policy

Medicaid capitation programs have several state-specific design features related to the prescription drug benefit. At the highest level, states must decide whether to include or exclude pharmacy services in the capitated benefits package. While most capitation programs include, or
carve-in, the pharmacy benefit, several states still utilize a carve-out approach. Several prior  ACAP-sponsored reports have demonstrated the relative programmatic advantages of the pharmacy carve-in model.

Within the carve-in approach, several important design issues and options exist, particularly with regard to the latitude that capitated MCOs have regarding which medications are on its preferred drug list (PDL). MCOs promote the use of the least expensive, clinically effective medication through the PDL mechanism. Drugs placed on the PDL can be prescribed without authorization by the MCO. Non-preferred drugs can still be accessed by MCO enrollees, but only through prior authorization from an MCO.

Given these dynamics, the most important pharmacy cost containment tool available to MCOs  involves optimal management of the mix of drugs. A recent study indicated that the majority of the Medicaid savings derived through optimal management of the pharmacy benefit accrue through impacts on drug mix. The remainder of this paper describes state policies in this area, focusing on the degree to which Medicaid MCOs can configure their PDLs as they deem most  appropriate.

It is important to note that MCOs with relatively restrictive PDLs do provide access to all Medicaid-covered, FDA-approved drugs. These health plans do not, however, allow relatively high-cost medications to be accessed equally easily when lower-cost alternatives exist. Techniques such as “generics first,” prior authorization, and step therapy are used by MCOs to steer volume towards relatively low-cost products – where appropriate – while also ensuring access to higher-cost medications where medically necessary.

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