Today we're out with a new Special Report on Medicaid, prescription drug spending and the state budget. You can read it here.

Here are some highlights:

• Medicaid, through the state Health Care Authority (HCA), now provides health insurance for almost two million Washington state residents, and makes up over 16 percent of the state budget. Historically high prescription drug spending growth across America in 2014 and 2015, driven in part by new, expensive specialty drugs, became a focus of attention in the state Legislature as HCA submitted a substantial supplemental budget request in 2016. However, in the 2015-17 biennial budget, only 2 percent of maintenance level changes came from HCA.
• Seventy percent of the drug cost increases nationwide from 2010 to 2015 were from specialty drugs. PricewaterhouseCoopers does not expect specialty drugs nationally to have the same impact in 2017 that occurred in previous years. Hospitalization is still the primary cost driver, consuming about 50 percent of national Medicaid outlays, while prescription drugs are at 17 percent. All states provide drug coverage as part of their Medicaid programs, and therefore cannot limit distribution of a medication when it is deemed medically necessary.
• HCA has transitioned over 80 percent of Medicaid recipients into managed care and utilizes a number of other cost containment measures. For prescription drugs, these include requiring prior authorization for certain drugs, a preferred drug list, and periodic reviews to screen drug claims for errors, waste, fraud, unnecessary care, or gross overuse. These efforts coincide with a huge Medicaid expansion, with nearly 600,000 new recipients entering the system under the Affordable Care Act. The federal government has funded this added population to date, but beginning in 2017, the state will pay 5 percent, with the percentage increasing to 10 percent in 2020 and thereafter.
• Rising drug prices in the American marketplace, reflected in the Medicaid system, have prompted proposals for reducing costs that are likely to produce unintended consequences. The Federal Trade Commission stated additional transparency rules for Medicaid drug price negotiations could encourage collusion between manufacturers, a detrimental outcome for consumers. Mandatory disclosure of production and R&D costs only fuels a politicized argument over profits, providing no clear path to positive outcomes.
• The International Trade Administration noted that a third proposal, price controls, discourages cost-lowering competition from entering the market. Price controls reduce financial incentives and funds for critical research and development. We need to foster, not inhibit, the discovery of new drugs that improve health care outcomes, reducing the need for costly hospitalizations and procedures.

Click here to read the full report.