Last week we released a report on prescription drug spending and Medicaid, and their impacts on the state budget. Coincidentally, the Health Care Authority (HCA) and Office of Financial Management (OFM) released a report to the Legislature the same day, called, “Review of Prescription Drug Costs and Summary of Potential Purchasing Strategies.”

Legislators had asked for the report; they wanted to know about “potential strategies to promote and improve drug pricing transparency” and “value-based drug purchasing approaches for state programs.”

The HCA/OFM report notes,

There is general agreement that long-term solutions to rapidly escalating prescription drug prices require federal action because, in the U.S. market, drug manufacturers set prices based on what the market can bear.

Nonetheless, the report does offer some options for state policymakers. It suggests that the state could:

• “Pursue strategies that increase both the number of drug classes subject to rebates, as well as the dollar value of each rebate.” This could include increasing the number of drug classes on the Medicaid fee-for-service (FFS) preferred drug list (PDL). For Medicaid managed care, “the HCA should undertake a comprehensive study and make a recommendation to the legislature regarding the creation of a single PDL across HCA’s programs, including Medicaid FFS, Medicaid [managed care organizations] and [public employees’ Uniform Medical Plan (UMP)].”
• “Explore potential strategies and make recommendations that leverage multi-state purchaser consortiums, beginning with the existing NW consortium.” This could include a single preferred drug list for all members of the consortium.
• “. . . consider, for Medicaid and UMP, implementing one or two alternative payment models.” Alternative payment models (APM) link the cost of a drug to a particular measure and are financial- or health outcome-based. An example given in the paper is that the state could “engage a manufacturer of a hepatitis C medication to guarantee a cure rate for patients that take the drug.” But, “in practice, there are limitations, challenges, and barriers to the implementation of a successful APM contract.”
• “. . . investigate and identify potential options to obtain broader access to the 340B Drug Discount Program either through MCO contracts or centers of evidence with a primary focus on specialty drugs. The 340B drug discount program is a U.S. Federal government program that requires manufacturers to sell prescription drugs at a steep discount to eligible health care organizations serving low-income or indigent patients.”

The report cautions legislators:

In order for HCA to move forward with any of the purchasing strategies discussed in this report, further analysis of feasibility, administrative costs, and potential savings is needed.

Also, the report notes that concern about drug costs is not new. Prescription drug costs were a budgetary issue in Washington in the late 1990s and early 2000s:

In April 2001, Governor Gary Locke convened an inter-agency Prescription Drug Workgroup under the auspices of HCA to analyze state-purchased care programs and explore options for cost containment and service delivery alternatives, such as more effective drug purchasing strategies.

That study suggested a preferred drug list and drug utilization review—two strategies the state currently uses to manage drug costs.

Our report looks at health care cost trends, provides an overview of Medicaid administration and budgetary impacts in the U.S. and Washington, and considers how prescription drugs fit in.