Massachussets Could Shake Up Drug Pricing

But only if the Trump administration lets it refuse to cover some medicines.

The Trump administration may have given up on fighting high drug prices, but it's not the only game in town.

Massachusetts' Medicaid program MassHealth earlier this month asked the federal government for permission to refuse to pay for some drugs, potentially reducing its costs and improving its negotiating position with drugmakers. 

This is just one Medicaid program in one state. But other states could follow suit. And this suggests the pharma industry shouldn't assume its drug-pricing worries are over.

Massachusetts spent more than all but seven other states on Medicaid in 2016 1 . The program accounts for 40 percent of the state's budget, and drugs are a rapidly growing piece of that spending.

Right now, MassHealth must pay for any drug, as long as the manufacturer offers a discount. Private insurers and pharmacy benefit managers, on the other hand, frequently decline to cover drugs for which there are cheaper alternatives. They maintain and regularly update closed drug lists, known as a formularies.

The two biggest pharmacy benefit managers exclude more than 150 drugs from their main formularies. Drugmakers give significant rebates to make sure they're included. 

MassHealth, meanwhile, has little pricing leverage outside of the federally mandated discounts it already gets.  The waiver it wants would change that. 

MassHealth also wants to take things a step further than many private plans and exclude drugs that have gotten to market based on looser FDA standards. This could give the state the power to shut out many new and pricey medicines. If adopted beyond Massachusetts, such a policy could crimp pharma-industry sales of such drugs. 

This may all be moot; the Trump administration has been slow to let states try new things. The Center for Medicaid and Medicare Services will accept comments on Massachusetts' request through October 20, but it's unclear when a final decision might come, or what it might be.

Even if the state does get to write its own exclusive drug list, then it could take a long time to design and implement it. It would take even longer for such plans to spread to other states enough to make a real dent in prices. 

But with pharma executives getting confident -- bordering on cocky -- about the lack of political action against high drug prices, this is a timely reminder that the people paying for their medicines won't stop trying to cut costs. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
  1. That statistic includes federal funds spent by Massachusetts. If you look at state funding alone, Massachusetts spends more than all but five other states.  

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