Michigan to Start Restrictive Medicaid Drug Formulary

Michigan has joined the ranks of state governments that are developing new tools in their efforts to contain the fiscal burden from the rising cost of drugs prescribed for patients receiving Medicaid.

The Urban Institute estimates that Medicaid spending for outpatient prescribed drugs increased by an average of 18.1 percent per year from 1997 to 2000, compared with 7.7 percent for all Medicaid expenditures. The increase reflects both higher prices for drugs and an increase in the number of prescriptions used by beneficiaries.

The amount of money spent on these drugs and the rate of increase in cost is “unsustainable,” said Ray Hanley, Arkansas’s Medicaid director and chair of the Pharmacy Committee for the National Association of Medicaid Directors.

In an interview with Psychiatric News he estimated that states collectively will spend about $27 billion on prescription drugs for Medicaid patients this year. Approximately 25 percent of that total, Hanley said, will be spent on drugs related to mental illness.

Linda Elam, senior policy analyst at the Kaiser Commission on Medicaid and the Uninsured, said, “Almost every state government is trying something to rein in costs. Michigan, Oregon, and Louisiana are using a formulary approach in which only drugs on a list developed under state auspices can be ordered without prior authorization.”

Michigan has garnered the most attention by taking on the entire pharmaceutical industry. In fact, on December 7, 2001, a front-page story in the Wall Street Journal claimed, “Michigan’s experiment. . .takes dead aim at drug companies’ freedom to set prices. Instead of taking as a starting point the prices offered to companies’ most-favored customers, the Michigan experiment seeks to drive all prices down to a low common denominator.”

Committee Chose Drugs

A committee of physicians and pharmacists chose so-called best-in-class drugs in 40 categories covering a range of illnesses across all of medicine. If a physician wants to prescribe a drug not on the list, he or she must “call a state technician and get approval,” which will be granted only if the drug is considered “medically necessary.”

The reasoning behind the state’s action is somewhat murky. Faced with a statewide $1 billion shortfall, the Michigan legislature budgeted for $42 million in pharmacy savings. James Haveman Jr., director of the state’s Department of Community Health (DCH), wrote to the leaders of the state legislature that two key policy changes would be necessary to capture those savings: “expansion of prior authorization for single-source drugs and obtaining additional rebates on drugs provided through the Medicaid program, as well as on state-funded pharmacy programs.”

The Pharmaceutical Research and Manufacturers of America (PhRMA) claims that the state’s Department of Community Health (DCH) “will no longer routinely pay for drugs in the Medicaid or other state-funded programs unless the manufacturer agrees to pay the state steep rebates over and above what the state already receives.” It has filed suit to halt implementation of the pharmacy program.

Policy Defended

In a position paper, however, DCH defends prior authorization for psychiatric drugs by saying that general practitioners with no specialized training in psychiatry are prescribing atypical antipsychotic drugs. DCH’s second justification is that beneficiaries in the state’s Medicaid managed care program are subject to drug formularies, while the 350,000 beneficiaries in the state’s Medicaid fee-for-service program are not. DCH states that “it is unfair to have dramatic differences” in the drug-coverage programs.

The Michigan Psychiatric Society (MPS), assisted by APA and other advocacy groups, opposes DCH’s recent actions on formularies. Jonathan G.A. Henry, M.D., medical director of the Clinton-Eaton-Ingham Community Mental Health Board, testified last December 11 on behalf of MPS before the state Senate’s Subcommittee on Appropriations for Community Mental Health.

Henry noted the lack of data about the capability of the new drug policies to generate savings. He testified that new drugs with proven value such as nefazodone and venlafaxine would require preauthorization. Preauthorization requirements also result in a decrease in physician productivity, he noted.

“To authorize a state bureaucrat to overrule a physician’s medical judgment is simply wrong public policy in both human and economic terms,” commented Jay Cutler, J.D., director of the APA Division of Government Relations. “This policy seems to have lacked both serious legislative and public review of its impact on the most vulnerable patients, namely, the seriously mentally ill.” ▪