Medicaid block grant guidance unveiled on Thursday would allow states to exclude some prescription drugs from their formularies, though the CMS in 2018 denied Massachusetts' request to employ a similar strategy.
Legal experts say the policy is a blatant reversal from the CMS' previous position, but agency head Seema Verma tweeted on Friday that the policies are different. Drugmakers are upset because they provide substantial discounts for their drugs in exchange for coverage by Medicaid.
Massachusetts requested a waiver to use a closed formulary in its Medicaid program, but the CMS rejected it saying the state would have had to give up substantial statutory rebates and negotiate rebates with manufacturers in order to have the authority to exclude drugs from coverage.
But in its new Healthy Adult Opportunity initiative unveiled on Thursday, states would be able to exclude drugs from their formularies for adults who don't qualify otherwise for Medicaid coverage and would still be able to keep statutory rebates. States would still have to cover drugs used to treat opioid use disorders, mental health issues, and HIV.
Tennessee asked the CMS for flexibility to exclude some drugs from the Medicaid formulary in its block grant waiver request.
Verma tweeted that Massachusetts' proposal and the new block grant closed formulary option differ because the block grant proposal would only apply to a narrow swath of Medicaid beneficiaries.
"Let's set the record straight—the Massachusetts proposal for a drug formulary targeted a broader population of individuals. The HAO demonstration is limited to certain optional adult beneficiaries, which allows for broader flexibility to apply a formulary," Verma said.
But Rachel Sachs, an associate professor of law at Washington University in St. Louis, argued that the block grant policy signals a change because HHS Secretary Alex Azar previously said employing a closed formulary while receiving statutory rebates would be illegal double-dipping.
"This is a reversal," Sachs said.
Edwin Park, a research professor at Georgetown University's McCourt School of Public Policy, said he views the potential optional expansion population as another eligibility category under Medicaid, not as a fundamentally different population.
"There is no distinction," Park said.
Prescription drug spending made up only 5.1% of Medicaid expenditures in 2017, according to the Medicaid and CHIP Payment and Access Commission. That means in order for states to see an impact on overall spending, access restrictions would have to be significant.
"Only if a state severely restricts the drugs it will cover, and therefore severely restricts patients' access to care, could cost savings occur," Sachs wrote in Health Affairs.
Park voiced concern about the unclear role of federal oversight in ensuring clinically appropriate drug coverage under the new block grant programs.
Drugmakers are unhappy with the closed formulary option because they agree to provide significant statutory discounts for the Medicaid program in exchange for their drugs being covered.
"This CMS guidance is a complete and arbitrary reversal of the agency's Massachusetts waiver decision 18 months ago and flies in the face of clear statutory requirements and contractual obligations," Pharmaceutical Research and Manufacturers of America CEO Stephen Ubl said in a statement.