红领巾瓜报

This week’s In Focus covers key takeaways and insights from a recently released 红领巾瓜报 report, State Approaches to Managing the Medicaid Pharmacy Benefit: Insights from a National Survey for State Fiscal Years 2023 and 2024.

The report, released in August 2024 with support from Arnold Ventures, includes survey responses from 47 states (including DC) for state fiscal years (SFYs) 2023 and 2024. The survey instrument builds on questions posed in the  of all 50 states and the District of Columbia, which 红领巾瓜报 and the Kaiser Family Foundation conducted.  

The report discusses state trends for how Medicaid pharmacy benefits are administered across the country, including planned priorities and anticipated challenges in SFY 2025 and beyond. The findings are based on information provided by the nation鈥檚 state Medicaid Directors, Medicaid Pharmacy Directors, and other Medicaid agency experts. 

Pharmacy Benefit Administration  

In many states, managed care delivery systems play a pivotal role in administering Medicaid benefits, including prescription drugs. As of July 1, 2023, survey results found that:  

• A total of 33 states carved pharmacy benefits into managed care organization (MCO) contracts, with one state, Kentucky, directing its MCOs to use a single state-selected pharmacy benefit manager (PBM). 
• Eight states carve-out the pharmacy benefit鈥攄ouble the number in 2019. 

MCO states were surveyed about their use of carve outs for certain drug products/classes, inclusive of physician-administered drugs covered under the medical benefit.  

• In all, 19 states reported carving out one or more drug classes or select agents within a drug class鈥攐ften high-cost specialty drugs. 
• Of those states, 13 reported using the carve-out as part of a risk mitigation strategy.  

Pharmacy Benefit Managers 

The significant role and market power of PBMs have prompted many state legislatures to enact greater transparency practices and require health plans to accept more responsibility for monitoring the PBMs they contract with, which reflect notable changes since the 2019 survey. More specifically: 

• A total of 33 states reported contracting with a PBM.  
• The most frequently reported PBM functions included utilization management, drug utilization review, claims processing and/or payment, and rebate administration activities.  

The 30 MCO states that carve in pharmacy benefits responded to survey questions about PBM transparency and spread pricing requirements. Of these states:  

• 25 prohibit spread pricing in MCO PBM contracts鈥攎ore than double the number of states reporting prohibitions on spread pricing in 2019.  
• 17 reported having PBM transparency reporting requirements.  
• 10 states reported having 鈥渁ny willing鈥� pharmacy requirements.  

The Role of PDLs, Prior Authorization, and Step Therapy in Controlling Drug Costs and Utilization  

红领巾瓜报鈥檚 experts also sought information on state payment strategies and utilization management protocols that are used to manage pharmacy expenditures. Nearly all responding states (44) have a preferred drug list (PDL) in place for fee-for-service prescriptions, which allow states to drive the use of lower cost drugs by encouraging providers to prescribe preferred drugs. Further, nearly two-thirds of responding MCO states (19 of 30 states) that do not carve out the pharmacy benefit reported having a uniform PDL for some or all drug classes, requiring all MCOs to cover the same drugs.  

Many states鈥痟ave implemented鈥痵tep therapy鈥痑nd prior authorization (PA) guardrails in their Medicaid programs through legislation. However, 85.1 percent of responding states (40 of 47) report utilization controls like PA or step therapy applied to drugs that are reimbursed through the medical benefit to control utilization and costs. States also play an active role in managing MCO clinical protocols or medical necessity criteria, with 22 out of 30 MCO pharmacy carve-in states reporting that they require uniform clinical protocols for some or all drugs with clinical criteria. Approximately one-half of responding MCO carve-in states also require review and approval of MCOs鈥� PA criteria (15 of 30 states) and step therapy criteria (14 of 30 states).  

