BENEFITS OF PUBLIC-PRIVATE PARTNERSHIPS TO MEDICAID RECIPIENTS

Authority for Study

Senate Joint Resolution (SJ) 58 of the 2004 Session of the General Assembly directed the Joint Commission on Health Care to study how other states have succeeded in improving services and lowering health care and prescription drug costs to Medicaid recipients through public-private partnerships. Specific areas the study addresses include:

• Other states’ programs for reducing the costs of healthcare and prescription drugs through agreements with the private sector which should specifically address disease management programs;

• Florida’s Medicaid Initiative and Disease Management Initiative; and

• Options regarding the feasibility of implementing Medicaid disease management programs as a cost-containment strategy in Virginia.

This report is being submitted to the Governor and the General Assembly.

State Strategies to Control Medicaid Pharmaceutical Costs

In response to the increasing burden of Medicaid pharmaceutical costs on State budgets, the majority of states is considering or has enacted changes to control rising drug expenditures. Most of the strategies employed center on new or expanded application of management tools that the federal government allows under existing law. A multitude of strategies are used by states including:

• Prior authorization;
• Preferred drug lists (PDL);
• Supplemental rebates from manufacturers;
• Multi-state pharmaceutical purchasing pools;
• Generic substitution;
• Drug utilization review (DUR); and
• Pricing strategies.

The Department of Medical Assistance Services currently applies all of the strategies listed above, with the exception of multi-state pharmaceutical purchasing pools. In addition to the previously listed strategies, some states also employ disease management programs as a cost-containment measure.

Medicaid Disease Management Programs

According to the Centers for Medicare and Medicaid Services, 20 states operate Medicaid disease management programs. There is a great deal of variation in the type and scope of these programs. States have implemented disease management programs as a state plan service, under waiver authority, and with the use of supplemental drug rebates.

One of the methods used by Florida to provide disease management consists of using value-added programs provided through supplemental rebates from drug manufacturers. Pharmaceutical manufacturers participating in this program include Pfizer, Bristol-Myers Squibb, AstraZeneca, and GlaxoSmithCline. Under these contracts, pharmaceutical manufacturers provide disease management services instead of monetary supplemental rebates. Original calculations estimated that the four pharmaceutical companies combined programs would save Florida $108.4 million from July 2002 through September of 2005. A report issued by the Florida Office of Program Policy Analysis and Government Accountability (OPPAGA) in April of 2003, estimated that the state could save $64.2 million in 2003 and 2004 by requiring the four drug companies to provide traditional supplemental rebates instead of disease management programs. An additional report issued in May 2004 by OPPAGA, estimated that Florida’s disease management initiative had only saved $13.4 million, far below the original estimate of $108.4 million. The Florida Agency for Health Care Administration (AHCA), the state entity administering the Medicaid program, disagreed with the analysis conducted by OPPAGA in 2003 and 2004. AHCA questioned the methodology and assumptions used by OPPAGA to reach their final conclusions. However, on May 28, 2004, the Governor signed House Bill 1843, which prohibits value-added programs, such as disease-management from being used as a substitute for cash supplemental rebates.

The Virginia Department of Medical Assistance Services has also been involved in several initiatives to provide disease management to both the fee-for service and managed care populations. Programs outlined in this report specifically address fee-for-service Medicaid disease management initiatives.

The Virginia Health Outcomes Project (VHOP), a pilot project in the Richmond area, began serving recipients in DMAS’ primary care case management program, MEDALLION, in 1993. With the participation of six pediatricians in the Richmond area, the program sought to educate these physicians treating recipients with asthma, on clinically sound and evidence-based treatments. Initial cost-savings calculations concluded that for every $1 spent $3 in treatment costs were saved. However, questions were raised about the methods used to calculate cost-savings and DMAS reported significant administrative costs associated with the program.

In 1997, Heritage Information Systems, Inc. was awarded a contract to design, implement, and evaluate disease management services in the fee-for-service Medicaid program. In June 1999, the disease management program was implemented. An analysis by Heritage Information Systems, Inc. showed a rate of return on investment of $1.75 for every $1 spent.

During the 2002-2004 biennium, DMAS was directed to create a statewide disease management program. DMAS was expected to produce $22 million in savings from initial funding of $1.4 million. Several difficulties in implementing the program were reported by DMAS, including:

• Funds budgeted for the program were limited;
• Growing evidence that significant savings from disease management programs are not usually seen in the two-year budget cycle DMAS was working under; and
• Lack of vendors who were willing to guarantee savings.

DMAS has entered into a contract with the Anthem subsidiary Health Management Corporation, Inc. (HMC) to implement and evaluate the pilot Healthy Returns Disease Management Program. From June 1, 2004 to May 30, 2005, the program will target fee-for-service recipients with a diagnosis of coronary heart disease or congestive heart failure. The program will be evaluated by Health Management Corporation, Inc.

In addition to these disease management programs for the fee-for-service Medicaid population, all of DMAS’ managed care programs have disease management programs. Currently more than half of the Medicaid population is served through managed care.

Actions Taken by JCHC

Three policy options were offered for consideration by the Joint Commission on Health Care regarding the issues discussed in this report. The Commission voted to support Option III to introduce a budget amendment directing DMAS to report to JCHC by October 1, 2005 on the results of the Healthy Returns Disease Management Program and the feasibility of expanding the program.