month or three brand name prescriptions per month.

Pros

Limits on the number and/or type of prescriptions can result in immediate reductions in the volume of prescription claims

and their corresponding expenditures.

Cons

Limits are arbitrary, reflect no sensitivity for severity or type of illness, operate on pure financial motivation, and express noconcern about outcomes. Limiting the number of prescriptions is likely to increase costs for emergency room visits and

inpatient care because patients are not getting the necessary medications for outpatient treatment.61 Also, limiting the

number of prescriptions does not ensure the appropriate use of drugs. Instead, it creates a type of clinical roulette:

beneficiaries receive prescriptions written early in the month, and then have to go through extensive PA procedures or go

without those prescriptions written after the limits are reached. This policy creates barriers to access for the beneficiaries wh

can least afford them the elderly, chronically ill and disabled taking the most prescriptions.62 Other alternatives provide

opportunity for more targeted utilization management that also affords improved patient care and outcomes.


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States Experiences

According to a 2006 Kaiser Family Foundation state survey, only 10 states reported having a policy in place that limits thenumber of prescriptions a beneficiary can have at one time before the state requires prior authorization for additional

prescriptions.63 In some states there are exceptions for several classes of drugs, such as antipsychotics and antiretrovirals.

However, there are no other exception criteria relative to disease factors or severity of illness. A process is in place that allows

physicians to request an override due to medical necessity, but as reported by physicians it can be labor and time intensive. 64


Has the state determined the percentage of elderly and disabled patients that will be affected by the policy

implementation? The decision to limit the number of prescriptions in a chronically ill, elderly, and disabled population

should be carefully considered and based on a frequency distribution analysis of the prescribed drug claims database. The

generation of this report can isolate

Documents

State Medicaid Resource Kit: Maintaining Quality and Patient Access to Innovative Pharmaceuticals in Challenging Economic Times