Michigan Medicaid Managed Care Program …

1 PRESIDENTPRESIDENTPRESIDENTPRESIDENT Beverly A. Allen Aetna Better Health of Michigan PRESIDETPRESIDETPRESIDETPRESIDET----ELEC TELECTELECTELECT Kimberly Thomas Priority Health SECRETARYSECRETARYSECRETARYSECRETARY Jon Cotton Meridian Health Plan of Michigan TREASURERTREASURERTREASURERTREASURER Randy Narowitz Total Health care EXECUTIVE COMMITTEEEXECUTIVE COMMITTEEEXECUTIVE COMMITTEEEXECUTIVE COMMITTEE MEMBERSMEMBERSMEMBERSMEMBERS----ATATATAT ----LARGELARGELARGELARGE Stephen Harris Molina Healthcare of Michigan Kathy Kendall McLaren Health Plan Matt Walsh Health Alliance Plan BOARD MEMBERSBOARD MEMBERSBOARD MEMBERSBOARD MEMBERS Carrie Harris-Muller Harbor Health Plan Nancy Jenkins HealthPlus of Michigan , Inc. Dennis Litos Consumers Mutual Insurance of Michigan Dennis Mouras UnitedHealthcare Community Plan, Inc.

2 John Randolph Paramount care of Michigan Dennis Reese Physicians Health Plan Pamela Silva Grand Valley Health Plan Dawn Siggett Centene Corporation Dennis Smith Upper Peninsula Health Plan EXECUTIVE DIRECTOREXECUTIVE DIRECTOREXECUTIVE DIRECTOREXECUTIVE DIRECTOR Richard B. Murdock Michigan Association of Health Plans Michigan Medicaid Managed care Program Carved-in vs. Carved-out Pharmacy Benefits in Medicaid Overview The State of Michigan recently announced within the FY 16 Executive Budget recommendations that it will carve-out pharmacy benefits as part of the forthcoming Medicaid Health Plan request for proposal (RFP). This decision is contrary to the direction most states are taking as there is growing evidence that demonstrates health plans manage the pharmacy benefit more efficiently than the Medicaid fee-for-service (FFS) programs .

3 This removal of pharmacy benefits from Medicaid Health Plans creates a huge health, safety and financial concern for the Michigan Medicaid Program . The carved-out approach removes an essential tool used to integrate care . Under a carve-out, there will be no opportunity to apply real time ability for care coordination, identification and removal fraud, waste and abuse, provide disease management or improve quality outcomes related to pharmacy. Further this recommendation contradicts rationale behind the recent decision to merge MDCH and MDHS in order to treat the whole person. The Executive Budget recommendations for FY 16 projects that the recommended carve out of pharmacy will generate savings of $ million general fund dollars. The savings will be achieved by assuming collection of more rebates by Pharmaceutical companies related to higher utilization of name brand products.

4 This approach has not worked in most other states and ultimately will increase the cost for the State of Michigan Medicaid Program . Against the trend of integrated care The trend nationally has been to carve in the pharmacy benefit to Medicaid plans in recognition of the value in quality, safety, and overall costs-effectiveness. None of the states currently using a carve out approach has in place a fully mature and statewide Managed care Program , (Connecticut, Indiana, Missouri, Nebraska, and Wisconsin). Details on advantages of carve in vs. carve out are displayed on the following page. Recent Decisions by States (that previously Carved Out Pharmacy) that reversed decision and now are implementing a Pharmacy Carved-In to Health Plans Delaware January 2015 Illinois April 2014 Iowa January 2016 planned in upcoming RFP New York October 2011 Ohio July 2014 South Carolina 2014 Texas March 2012 Utah January 2013 West Virginia April 2013 Pros & Cons for Pharmacy Carved in or out Issue Carved-In Carved-out Coordination of care by Medicaid health plans Pharmacy design is based on the unique member needs.

5 Data shared real time based on health plan system requirements Member quality of care increased Health Outcomes and HEDIS scores increased care Coordination efforts do not always include pharmacy data. When data is available it is often delayed. Lack of financial incentive to manage the drug benefit by health plan in the carved-out setting No accountability for MCO on HEDIS Scores related to pharmacy Member Confusion Members receive medical and pharmacy coverage through the same entity Members coordinate both medical and pharmaceutical treatment and concerns through one entity Members have separate ID card for pharmacy and medical benefits Some pharmacy benefits covered under medical Members must contact different entities when seeking information on pharmacy and medical Administrative Ease for Prescribers Prescribers have multiple formularies and preferred drug lists with multiple MCOs and Medicaid FFS All prescriptions occur via a single set of rules/preferred drug list Integrated care MCOs focused on

6 Meeting Creates a separation of with a focus on the whole person beneficiaries overall health needs financial responsibility Focus of quality on just the entities responsibility Dispensing Fee paid to pharmacies MCOs negotiate dispensing fee based on market. Average dispensing fee <$ for all pharmacies MI Medicaid FFS dispensing fee is $ for retail pharmacies MI Medicaid FFS dispensing fee is $ for LTC MI Medicaid FFS dispensing fee is $ for creams, emulsion, nasal drops, ointments and optic drugs MI Medicaid FFS dispensing fee is $ for compounded medications Brand Ingredient Cost Paid to Pharmacies MCO negotiated pricing average of or WAC +.65% MI FFS reimbursement for chain & LTC pharmacies is AWP minus or WAC plus MI FFS reimbursement for independent pharmacies is AWP minus % or WAC plus % Generic Ingredient Cost Paid to Pharmacies Market based MAC List updated daily using multiple sources of information including feedback from MI pharmacies, multi-State MAC lists (MI, OH, IN, IL and WI) and National Average Drug Acquisition Cost (NADAC)

7 Information MI MAC List Drug Volume Health Plans have an incentive to avoid unnecessary prescriptions Health Plans have an incentive to increase member compliance of appropriate medications No incentive for appropriate utilization Often an incentive for higher drug volumes regardless of efficacy processing fee based agreements Dispensing to lowest net cost Health Plans have an incentive to find the highest quality and efficacious medication at the lowest cost to care for the whole person Health Plans average an 85% generic dispensing rate. States often chase rebates (revenue) in lieu of lower net cost generics Lower generic utilization Cost of care responsibility pharmacy silo Shift of medical costs to pharmacy Federal Rebates paid to State/Federal % of AMP Innovator Drugs of AMP Blood Clotting Factors, Pediatric Indications 13% - non-innovator drugs % of AMP Innovator Drugs of AMP Blood Clotting Factors, Pediatric Indications 13% - non-innovator drugs Supplemental Rebates Minimal for Health Plans.

8 Generates <2% of savings off total drug spend Projected $ Million of general fund State Budget Impact Fully capitated to Health Plan Controlled Trend in drug costs Variable based on drug trend and utilization New Specialty drug pipeline expects double digit increases per year Administrative Costs Health Plan actuarially sound rates with administration to integrate care Processing of Pharmacy claims and minimal administration Summary The Michigan Managed Medicaid Program has been a leader and innovator since it was established as a private sector response to the management of Medicaid services in the late 1990s. Noted for having highly nationally ranked Medicaid plans, Michigan should continue to look toward solutions to problems with the Managed care industry. MAHP and members plans are committed to working with the Administration and Legislature to develop specific proposals to achieve the same budget and policy objectives assumed within the FY 16 Executive Budget in order to reverse this recommendation and continue the extraordinary record of accountable and cost-effective care .

9