The Centers for Medicare and Medicaid Services (CMS) have reopened a 30-day public comment period for Tennessee’s controversial section 1115 waiver, which the Trump Administration approved in January 2021. While the waiver’s radical centerpiece converting the state’s federal Medicaid funding into a block grant has rightfully received the most attention, the waiver would also allow Tennessee to impose a closed formulary for prescription drugs.
In order to ensure beneficiary access to needed prescription drugs, state Medicaid programs are required to cover all prescription drugs approved by the Food and Drug Administration, with only a few limited exceptions. Tennessee’ s section 1115 waiver, however, would eliminate this important open formulary requirement and instead allow the state’s Medicaid program to sharply restrict what drugs are covered for adults ages 21 and older.
Tennessee would be generally permitted to only cover one drug per class, unless the state’s benchmark plan used for its marketplace covers more. The only exceptions would be for drugs in six “protected” classes — anti-depressant, anti-convulsant, anti-psychotic, immunosuppressive, cancer and HIV/AIDS drugs — for which the state would be required to cover nearly all drugs, as is the case in Medicare Part D today. But notably, in Medicare Part D, at least two drugs per class must be covered for all other drugs.
As my colleagues Andy Schneider and Allexa Gardner have previously explained, the overall Tennessee waiver creates strong fiscal incentives for the state to cut Medicaid spending, with the closed formulary being one of the chief vehicles for instituting such cuts. For example, the state could use its new formulary authority to eliminate or limit coverage of certain new and existing drugs solely due to their high cost, even if those drugs are clinically effective and required to treat beneficiaries’ serious medical conditions.
While the state would be required to establish an appeals process allowing beneficiaries to obtain off-formulary drugs if the drugs are “clinically appropriate,” this process may not be meaningful. That is because the original waiver approval left it entirely up to the discretion of the state to define when an off-formulary drug would be clinically appropriate. In addition, the state was given the authority to set up the appeals procedures and timeline as it sees fit, including in ways that could make it difficult for beneficiaries and their health care providers to successfully obtain coverage of off-formulary drugs.
Tennessee has previously argued that a closed formulary would allow the state to have greater leverage to negotiate much larger rebates with drug manufacturers, without harming beneficiaries. But it is hard to see how that would be the case. Under the highly effective Medicaid Drug Rebate Program, which requires drug manufacturers to pay rebates to the federal government and the states, Medicaid already obtains the lowest prices, net of rebates and discounts, compared to other federal programs and agencies, according to the Congressional Budget Office. And nearly all states, including Tennessee, already use tools like preferred drug lists and prior authorization to negotiate supplemental rebates on top of the federally required rebates. If the goal is to really lower Medicaid prescription drug costs while maintaining beneficiary access, there are other approaches that build on the successful Medicaid rebate program and leave in place the existing open formulary protection.
Tennessee’s section 1115 waiver thus represents a dangerous departure from the longstanding open formulary protection for Medicaid beneficiaries. As a result, combined with its radical federal Medicaid funding cap, the waiver would likely result in low-income Medicaid beneficiaries in Tennessee experiencing significant reductions in access to needed prescription medications, which would lead to considerably poorer health outcomes.
Public comments to Tennessee’s Medicaid waiver are due Thursday, September 9, 2021 and can be submitted to CMS here. Concerned individuals can also use the National Health Law Program’s comment portal to submit comments.