SummaryState Medicaid programs are likely to face significant budget impacts from emerging cell and gene therapies and may seek to implement a variety of strategies to manage utilization and address provider reimbursement and financing challenges.
As the number of cell and gene therapies coming to market is anticipated to grow, Medicaid programs are considering various approaches to address the unique challenges presented by these new high-cost and potentially curative treatments. The Food & Drug Administration (FDA) reports more than 800 active investigational new drug applications for cell and gene therapies, many of which target diseases that are rare, pediatric, or result in disability (e.g., hemophilia, spinal muscular atrophy, Huntington’s disease). Additionally, many cell and gene therapies are likely to be 1-time treatments with high upfront costs that will present significant financing challenges for payers—particularly state Medicaid programs—as more of these therapies are approved.
Impact of Cell and Gene Therapies on State Medicaid Programs
Because Medicaid covers a significant share of children and individuals with disability status, Medicaid is likely to be a prominent payer for many of the cell and gene therapies that will be approved in the coming years. This could create an acute burden on state Medicaid programs, which are limited in their financing capabilities. Importantly, state legislatures appropriate funds on an annual or bi-annual basis and are required to maintain balanced budgets, with most states establishing Medicaid program budgets and Medicaid managed care organization (MCO) capitation rates annually. These funding dynamics make it challenging for states to plan for and accommodate new therapies with high upfront costs that recognize longer-term value.
Looking ahead, the COVID-19 pandemic and recession could also contribute to heighted strain on state budgets due to increased Medicaid enrollment and reduced tax revenue. At the time that many of these therapies could come to market, states may be looking for new methods to control overall costs, with the potential for program spending cuts, eligibility restrictions, and tighter drug management that could limit patient access.
State Management Approaches for Cell and Gene Therapies
State Medicaid programs may use a variety of approaches to manage utilization and to address financing and provider reimbursement challenges associated with these therapies (see Figure 1). Many cell and gene therapies are likely to be managed under the Medicaid medical benefit given their administration in the inpatient, outpatient hospital, or physician office setting. While the Medicaid Drug Rebate Program (MDRP) will govern coverage and rebate requirements for outpatient therapies, states retain substantial flexibility in shaping coverage and access, including for many emerging cell and gene therapies administered in the outpatient setting.
So far, states have taken a variety of approaches to manage currently available cell and gene therapies.
Coverage Policy Development: As with many medical benefit drugs, states may choose not to establish formal coverage policies for cell and gene therapies and instead may make coverage determinations on an individual medical necessity basis. In this situation, medical professionals will use clinical judgement and published drug information to determine coverage, potentially resulting in uncertainty around drug access.
Narrow Coverage Criteria: States may seek to control utilization by establishing coverage criteria similar to the patient population in a drug’s clinical trial (e.g., restricting by age, gender, treatment history) as opposed to a potentially broader FDA-labeled indication.
Prior Authorization (PA) and Pre-Certification: States are likely to implement PA and other pre-certification requirements to manage utilization. While the MDRP requires a PA determination within 24 hours for covered outpatient drugs, the timelines for pre-certification of hospital services may be longer.
Managed Care Payment Carve Outs: In recent years, states have increasingly moved toward state management of the drug benefit, meaning that the state directly manages and bears the responsibility for drug costs. Similarly, some states have also carved out payments for high-cost medical-benefit drugs including cell and gene therapies from Medicaid managed care. This strategy may help states control costs for cell and gene therapies while ensuring adequate capitation rates for Medicaid MCOs.
Innovative Contracting: There has been increased interest from states in innovative contract arrangements, with 9 states currently having a state plan amendment in place that allows for value-based contracts via supplemental rebate agreements. A proposal by Centers for Medicare & Medicaid Services, if finalized, could address existing barriers related to Medicaid Best Price for outcomes-based contracts, including long-term contracts that span multiple years.
Provider Reimbursement: Many states pay for drugs that are administered in the hospital inpatient setting (and, in some states, the outpatient setting) as part of a bundled payment that includes relevant drug and medical costs. These bundled payments often do not adequately cover costs for cell and gene therapies, which could negatively impact providers and create challenges to uptake and patient access. To address this, some states have implemented reimbursement policies to carve out (i.e., pay separately for) cell and gene therapies from bundled payments to ensure more adequate reimbursement for providers.
State Medicaid programs and MCOs will examine multiple factors when considering coverage and management of cell and gene therapies, including durability, clinical effectiveness relative to other existing treatment options, product safety, and potential long-term cost offsets.
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