State Adoption of VBAs: Improving Patient Access to Cell and Gene Therapies  

A growing number of states are actively considering entering into value-based arrangements (VBAs) with manufacturers, as pressure to improve patient access to cell and gene therapies increases. Nine states have at least one VBA in place, and 23 states reported that VBAs are among their future solutions for addressing coverage of new high-cost therapies. States will need to address common barriers to VBA implementation, which involves more upfront costs and operational challenges to implement than traditional contracts. 

Subsequent to the submission of survey responses, the Centers for Medicare & Medicaid Services (CMS) released a Cell and Gene Therapy (CGT) Access Model, which begins with a focus on sickle cell disease, anticipated to go live on January 1, 2025. Under the model, CMS will negotiate outcomes-based agreements with manufacturers on behalf of the state to ensure that treatment pricing is related to treatment effectiveness. In the coming years, experiences with this model will help determine whether a CMS-led approach to developing and administering VBAs for CGTs improves Medicaid member access to innovative treatment and their impact on expenditures, if any.  

Looking Ahead  

Managing the Medicaid pharmacy benefit has never been more challenging. In FY 2025 and beyond, most states will be focused on managing their Medicaid pharmacy budgets, especially the development of VBAs and other policies and strategies for managing new high-cost therapies. Other top priorities and challenges cited by multiple states include management of PBM arrangements and considering coverage of the new generation of GLP-1 anti-obesity medications. States also must react to changing drug marketplace conditions driven, in part, by federal policy changes to the Medicaid drug rebate formula and changes designed to lower Medicare drug costs. Drug manufacturer responses to these changes have implications for Medicaid state budgets, but also for state PDL management decisions and beneficiary access to needed medications. 

Connect with Us 

The upcoming event,鈥�, hosted by 红领巾瓜报, will offer more opportunities to engage with report author聽Kathy Gifford聽at the pre-conference workshop Paying for Innovative Pharmaceuticals: State and Federal Trends Shaping Public Programs. Leaders from various sectors will join Kathy to discuss trends in prescription drug policies in public and commercial insurance programs.聽

For details about the report, contact our featured experts below.

This week, our In Focus section reviews state policies designed to increase insurer participation in Medicaid managed care and Marketplace programs. As states seek to address healthcare costs, affordability, and consumer experiences, they are exploring a range of initiatives鈥攆rom the rise of prescription drug affordability boards to cost containment commissions, cost growth benchmarks, transparency, and examination of mergers and acquisitions.  

A notable trend is the use of state policy and purchasing power to encourage or mandate that Medicaid managed care organizations (MCOs) offer Marketplace plans. Dual-market participation can help smooth coverage transitions, ensure continuity of care, and expand consumer choice. The remainder of this article addresses original research and analysis of this trend by our 红领巾瓜报, Inc. (红领巾瓜报), featured experts.

Current Landscape  

In 2024, enrollment in the Marketplace program has surged to more than 21 million, approximately a 30 percent increase from 2023. This growth was largely attributed to the temporary enhanced subsidies that allowed more people to access affordable coverage. Over the past several regulatory cycles, federal policymakers also have taken steps to further align the Marketplace framework with Medicaid on key issues, such as essential community provider access, eligibility and enrollment processes, and plan design standards. In response, states are innovating to meet federal requirements while pursuing their own healthcare goals related to coverage, affordability, access, and healthcare outcomes.鈥� 

Value Proposition  

A compelling value proposition for Medicaid MCOs to participate in the Marketplace (and vice versa) includes the ability to market to and retain people moving from one program to another as life circumstances change. Dual-market participation also supports diversification and growth strategies. In fact, enrollment in the Marketplace has nearly doubled since 2020. For Medicaid MCOs in particular, expanding product offerings to include Marketplace plans presents a unique opportunity to leverage existing provider networks and reimbursement arrangements to deliver more competitive rates. 

Consumers benefit when the same organization participates in both markets. Families with parents and children who obtain coverage under different programs have an opportunity to work with a single organization and choose providers from the same or overlapping networks. Income fluctuations may result in disenrollment from one program (e.g., Medicaid) and eligibility for a new program (e.g., Marketplace subsidies). Continuity of care policies can smooth these transitions in areas such as prior authorization, care management, and provider network.  

