| TO: | Honorable Dianne White Delisi, Chair, House Committee on State Health Care Expenditures, Select |
| FROM: | John Keel, Director, Legislative Budget Board |
| IN RE: | HB1804 by Delisi (Relating to the operation of the Medicaid vendor drug program, including the adoption of a preferred drug list and the negotiation of supplementa drug rebates. ), Committee Report 1st House, Substituted |
| Fiscal Year | Probable Net Positive/(Negative) Impact to General Revenue Related Funds |
|---|---|
| 2004 | $5,193,155 |
| 2005 | $10,977,544 |
| 2006 | $10,965,314 |
| 2007 | $10,965,314 |
| 2008 | $10,965,314 |
| Fiscal Year | Probable Savings fromGR MATCH FOR MEDICAID 758 |
Probable (Cost) fromGR MATCH FOR MEDICAID 758 |
Probable Savings/(Cost) fromFEDERAL FUNDS 555 |
Probable Revenue Gain/(Loss) fromFEDERAL FUNDS 555 |
|---|---|---|---|---|
| 2004 | $7,721,755 | ($6,752,976) | $6,072,903 | $6,389,635 |
| 2005 | $16,077,544 | ($14,246,056) | $6,429,047 | $14,026,025 |
| 2006 | $16,065,314 | ($14,239,099) | $5,548,551 | $14,050,698 |
| 2007 | $16,065,314 | ($14,239,099) | $5,548,551 | $14,050,698 |
| 2008 | $16,065,314 | ($14,239,099) | $5,548,551 | $14,050,698 |
| Fiscal Year | Probable Revenue Gain fromVENDOR DRUG REBATES-MEDICAID 706 |
|---|---|
| 2004 | $4,224,376 |
| 2005 | $9,146,056 |
| 2006 | $9,139,099 |
| 2007 | $9,139,099 |
| 2008 | $9,139,099 |
The bill is similar to recommendation HHS 8, "Improve Purchasing of Prescription Drugs" from the Comptroller's e-Texas report, "Limited Government, Unlimited Opportunity".
The bill would require the Health and Human Services Commission (HHSC) to contract with a Pharmacy Benefit Manager (PBM) to establish a preferred drug list and negotiate rebates and discount prices for brand name prescription drugs within Medicaid Vendor Drug Program. If the manufacturer does not agree to rebates or discount prices on the brand name drugs, the PBM would be required to place their products on a list requiring prior authorization in Medicaid. Prior authorization requirements, however, could be circumvented if the prescribing physician communicates that the drug is medically necessary.
The bill differs with e-Texas HHS-8 as follows: (1)HIV/AIDS and certain mental health-related drugs and drugs for treating those with cancer and hemophilia are exempted from the preferred drug list,(2) generic drugs are exempted from the preferred drug list, (3) a physician may communicate to a pharmacist that a drug is medically necessary thereby bypassing prior authorization, and (4)current clients with prescriptions that are not on the Preferred Drug List are grand-fathered in until the end of their refills.
To estimate the cost and savings associated with the implementation of a preferred drug list, Medicaid Vendor Drug Program expenditures are held at fiscal year 2003 levels, $721,723,593 in General Revenue.
It is assumed that HIV/AIDS and mental health-related drugs comprise approximately 17.2 percent of all Vendor Drug Program drug expenditures. Drugs for treating cancer patients comprise 1.18 percent and drugs for treating hemophilia comprise 1.4 percent. Generic drugs comprise 15 percent.
It is assumed that one-third of current Medicaid clients would have a refill of a medication that was not on the Preferred Drug List for a period of three months in fiscal year 2004.
It is assumed that the program would be implemented by March 1, 2004.
The market shift created through prior authorization is assumed based upon a 25 percent redirection to a 20 percent less expensive drug. The Pharmacy Benefits Manager's ability to direct clients to a less expensive drug was greatly decreased due to the ability of a physician to communicate that a non-preferred drug was medically necessary without going through the prior authorization process. Supplemental rebates are assumed to be negotiated at 2 percent and are calculated after reducing the drug expenditures by the savings due to redirection. In light of the mechanism to circumvent the prior authorization process, it is assumed that drug manufacturers would not as readily enter into supplemental rebates agreements. It is assumed that supplemental rebates would be expended to offset program costs.
It is assumed that the administration of the program would require a Pharmacy Benefit Manager (PBM) to maintain the Preferred Drug List, manage the prior authorization process, perform pharmacy liaison functions, and other administrative tasks. The PBM-associated costs are estimated to be $10 million per year. The mechanism to circumvent the prior authorization process would add an additional responsibility.
| Source Agencies: | 304 Comptroller of Public Accounts, 529 Health and Human Services Commission
|
| LBB Staff: | JK, JO, EB, KF, AJ
|