Transcript Slide 1

New Analysis of DRE Savings for
States & Federal Government
September 22, 2008
Introducing New Analysis of DRE
Savings
 Conducted by The Lewin Group: Analysis of
Drug Rebate Equalization Act’s Savings to
the Medicaid Program
 Accompanying report: Analysis of Dual
Eligible Pharmacy Costs Under Medicaid
and Medicare Part D
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Purpose of Study & Summary Findings
1) Quantify Medicaid savings impacts of DRE
– National total and state-by-state savings annually
– Five- and ten-year savings, 2009-2018
– State funding and federal government impacts
– Bottom Line Finding: DRE would save Medicaid program over
$31.4 billion over the upcoming ten years ($17.8 billion savings
for Federal government and $13.6 billion for states)
2) Quantify cost impacts of Medicare Part D for dual eligibles
– Medicare became primary payer for dual eligibles’ medications
as of 2006
– Roughly half of Medicaid beneficiary prescriptions are for dual
eligibles
– Bottom Line Finding: Part D program increases dual eligibles’
prescription drug costs by $38 billion across first ten years of
implementation (2006-2015)
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Drug Rebate Equalization Act (DRE)
Overview
 Title XXI section 1931 mandates rebate payments
from drug companies for all Medicaid prescriptions
paid for by Medicaid agencies to ensure lowest
price (enacted via OBRA 1990)
 The catch: Federally-mandated rebates do not
apply to Medicaid prescriptions paid for by
capitated health plans
 The solution: DRE would extend the OBRA ’90
pricing provisions to Medicaid prescriptions paid for
by Medicaid health plans as well
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Medicaid Drug Rebate Situation Yields
3 options
Option #1: Carve-In
Carve-In Advantages
Lower overall drug utilization
Movement toward generics
and lower-cost branded drugs
 Clinical integration: emphasis
on treating “whole person”
Aligned financial incentives –
health plans motivated to
minimize overall costs, not just
certain “buckets”
28 States Carve In
Option #2: Carve-Out
Carve-Out
Advantages
 Federal rebates
provide lowest unit
price for all drugs
13 States Carve Out
Option #3: DRE
Win-Win Situation
Federal rebates provide lowest
unit price for all drugs
 Lower overall drug utilization
 Movement toward generics
and lower-cost branded drugs
 Clinical integration: emphasis
on treating “whole person”
Aligned financial incentives –
health plans motivated to
minimize overall costs, not just
certain “buckets”
0 States Currently; 41
States With DRE Passage
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Lewin Methodology
 Estimated Medicaid pharmacy costs in base
year (2006) for prescriptions utilized by
Medicaid health plan enrollees
 For carve-in states, estimated savings the DRE
would create through more favorable unit
prices
 For carve-out states, estimated the savings the
DRE + carve ins would create through
Medicaid health plans’ management of the mix
and volume of the pharmacy benefit
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Lewin Methodology
 Established Baseline Medicaid Pharmacy Costs:
– Estimated Medicaid pharmacy costs in 2006
for all capitated Medicaid enrollees were $7.8
billion nationally (after rebates)
– $6.1 billion (78% of total costs) occurred in
carve-in states; $1.8 billion (22%) in carve-out
states
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Lewin Methodology – Price Impacts
 Price Impacts For Carve-In States: DRE impacts are
significant but complex
– Health plans pay lower initial (pre-rebate) amounts for
drugs than FFS Medicaid programs, due to slightly
lower ingredient costs and significantly reduced fill fees
– Rebates are significantly larger in Medicaid FFS setting
– often averaging more than 30% of initial payments to
pharmacy (versus approx. 5% health plan rebates)
– Rebate “gap” will be narrowed by health plans because
they use more generics (and generics entail smaller
percentage rebates than brand drugs)
 Net impact of all above factors is a 23.1% savings in Rx
spending for capitated enrollees in carve-in states
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Lewin Methodology – Usage and Mix Impacts
 In carve-out states, Lewin modeled benefits management
savings associated with assumed switch to carve-in model
• Estimated drug mix savings ranged from 6.4% to 12.7%,
depending on FFS brand/generic mix
• The greater proportion of generics occurring in FFS, the
smaller the impact of the DRE (on drug mix)
• 5% savings in Rx volume is projected when carve-out
states switch to a carve-in approach (which switches
health plan economics from “no-risk” for Rx costs to “fullrisk”)
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Projected DRE Impacts: Big Dollars!!
 Projected Federal Plus State Total Savings Are
Significant
– Ten-year total Medicaid savings (2009-2018) of
$31.4 billion ($17.8 billion in Federal savings
and $13.6 billion in state savings)
– Five-year total Medicaid savings (2009-2013) of
$12.6 billion ($7.1 billion to the federal
government and $5.5 to the states)
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Projected DRE Impacts: Big News!
 Projected state savings are also substantial – no
state is adversely affected
– Of the 41 states with Medicaid capitation programs,
24 states would realize savings of more than $100
million in state funds across the first ten years of
passage of this legislation
– Projected sizable DRE savings for carve-out states if
they switch to a carve-in model
– Carve-out states not switching back to carve in
would neither lose nor gain through passage of the
DRE
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Projected 2009 DRE Related Medicaid Savings
State Share in Millions
$0 (NH)
$0 (VT)
$27
$0.02
$0
$28
$16
$0
$92
$0.7
$1
$112
$4
$43
$46
$2
$8
$8 (RI)
$48
$0.1
$4
$0.1
$22
$15
$2
$28
$2
$16
$5 (DC)
$1
$2
$0
$0
$22
$11 (CT)
$31 (NJ)
$6 (DE)
$8
$6
$48
$48 (MA)
$100
$10
$0
$0
$7
$7
In Million $
$0
$0
$0
$8
$35
$0 - $15
$16 - $30
$30+
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Projected DRE Impacts: Big News!
Ten Year Savings in ACAP States
AZ: $2 billion
MO: $622 million
CA: $3.3 billion
NY: $2.9 billion
CT: $329 million
OH: $3.4 billion
KS: $132 million
OR: $644 million
MA: $1.4 billion
RI: $258 million
MI: $1.7 billion
WA: $823 million
Figures shown represent total Medicaid
Savings – Federal and State shares combined
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$30 Billion in Savings over Ten Years
 SCHIP Reauthorization (H.R. 3963) projected to cost
– $37 billion over five years
– $75 billion over ten years
 Original Offset: Increase in Tobacco Tax
– $35 billion over five years
– $70 billion over ten years
 DRE savings provide substantial offsets
– $12.6 billion over five years
– $31.4 billion over ten years
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Analysis of Dual Eligible Pharmacy Costs
Under Medicaid and Medicare Part D
 Lewin also evaluated impacts of dual eligibles’ prescription
drug spending under Part D
– Modeled same components to assess Part D impact on
duals: initial ingredient cost, fill fees, rebates, drug mix
and prescription volume
– Part D increases the government’s prescription drug
spending on dual eligibles by $38 billion from 2006 to
2015, an average of nearly $4 billion per year
 ACAP bottom line message: for the pharmaceutical industry,
any “adverse” impact of the DRE is more than offset by the
additional revenues obtained when dual eligibles switched
into Part D
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Thank you!
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