Actuaries say it's getting increasingly difficult to advise states on sound rates for Medicaid managed-care plans because high-priced specialty drugs like Sovaldi continue to hit the market at a rapid clip.
The American Academy of Actuaries is asking the CMS to give states new flexibility in funding approaches to deal with the expensive new drugs.
“A new therapy … has the potential to diminish the ability of the actuary to accurately project future expenses from historical experience because of the significant change in practice patterns and costs that such new treatments can create,” the organization said in a November letter to the CMS (PDF).
The actuaries' letter comes as the CMS is beginning to tighten its oversight of Medicaid managed-care payments. In October, the agency released guidance on new data requirements states must follow to show they are meeting the statutory requirement that payments to plans are actuarially sound—meaning that they cover all medical and administrative costs, taxes and fees for which the health plan will be responsible. Issuers had been increasingly complaining the rates they were receiving were not adequate.
Of the more than 70 million people in Medicaid, 70% are in managed-care plans for at least part of their care.
A spokeswoman for the CMS declined to comment on the actuaries' request. The CMS did, however, send the trade group a notice acknowledging receipt of the document, which the organization interprets as a step forward, said Michael Nordstrom, author of the letter and chairman of the academy's Medicaid work group.
“State operational and budget staff, like actuaries, should be aware of the challenges for projecting future Medicaid expenses posed” by drugs that come to market quickly through an accelerated review process for breakthrough therapies and command high prices, Nordstrom said. “Our letter alerted CMS to this issue.”
Actuaries have typically developed capitation rates for Medicaid managed-care plans based on utilization data over the previous 24 months. That approach is confounded by the Food and Drug Administration's regulatory pathway which comes with the breakthrough therapy designation adopted in 2012.
Three drugs won approval under that pathway in 2013, including Gilead Sciences' $1,000-a-pill hepatitis C drug Sovaldi. Another 10 were similarly approved in 2014. The speed of the process, the actuaries say, makes it difficult for them to incorporate costs in the rate-setting process.
“If payments aren't actuarially sound, plans lose money and eventually they can't continue to provide care,” said Jeff Myers, president and CEO of the trade group Medicaid Health Plans of America. “They can't lose money forever.”
The actuaries suggest several strategies for addressing the cost uncertainties for these medications. They include creating a new risk-corridor program that would re-allocate funds to plans with disproportionate numbers of patients needing the pricey drugs. Another idea would be to institute a supplemental payment policy outside of the normal capitation rate to be paid when a breakthrough therapy is requested.
Patient advocates are thrilled actuaries are drawing attention to the difficulties of setting adequate rates.
“These costs will eventually be passed along to consumers and taxpayers in some form, such as increased cost sharing or cuts to public programs,” said Leigh Purvis, a senior strategic policy advisor with the AARP Public Policy Institute. “Alternatively, health insurers could decide that they have no choice but to severely limit access to these medications.”
Michael Miller, policy director at Community Catalyst, a consumer advocacy group in Massachusetts, said he hopes the alarm raised by the actuaries will at least bring the relevant stakeholders to the table to work out a solution to the challenges posed by the drugs.
Follow Virgil Dickson on Twitter: @MHVDickson