Massachusetts' Medicaid Proposal Could Be a Model for the U.S.

(Bloomberg View) -- One big reason Americans pay too much for prescription drugs is that the government has been so reluctant to push prices down. Private health insurers pick and choose the medicines they cover and use that discretion to strike deals with drug companies. Medicaid -- which would have far greater negotiating power, if it were to use it -- is forbidden to do the same.

Massachusetts Governor Charlie Baker would like to begin to change that. He's asked the federal government to let his state's Medicaid program create a selective drug formulary and negotiate prices for the products it chooses to cover.

This is a good idea, broadly supported by health-care policy experts and by the Trump administration as well -- but it's meeting resistance from two powerful forces. The pharmaceutical lobby sees the industry's revenues under threat, and medical consumer groups evoke the age-old fear -- peculiar to the U.S. and usually overblown -- that formularies restrict people's access to life-saving treatments.

By taking due care, MassHealth, as the state's Medicaid program is called, could cut profligate drug spending and still ensure that patients get the medicines they need. It would have to create an appeal system that allows beneficiaries and their doctors to use medicines not in the formulary when necessary -- one that can work promptly and smoothly without being so permissive as to sabotage the whole idea.

MassHealth should be granted this chance to demonstrate that indiscriminately paying for any and all drugs is not the only way to give people access to the medicines they need. Such proof of concept already exists outside Medicaid. European governments maintain formularies, and their citizens enjoy better health outcomes than Americans. The U.S. Veterans Health Administration also makes good use of a formulary, as do private American insurers.

Consider that, in the 2016 fiscal year, 20 percent of MassHealth's drug spending went to medicines that some big commercial insurers didn't cover. Despite mandatory rebates that allow Medicaid to pay bargain prices, MassHealth's drug budget has grown to over $2 billion a year, squeezing other state spending.

By selecting one or two drugs from among many that treat the same ailments, MassHealth would be able to offer companies bigger sales in return for lower prices. The agency could also save money by excluding altogether drugs for which there is little or no evidence of effectiveness.

The White House budget proposes to allow five states to try what Massachusetts has in mind -- though the Centers for Medicare and Medicaid Services has not yet responded to Baker's request. Arizona has asked to do essentially the same thing. If these states show they can safely save money on medicines, they may finally open the door for Medicaid to push back against high U.S. drug prices.

--Editors: Mary Duenwald, Clive Crook.

To contact the senior editor responsible for Bloomberg View’s editorials: David Shipley at davidshipley@bloomberg.net.

For more columns from Bloomberg View, visit http://www.bloomberg.com/view.

©2018 Bloomberg L.P.