CMS denies Massachusetts' request to choose which drugs Medicaid covers

(Story updated at 5:30 p.m. ET)

The CMS has denied Massachusetts' request to become the first state in the nation to determine which drugs it will cover in its Medicaid program.

The state filed a federal waiver request last fall to establish its own drug formulary similar to private insurance companies.

Medicaid drug programs have historically covered all medications albeit with some prior authorization requirements.

The CMS said in a notice posted Wednesday that it would have considered the waiver if it was a pilot or demonstration project. But that's not how it was proposed, the CMS said.

For the CMS to sign off on Massachusetts' request, it would have to forgo rebates that drugmakers give to Medicaid programs in order to make them more affordable and negotiate prices directly with manufacturers.

The state could then choose to exclude specific drugs based on cost-effectiveness or other approved criteria, or to employ a closed formulary structure similar to Medicare Part D or commercial plan formularies, according to the CMS.

In that scenario, the state would need to keep track of spending so as to not exceed federal expenditures budgeted for the demonstration.

The state's proposal was not consistent with these requirements. It wanted to continue to collect manufacturer rebates while enabling the state to exclude certain drugs from coverage, which wouldn't be allowable under federal law, the CMS said.

"The CMS supports the state's goal of lowering drug costs and will continue to provide technical assistance on options to test innovative drug coverage mechanisms," Tim Hill, the CMS' acting Medicaid director, said in the letter.

Massachusetts said it needed the option to more closely control Medicaid drug costs, which have risen 13% annually since 2010.

The state's share of Medicaid spending jumped 20% from $6.4 billion in fiscal 2013 to $7.7 billion in fiscal 2016, according to federal data.

"It is disappointing that our request to more effectively control rising pharmacy costs was not approved," said Elissa Snook, a spokeswoman for the state's Executive Office of Health and Human Services.

She didn't say whether Massachusetts would pursue a drug formulary as proposed by the CMS. She would only say the state remains committed to finding more innovative state-based solutions to reduce the growth in drug spending while maintaining access to necessary medications.

Frederick Isasi, executive director of Families USA, said it is unlikely Massachusetts will seek to launch a pilot as described by the CMS as it would do away with rebates not only on a few expensive specialty drugs, but on all products, potentially raising costs for the state.The idea the CMS proposed to Massachusetts is similar to one outlined in President Donald Trump's 2019 budget, which suggested states should negotiate their own drug prices.

Matt Salo, executive director of the National Association of Medicaid Directors agreed that states would not be moved to take up the suggestion.

"Nobody wants that demo," Salo said. "Massachusetts is saying that the current system works well enough for most patients and most products, so there's no need to throw the baby out with the bathwater."

If states do pursue the demo the CMS described, access to drugs could be harmed as it's unlikely states will get discounts as deep as the ones offered under the Medicaid drug rebate program, said Edwin Park a research professor at Georgetown's Center for Children and Families.

"The risk then is that the only way states would reduce their drug costs is by imposing an onerous closed formulary that sharply limits access to needed drugs, where drugs are taken off formulary solely for cost reasons," Park said.

On the same day it denied Massachusetts' request, CMS approved Oklahoma's request to get extra rebates from drugmakers if clinical outcomes are not achieved from their products. The state is the first to gain such a permission.

"Oklahoma's plan for value-based drug contracts is an important example of how states can innovate to bring down drug costs," HHS Secretary Alex Azar said in a statement.

Experts doubted whether Oklahoma's approach would have anywhere near the impact Massachusetts' idea would have had.

"The Massachusetts proposal, had it been implemented in a thoughtful, evidence-based way, could have helped provide real negotiating leverage for the state that could have led to lower prices," said Dr. Aaron Kesselheim, associate professor of medicine at Harvard Medical School.

"Outcomes-based contracting arrangement proposals like the one it seems Oklahoma proposed sound appealing but in reality, have extremely limited potential for reducing drug spending," Kesselheim said.

Patient advocates slammed Massachusetts' proposal, saying it would result in patients losing coverage on important therapies."This proposal is bad for patients," Terry Wilcox, executive director of patient advocacy group Patients Rising, said in a statement.

The CMS has also declined Massachusetts' separate request to move childless, nondisabled adults with incomes above the federal poverty level into subsidized commercial plans bought through the state's exchange. Arkansas uses a similar model to cover this population.Under the proposal, these beneficiaries would be moved to a version of Massachusetts' Medicaid program that does not cover long-term support and services, such as personal care attendants.

The CMS did not say why it denied this request. A spokesman did not respond to a request for comment.

Massachusetts has seen its Medicaid and Children's Health Insurance Program population jump more than 30% since it expanded Medicaid under the Affordable Care Act. In total, Medicaid covers 1.9 million Massachusetts residents, or one-third of the state's population.