While some state programs are helping curb the soaring costs of prescription drugs in Michigan, there is still work to be done. Industry leaders discussed those efforts at the 2023 Michigan State of Reform Health Policy Conference.
The US healthcare system spent $603 billion on prescription drugs in 2021. Elizabeth Kutter, senior director of government and political affairs for the Michigan Health and Hospital Association, said one of the most shocking things about the industry is the price of new drugs. The median price of a new drug on the market exceeded $200,000 in 2022, she said. The median annual price for new drugs was $180,000 in 2021.
“From 2019 to 2021, we’ve seen about a 36-37% increase in drug costs,” Kutter said. “And people forget that hospitals are purchasers of drugs too. It’s a huge cost driver for every other aspect of what we do.”
Michigan Association of Health Plans Executive Director Dominick Pallone said specialty drugs now account for more than half of total drug expenditures. That could have a significant impact on the industry, as 250 new drugs are expected to be launched in the next five years, and many of them will be specialty drugs, he said.
“Many of them are in the hundreds of thousands of dollars range, some [are] higher than that,” Pallone said. “Finding that balance between access and affordability is going to become even more difficult for us.”
Most prescription drug price increases occur in either January or July each year, with the greatest number taking place in January. The number of increases in both months during 2022 was higher than in previous years. And Christopher Meny, director of pharmacy at Blue Cross Complete of Michigan, said that trend continued this year.
“In January, we saw quite an increase in drug costs by manufacturers,” Meny said. “It was a significant amount of money. I can’t disclose (how much), but it jumped in cost quite a bit within my plan. I know the government plans experienced that too.”
Pallone noted that the Michigan Department of Health and Human Services implemented a single Preferred Drug List (PDL) for all Medicaid health plans for Medicaid members in October 2020.
“Medicaid plans and fee-for-service began using the same criteria,” Pallone said. “Prior to this, we were using the common formulary. It meant a fast transition. The decision was implemented fairly quickly. People were transitioned, very quickly in some cases, off of the generic [drug] and onto a branded, preferred drug.”
The state estimated that the switch to a single PDL would provide it with $201.2 million in savings, Pallone said.
“The goal on the state’s behalf was to increase the rebate amounts that they were able to negotiate,” he said. “What actually happened [was] the net effect in year one was $80 million worth of savings compared to the previous fiscal year. So [it was] nowhere near the level that we had anticipated or was planned for.”
Kutter said the state’s 340B Drug Discount Program is working effectively to save drug purchasers money, however.
“One of the biggest ways we look at making sure drugs, in particular in specific settings, are affordable is through the 340B program,” Kutter said. “From our perspective in the hospitals, we need to protect 340B with everything we’ve got. We need to look at ways to make sure the program can be executed at a really high level, and that you can continue to drive savings into communities.”
The outpatient drug program serves specific organizations, including children’s hospitals, cancer hospitals, rural referral centers, critical access hospitals, and facilities that serve a disproportionately large share of Medicaid patients.
“It’s got to be members that are serving extremely vulnerable populations and need the ability to stretch scarce resources further,” Kutter said. “It’s not taxpayer funded. It’s a partnership between pharmaceutical manufacturers and covered entities. It’s a really strong opportunity for us to drive cost savings to people. If you are one of those types of covered entities, you can purchase certain outpatient drugs at a pretty significantly reduced rate. And that savings that’s generated by that reduced cost, you can drive into your community.”
Pallone discussed efforts to reform pharmacy benefit manager (PBM) business practices in Michigan. House Bill 4348 was signed into law by Gov. Gretchen Whitmer in February 2020. It requires PBMs to have licenses (which will be filed at the Department of Insurance and Financial Services) and file transparency reports with state officials to provide drug cost information to consumers.
“It regulates PBMs for the first time in Michigan,” Pallone said. “Some of its effective dates are delayed until 2024. Other provisions within the act have taken effect immediately. Spread pricing has been banned in the Medicaid practice for years. This law will now ban that practice beyond just the Medicaid program to all fully-insured commercial products and PBMs doing business with crucial products. It creates new transparency requirements for PBMs.”
It is still too early to tell what effect the legislation will have on both cost and access, however, Pallone said.
“I don’t expect to see major changes in cost,” he said. “We’re worried about changes in assets. We’re worried about some unintended consequences here to access as networks are likely to change as a result of PBM regulation. It’s a major piece of legislation that, in my opinion, is not likely to have an impact on cost, but is likely to potentially have some negative impact on access.”