State Medicaid Programs Respond to Meet COVID-19 Challenges: Results from a 50-State Medicaid Budget Survey for State Fiscal Years 2020 and 2021

Pharmacy Cost Containment Actions

Managing the Medicaid prescription drug benefit and pharmacy expenditures remains a policy priority for state Medicaid programs, and state policymakers remain concerned about Medicaid prescription drug spending growth. Because state Medicaid programs are required to cover all drugs from manufacturers that have entered into a federal rebate agreement (in both managed care and FFS settings), states cannot limit the scope of covered drugs to control drug costs. Instead, states use an array of payment strategies and utilization controls to manage pharmacy expenditures, including preferred drug lists (PDLs), multi-state purchasing pools, and managed care pharmacy carve-outs.¹ States continue to update and refine their drug utilization controls to respond to changes, especially new product offerings, in the pharmaceutical marketplace.

Survey Findings

In this year’s survey, states were asked to describe any new or expanded pharmacy program cost containment strategies planned for FY 2021. States were asked to exclude routine updates to PDLs or state maximum allowable cost programs as these utilization management strategies are employed by states regularly and are not typically considered major new policy initiatives.

Thirty-three out of 43 responding states reported newly implementing or expanding upon at least one initiative to contain costs in the area of prescription drugs in FY 2021. Pharmacy cost containment actions included implementation of new policies (23 states) as well as expansion of policies adopted in prior years (19 states). Frequently reported pharmacy cost containment strategies include expanded PDLs (11 states), new or expanded value-based purchasing arrangements that link pharmacy reimbursement to patient outcomes (11 states), and targeted reforms to address transparency or other pharmacy benefit manager (PBM) concerns (7 states).²

Three states report adopting a uniform PDL in FY 2021 (Kentucky, Massachusetts, and Michigan) and North Carolina plans to use a uniform PDL for FFS and managed care when it implements managed care in FY 2022. In FY 2021, one state is carving the prescription drug benefit out of managed care organization (MCO) contracts (California) and three states report newly carving out certain high cost drugs (Iowa, Maryland, and South Carolina). North Dakota implemented a pharmacy carve out in FY 2020 and Nevada plans to carve out the prescription drug benefit effective in FY 2023, when MCO contracts are renewed. Both Michigan and Missouri will be partnering with other state agencies or initiatives to purchase drugs at lower costs, including Michigan’s Hepatitis C initiative aimed at reducing pharmacy and medical costs associated with the disease and working to eliminate Hepatitis C altogether.