Shielding Children from the Rising Costs of Prescription Drugs

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Consider three different drugs that are used by children.

Amoxicillin is an inexpensive antibiotic that might be prescribed when a child has an ear infection. Typically, this generic drug would cost between $5 and $15 for a one-time prescription. Antibiotics are the most common type of drug used by children under age 6.

EpiPen is a costlier drug used to treat severe allergic reactions, such as those triggered by certain foods or an insect sting or bite. Mylan, the manufacturer of EpiPen, recently raised its list price to $608 for a two-pen package—a sixfold increase in less than a decade. An estimated 3.5 million prescriptions were written for EpiPens in 2014.

Spinraza, newly approved in 2016 to treat spinal muscular dystrophy, comes at a price tag of $750,000 for the first year’s treatment and $375,000 for subsequent years. Although the potential patient population is small (perhaps 9,000 in the United States), it has been characterized as the most common genetic cause of death for infants.

For a child without insurance who pays for drugs out of pocket, amoxicillin may be affordable, but the more expensive drugs may well be out of reach. For a child with private insurance, the cost sharing may be affordable unless a high deductible has not yet been met or a plan’s coinsurance sets the drug’s cost at a percentage of a high list cost. Pharmaceutical manufacturers offer patient assistance programs that help some of these patients obtain expensive drugs.

The good news for children with Medicaid or CHIP is that their drug coverage protects them for the most part from cost barriers and allows them to get the drugs they need.

Our recent issue brief, “How Medicaid and CHIP Shield Children from the Rising Costs of Prescription Drugs” highlights the value of Medicaid and CHIP in protecting children from the high and rising price tags attached to many drugs. The brief is part of the CCF series on “The Future of Children’s Health Coverage.”

Medicaid and CHIP provide enrolled children with coverage for their prescription drugs. Furthermore, the programs guarantee that most children will face no costs—no copays and no deductibles—when they are prescribed a drug. This is true whether we are talking about an inexpensive drug like amoxicillin, a more expensive drug like the EpiPen, or a budget-buster like Spinraza. When the price of EpiPen goes up, the Medicaid or CHIP child does not see a difference. Even those children with CHIP coverage or with Medicaid at higher income levels have copays that are limited to nominal amounts in most situations.

While most children on Medicaid or CHIP are protected from paying for their drugs, they may still face barriers in the form of prior authorization requirements. These are often applied to the highest-priced drugs as a cost-containment measure. For example, children who need Spinraza have faced prior authorization or other barriers because the high costs are a challenge for state programs. For the two thirds of Medicaid children enrolled in managed care, their health plans may impose requirements as well. Federal law requires that a request for prior authorization must have a response within 24 hours. Furthermore, Medicaid beneficiaries must have access to a 72-hour emergency supply of a drug while they wait for approval if the medication is needed without delay. And federal regulations provide that these requirements flow through to managed-care plans.

The bottom line for most parents of Medicaid and CHIP children is that they can rest assured that their children’s drugs will be available without cost barriers. But the challenge for states is how to manage their costs when drug costs are projected to rise faster than other health costs and much faster than inflation. The rebates or discounts in federal law are a critical tool that guarantees Medicaid a discount on all drugs. The rebate program also provides a deeper discount that matches the best prices achieved in commercial insurance and—in most cases—protects against annual price increases that exceed inflation. These rebates, however, do not insulate state and federal Medicaid budgets against the high launch prices of many new drugs.

Our policy brief includes several recommendations aimed at preserving the protections we have today.

  • Maintain coverage of drugs, including the policies that guarantee coverage and eliminate most cost sharing for children.
  • Maintain discounts now available to Medicaid in the form of statutory rebates and extend these rebates to standalone CHIP programs as a critical tool to guaranteeing that these programs get the best available drug prices.
  • Develop solutions in the broader health system to address high launch prices for new drugs, which are a continuing burden for Medicaid programs.
  • Preserve regulatory protections that ensure access to needed drugs and take more steps to promote compliance by managed-care plans with Medicaid rules.

Today, Medicaid and CHIP benefit from many components that mostly shield children from high drug prices and help to reduce the burden that drug prices place on program budgets. These protections remain in place as long as CHIP is funded and the federal government continues to match state Medicaid spending for drugs and other covered services on an open-ended basis. Today these basic premises are being reexamined by the Congress. The outcome of the debate will have implications for the ability of Medicaid and CHIP to continue protecting children and their families from high and rising drug costs.

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