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CMS’s Healthy Adult Opportunity Program Includes Significant Changes to Medicaid Drug Benefit

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The Centers for Medicare & Medicaid Services (CMS) announced the Healthy Adult Opportunity, a new Section 1115 demonstration initiative allowing states to shift toward capped Medicaid financing models with an opportunity for shared savings. If the option is chosen by states, it could be the largest change to Medicaid since the ACA.


Through the new financing model of Healthy Adult Opportunity (HAO), states could exercise flexibilities for non-mandatory adult populations available under existing waiver authority as well as significant new flexibilities, including implementing closed formularies and making other program adjustments without advance federal approval.

Notably, the benefit package for the adult population eligible under this demonstration must meet at least the Essential Health Benefit (EHB) standard, tied to the commercial and individual insurance market. Although the EHB package includes prescription drugs as a required category, the drug coverage standard varies significantly from the Medicaid coverage requirements under the Medicaid Drug Rebate Program (MDRP), which requires coverage of all medications that have a rebate agreement with states:

  • As outlined under the HAO and in accordance with EHB standards, states could implement closed drug formularies, with a minimum coverage requirement of the greater of either:
    • 1 drug per class
    • The same number of drugs in each category and class as a selected EHB benchmark plan
  • States would be required to cover substantially all antipsychotics, antidepressants, antiretroviral drugs, and products treating opioid use disorder
  • Covered drugs would be subject to mandatory manufacturer rebates required under the MDRP

Key Considerations for Prescription Drugs under the HAO

As states and stakeholders consider potential impacts of the HAO initiative, Avalere observes a host of key considerations and outstanding questions related to prescription drugs.

MDRP “Grand Bargain”

CMS’s closed formulary initiative marks a significant departure from long-standing Medicaid policy, which requires states to cover all drugs for which manufacturers pay mandatory rebates. Previously, CMS rejected Massachusetts’ 1115 waiver proposal to implement a closed formulary in the state.

EHB Benchmark Drug Formularies

With greater benefit flexibility, states may develop closed formularies more similar to commercial plans for their HAO demonstrations. Given that states are currently required to cover virtually all drugs for Medicaid beneficiaries, this marks a major change to the program.

Protected Classes

The HAO establishes protection for robust coverage of antipsychotics, antidepressants, and antiretroviral drugs, overlapping with 3 of the 6 protected classes under Medicare Part D; however, it does not explicitly protect the other 3 Part D protected classes (anticonvulsants, immunosuppressants, and antineoplastics). States electing a limited formulary would be required to cover “substantially all” drugs for mental health (antipsychotics and antidepressants) and HIV (antiretrovirals), consistent with Medicare Part D requirements. In addition, the HAO adds an obligation to cover “all forms, formulations, and delivery mechanisms” for products treating opioid use disorder (OUD). CMS indicates these requirements support the agency’s initiatives related to HIV and OUD.

State Incentives Under Capped Funding Arrangements

Under an aggregate cap or per capita cap financing model for non-mandatory adult populations under age 65, states will explore ways to limit Medicaid spending so as not to exceed the allotted amount and to secure shared savings (up to 50% of remaining cap dollars above 80% of the cap). Options related to drugs could include stricter utilization management (e.g., prior authorization) and lack of coverage for high-cost drugs. Additionally, states will have more flexibility to set cost-sharing amounts for drugs over their statutorily defined limits, which could increase spending for beneficiaries. Aggregate beneficiary out-of-pocket costs cannot exceed 5% of household income, consistent with existing policy.

Supplemental Rebate Dynamics

With more flexibility to exclude unprotected drugs from formularies, states may have greater leverage in supplemental rebate negotiations, particularly in competitive classes. As a result, manufacturers may need to reevaluate supplemental rebate strategy in securing drug coverage under an HAO paradigm.

Development and Coordination of Multiple Formularies

Management of both a standard Medicaid drug list and HAO formulary could increase administrative burden for states and may factor into a state’s calculation of whether to participate in the HAO. However, many states already operate multiple formularies across Medicaid and the Children’s Health Insurance Program and have processes in place to address potential complications.

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