Insurers Want More Room for Generic Drugs in Medicaid

Health plans say they could save Texas roughly $100 million per year in Medicaid costs if lawmakers would give them more freedom to choose generic drugs over name brands. 

While Texas lawmakers are studying ways to reduce costs in the state’s Medicaid program for the poor and disabled, health insurance companies are making a business pitch.

Health plans could save the state roughly $100 million per year, they say, if Texas would give them more freedom to choose the drugs they think are most appropriate for Medicaid patients, likely allowing them to prescribe generic drugs over more expensive brands.

A study commissioned by the Texas Association of Health Plans, an industry group, found that Texas pays about the national average cost per prescription but prescribes name-brand drugs at a higher rate than all but five other states.

Managed care organizations, the private insurance companies that manage Texas Medicaid, hope the findings will spur lawmakers to give them more authority to pick their own preferred drug lists, known as formularies.

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“It’s time to eliminate the barriers that are keeping Texas Medicaid health plans from ensuring Texans in Medicaid have access to the life-saving drugs they need, when they need them, and to do so in a way that brings down costs, saves taxpayer dollars and improves the quality of care,” Jamie Dudensing, the association’s chief executive, said in a prepared statement.

Currently, health plans in the Texas Medicaid program are responsible for managing patients’ prescription drug benefits, but all plans must use a uniform preferred drug list composed of medicines recommended by a state board.

Many advocates for people with chronic illnesses approve of that approach because it provides a public venue to tell Texas officials about which drugs are most effective for patients with specific medical needs.

Allowing private insurers to pick their own drug lists would compromise that avenue for patient input and the transparency that comes with it, said Greg Hansch, the public policy director for the National Alliance on Mental Illness’s Texas affiliate.

“There are cases where we’re advocating for a particular name-brand drug that’s not always cheap, but it’s really important that a patient has access to a particular compound,” he said. 

The study, conducted by The Menges Group, a health policy consulting firm, found that 77 percent of all Texas Medicaid prescriptions were for generic-brand drugs. The national average, by comparison, was nearly 81 percent.

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In spite of that, Texas ranks in the middle of the pack — 22nd among all states — in its prescription drug costs overall, according to the study. Pharmaceutical companies say that’s because they already pay Texas a significant amount of money in rebates that help offset the cost of name-brand drugs.

Pharmaceutical companies paid about $630 million in rebates to the state and $895 million to the federal government in 2014 for prescription drugs in Texas’ Medicaid program, said Priscilla VanderVeer, a spokeswoman for industry group PhRMA.

She said that if health plans sought to make it harder for patients to access prescription drugs, the insurance companies risked causing costs to go up for other forms of health care delivery, such as hospitalizations that could result from patients not having necessary medication.

“It’s interesting that the insurers want to have their own preferred drug lists and manage the pharmacy costs,” she said. “Is the state going to see those savings, or are they going to see those savings?” 

The Texas Association of Health Plans says insurers have done a good job negotiating higher rebates from drug companies but that doing so was equivalent to “playing the wrong game well.” Giving managed care organizations the freedom to pick their own formularies would be a better avenue for cost savings, the industry group said.

Anne Dunkelberg, the associate director of the left-leaning Center for Public Policy Priorities, said the state adopted a uniform preferred drug list in Medicaid in part because it guarantees that people have access to the same prescription drug benefits regardless of which part of the state they live in.

No matter who gets to pick the formulary, she said, it should be transparent, “so when people pick a health plan, they can figure out which drugs are going to be covered and which ones aren’t.” 

The House Human Services Committee is set to discuss prescription drug costs in the Medicaid program on Tuesday.

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Disclosure: The Center for Public Policy Priorities is a corporate sponsor of The Texas Tribune. The Texas Association of Health Plans was a sponsor in 2013. A complete list of Tribune donors and sponsors can be viewed here.

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