Approach

To assess the feasibility of implementing the specifications of HB 1046 – Plan to Allow Direct Purchase of OTC Medications, Mercer first evaluated state and federally funded pathways that DMAS can pursue to implement the Plan in their Medicaid population. Mercer then outlined key policy and operational considerations specific to Medicaid and provided a preliminary fiscal impact to implement the Plan.

Key Findings

Policy and Operational Review

Mercer identified two pathways that may allow for the direct purchase of OTC medications and medical supplies by Medicaid members. The first leverages State-only funds to pay for selected products and associated cost to administer the Plan. With this option, DMAS retains flexibility in how the Plan is operationalized, but results in the loss of federal financial participation (FFP) that is currently in place at a matching rate of 56.85%. The second option preserves the FFP but faces operational and regulatory barriers. The Centers for Medicare & Medicaid Services (CMS) will require a state plan amendment (SPA) to ensure that program integrity guardrails are in place to safeguard against fraud, waste and abuse (FWA) under the Plan. Of note, Mercer was unable to identify any similar existing Medicaid programs with CMS approval.

Fiscal Impact Review

Mercer projects that products purchased directly by members in a retail environment may cost ~45% more than Medicaid currently pays for the same products through reimbursement to pharmacy providers. Medicaid costs are consistently lower because they are able to incentivize utilization of the lowest priced option for products by setting a maximum allowable cost (MAC) for clinically identical generic products. The ‘direct purchase’ price on the shelf represents the price the market will bear and may vary depending on where the member is shopping, whereas the price Medicaid reimburses is set based on what is efficient and is consistent regardless of provider location. Mercer reviewed current Medicaid managed care organization (MCO) expenditures to generate a select list of commonly utilized and easily accessible OTC medications and medical supplies where cost differences between Medicaid paid and direct purchase could be evaluated for this study.

Conclusion

Mercer identified a substantial increase in the cost to provide OTC medications and medical supplies to the Medicaid population if purchased directly by members. Operational considerations include maintaining program integrity and administrative costs for maintenance and oversight of such an approach. Prior to implementation of the Plan, it is recommended that the anticipated benefits of the Plan are weighed against projected cost increases, resources required to maintain program integrity, potential member and/or provider disruption in current utilization and prescribing patterns, and the likelihood of CMS approval of a SPA to implement this change.