Viewpoint: Ohio Medicaid drug reforms are shortsighted
The Ohio Commission to Reform Medicaid recently released its recommendations on improving Ohio’s health plan for the poor, and these recommendations are now impacting legislation. The good news is that the Commission did develop many outstanding recommendations for improving the quality of care for the state’s most vulnerable population and controlling its ever rising costs. Unfortunately, other suggestions by the Commission are not as likely to achieve their desired outcomes and, in fact, may be counterproductive.
On the plus side of the ledger, they have suggested methods for beneficiaries to retain assets in exchange for choosing lower cost long-term care services. They also wisely recommend the elimination of the state’s antiquated nursing home reimbursement formula.
In contrast, the proposal for a more limited Medicaid formulary is problematical at best, particularly for the disabled with mental illnesses. A proposed mandatory mail order program for chronic conditions, for example, is no guarantee of lower costs. As General Motors recently found out, employees were actually able to buy some of their needed drugs for less than the mail order amount from the company’s own pharmacy benefit manager.
The reality is that exclusionary formularies do not automatically produce lower program costs. The inability to quickly move new drugs onto the formulary due to high costs can result in the disabled needing to have expensive institutionalization.
A perfect example of this was the introduction of the drug Clozaril for the treatment of schizophrenia. While there were complicated issues involved, the bottom line is that a drug available for $9,000 per year (later less than $5,000 when blood testing requirements were relaxed) could eliminate many institutionalizations costing tens of thousands of dollars. Despite this, a number of states refused to allow Clozaril on their formularies.
The suggested use of prior approval has a history of making access to these types of drugs virtually impossible. For example, some states require the failure of another type of medication before prior approval is granted - despite evidence that a remission may reduce the prospect of long-term recovery. A formulary may also restrict the “off-use” of drugs where physicians find that the product produces desired results in other illnesses.
The Commission’s suggestion of medication therapy management may also be counterproductive by defining effective management as using the lowest cost drug available even if its results are far less than those obtained from other products. Generic drugs are not “equivalent” in their chemical makeup and may not produce desirable outcomes.
Nonetheless, the concern over drug spending is certainly legitimate. Instead of restrictive formularies, a better way to control total costs is to allow for the negotiation of drug prices between pharmaceutical firms and private sector providers that sell medical services directly to Medicaid beneficiaries.
This could be accomplished by providing those eligible for Medicaid with credits to purchase the services they need from a state run Insurance and Provider Exchange (IPE). This is a health mart where providers of services to the poor and disabled would compete with each other for the dollars of beneficiaries. Since high drug costs and/or ineffective use of those products would reduce their income, these providers could be expected to negotiate vigorously with pharmaceutical firms for reasonable prices.
Such private sector arrangements will be much more effective at producing outcomes that truly benefit the less fortunate and simultaneously reduce the total cost of Medicaid. Policymakers should weigh the costs and benefits of each of the Commission’s recommendations carefully, and work to implement changes throughout Medicaid that shift away from the program’s current unsustainable approach and instead seek to incorporate the advantages of market-based solutions that have proven successful in other states.
Michael T. Bond, Ph.D., is Director of the Center for Health Care Policy at The Buckeye Institute and a professor in the Department of Finance at Cleveland State University.
