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CMS approves first state Medicaid plan aimed at value-based purchasing of prescription drugs, rejects application for formulary restrictions

Court blocks approval of Kentucky Medicaid waiver for work requirements

On June 27, 2018, the Centers for Medicare and Medicaid Services (CMS) approved a Medicaid State Plan Amendment (SPA) allowing Oklahoma to negotiate with drug manufacturers for supplemental rebates under value-based purchasing agreements. Other states have won approval for Supplemental Rebate Agreements (SRAs), but Oklahoma’s SPA is the first specifically to provide for additional rebates to be made to the state if a prescription drug falls short of negotiated clinical benchmarks.

July 16, 2018 | Health care

Products covered under an SRA with Oklahoma will have preferred status on the state’s Medicaid formulary and may be placed on lower tiers of the state’s drug listings, granting exemptions to utilization management policies such as prior authorization. The updated agreement applies to drugs dispensed effective January 1, 2019.

Drugs developed and marketed by manufacturers who do not participate in the supplemental rebate program will still be available to Medicaid recipients.

Massachusetts waiver rejected

CMS rejected a part of a Massachusetts Medicaid program demonstration waiver to its Medicaid program that sought flexibilities in its Medicaid formulary to exclude certain covered outpatient drugs altogether, while retaining the state’s access to rebates under the federal Medicaid Drug Rebate Program (MDRP).

In its response, CMS explained that in order to receive federal approval, “the state would have to negotiate directly with manufacturers and forego all rebates available under the [MDRP]” in order to exclude drugs based on “cost-effectiveness or other approved criteria, or to employ a closed formulary structure similar to Medicare Part D or commercial plan formularies.”

Kentucky Medicaid waiver for work requirements hit obstacles in court

In other Medicaid news, the US District Court for the District of Columbia on June 29, 2018, blocked the approval by the Department of Health and Human Services (HHS) of a Section 1115 Medicaid waiver that would establish work or community engagement requirements as a condition of Medicaid eligibility for able-bodied adults in Kentucky. The waiver for the Kentucky HEALTH initiative was the first for work requirements in Medicaid to win approval from HHS.

The ruling in the case focuses on whether HHS appropriately considered “whether Kentucky HEALTH would, in fact help the state furnish medical assistance to its citizens, a central objective of Medicaid.” Importantly, the decision does not automatically prevent Indiana or Arkansas from moving forward with implementation of their Medicaid work requirements, which already have won federal approval and face separate court challenges.

This publication contains general information only and Deloitte is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor.

Deloitte shall not be responsible for any loss sustained by any person who relies on this publication.

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Anne Phelps
Deloitte Risk and Financial Advisory

US Health Care Regulatory Leader
Deloitte & Touche LLP


Daniel Esquibel
Senior manager
Deloitte Risk and Financial Advisory
Deloitte & Touche LLP


Ethan Joselow
Deloitte Risk and Financial Advisory

Deloitte & Touche LLP

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