State Strategies to Increase Dual-Market Participation 

The Affordable Care Act expanded access to affordable health insurance coverage for as many as 45 million individuals by giving states the option to expand Medicaid and provide federal subsidies to people who purchase Marketplace plans. States are now using various strategies to encourage or require insurer participation in both programs to ease transitions for individuals and families 鈥渃hurning鈥� from one program to another, increase competition and choice of Marketplace plans, and reduce the risk of coverage gaps. For example:  

• Nevada is requiring any bidder that plans to respond to its upcoming Medicaid MCO procurement to separately submit a 鈥済ood faith鈥� response to the . This state-contracted, public option will be available on the Silver State Health Insurance Exchange beginning in 2026. Failure to submit a good faith proposal will disqualify an organization from participating in the Medicaid MCO procurement later this fall. Nevada鈥檚 current Medicaid MCOs must participate in the Marketplace by offering at least one Silver and one Gold qualified health plan (QHP) that has overlapping provider networks, serves the same service area, and charges reasonable premiums. 
• Rhode Island and New Mexico require or intend to require that their Medicaid MCOs participate in the Marketplace. As an awardee of Rhode Island鈥檚 recent Medicaid MCO procurement, UnitedHealthcare, must reenter the HealthSource Rhode Island market in 2027. These states also have designed their Medicaid MCO auto-assignment methodology to favor enrollment in a Medicaid MCO affiliated with an individual鈥檚 previous Marketplace plan or a family member鈥檚 Marketplace plan.  
• In its last Medicaid MCO procurement (2018), North Carolina offered bonus points to any bidder that agrees to offer a Marketplace MCO. The resulting contract codified the market entry commitment and included implications for failure to follow through. Nonfulfillment could result in the highest level of contract noncompliance and associated penalties. 
• Arkansas expanded its Medicaid program using federal matching funds to purchase QHP coverage through the Marketplace. Minnesota, one of the few states offering a basic health program, contracts with the same organizations to provide coverage under both programs.  
• Iowa uses contract language to encourage, but not require, Medicaid MCOs to participate in the Marketplace to facilitate continuity of care during coverage transitions. 

The Centers for Medicaid & Medicare Services (CMS) collaborated with states to promote continuity of coverage following the end of the Medicaid continuous enrollment requirement established in the Families First Coronavirus Response Act of 2020, also known as the Medicaid public health emergency (PHE) unwinding. This support includes the  of permissible outreach activities by Medicaid MCOs that also offer a Marketplace plan, information sharing, and other assistance. Many states have incorporated the CMS guidanceiii into Medicaid MCO contracts. North Carolina, Utah, and West Virginia include additional contract terms supporting their Medicaid MCOs鈥� ability to co-market Medicaid and Marketplace plans, including when an individual is losing Medicaid eligibility.  

What to Watch For 

Coverage transition challenges throughout the Medicaid PHE unwinding have highlighted the real-life impact of coverage gaps and the importance of policies and practices that promote uninterrupted access to healthcare coverage. Historic Marketplace enrollment levels and recent CMS guidance clarifying the allowability of outreach to people who are losing Medicaid coverage about Marketplace plan available make the prospect of dual-market participation increasingly attractive for Medicaid MCOs. A greater focus on improving continuity of care and Marketplace plan choice may lead to more states encouraging or requiring Medicaid MCOs to participate in the Marketplace.  

Connect with Us  

The upcoming 红领巾瓜报 event,鈥�, will offer more opportunities to engage with leaders from various sectors who are advancing innovations in Medicaid managed care and Marketplace programs and the points at which these programs intersect. State Medicaid and insurance commissioners, health plan executives, and community leaders, among others, will share insights into their market success and initiatives designed to address healthcare costs and insurance affordability.  

Experts from 红领巾瓜报 and our family of companies have extensive experience in the policy, structure, and administration of healthcare markets and health plan contracting. For more information, contact our featured experts below.