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ACA plays a role in Brownback budget fix

$55 million from KDHE drug rebates affected by Obamacare

By Andy Marso | December 11, 2014

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When Gov. Sam Brownback announced this week a list of stopgap measures to close a $280 million budget hole, one of the biggest chunks was $55 million from a "Kansas Department of Health and Environment Fee Fund Sweep" made possible in part by a federal law the governor has strenuously opposed and criticized.

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The $55 million comes from a Medicaid drug rebate program that was expanded as part of the federal Affordable Care Act.

The health reform act, commonly known as Obamacare, increased the refunds that pharmaceutical companies must pay states for prescriptions provided to Medicaid patients and allowed states to collect rebates for Medicaid prescriptions administered by managed care organizations.

“I know the extension to the managed care plans was a big deal, because that’s where states have been moving,” said Stacey Mazer, a senior staff member at the National Association of State Budget Officers. “That piece (of the ACA) was something that was a net gain essentially for states, the fact that it was being applied to the Medicaid managed care plans.”

Mazer, who monitors and studies how federal health care and Medicaid policies affect state budgets, said she could not say how much of a financial gain the legislation represented for specific states.

In addition to allowing states to collect the rebates on prescriptions administered by managed care organizations, the ACA increased the drug rebates. It upped the rebate percentage for most brand-name drugs from 15.1 percent of the average manufacturer price to 23.1 percent, increased the rebate for brand-name clotting factor and pediatric drugs from 15.1 percent to 17.1 percent, and increased the rebate for generic drugs from 11 percent to 13 percent.

The pharmacy drug rebate money was the largest portion of $100 million in "efficiencies" that Kansas Budget Director Shawn Sullivan identified in October as Brownback campaigned for re-election amid concerns about the projected budget deficit.

Sullivan, at the time, credited an increase in Medicaid prescriptions and the three managed care organizations contracted to provide all Medicaid services under KanCare for the windfall.

"The additional revenue from the rebates is the result of higher-than-expected pharmacy utilization among the Kansas Medicaid population and better pharmacy program administration by the MCOs in the state,” Sullivan said.

Sullivan never mentioned the ACA's role regarding the drug rebate money available to plug the budget hole.

After the governor released his proposal Tuesday, Sara Belfry, a spokeswoman for KDHE, initially said "the ACA doesn't have a role" in the $55 million, but later apologized, saying she "had gotten incorrect information about the ACA's role in the pharmacy rebate program."

The state would not have been allowed to continue collecting the rebates after it switched most of its Medicaid recipients to managed care in 2013 if the Affordable Care Act had not been passed years earlier.

"Section 2501(c) of the Affordable Care Act expanded the rebate requirements to include drugs dispensed to beneficiaries who receive care from Managed Care Organizations, MCOs, effective March 23, 2010," a spokeswoman from the federal Centers for Medicare and Medicaid Services said.

Medicaid Health Plans of America, an advocacy group for private managed care organizations with Medicaid contracts, praised Congress for including the provision in the ACA.

"This ends a long-time disparity in law that disadvantages states from receiving additional rebates for drugs simply because Medicaid beneficiaries are in Medicaid health plans," the group said in a statement released at the time. "We believe this is a tremendous improvement in the administration of state Medicaid programs and will help improve care coordination and the quality of health care for Medicaid members."

Julia Paradise, associate director of the Kaiser Commission on Medicaid and the Uninsured, said prior to the ACA, states that used managed care organizations for Medicaid carved out prescription drugs from the MCO plans and kept them in the traditional state-administered fee-for-service Medicaid plans so the states could continue receiving the drug rebates.

That was not ideal, Paradise said, because the purpose of managed care as articulated in Kansas and elsewhere is to coordinate patient services to avoid unnecessary treatments and prevent health crises.

“Ideally you want services and care to be integrated," Paradise said. "The fact that states have access to the rebates now also when the drugs are provided through managed care organizations makes it just as (financially) prudent for drugs to be provided through the MCOs, integrated with the rest of the care.”

Full repeal of Obamacare, which several members of the Kansas congressional delegation have advocated strongly for, would roll back that provision and prevent Kansas from collecting drug rebate money for prescriptions administered by the KanCare MCOs in the future.

While the ACA drug rebate increases sent more money to the state, the federal law also levied a new fee on insurance companies, including the three KanCare MCOs.

That, along with caseloads that are rising slowly but steadily, increased the state's projected Medicaid costs next year above previous estimates.

Sen. Jim Denning, a Republican from Overland Park, said during a committee hearing Thursday that at least a portion of the $55 million sweep from KDHE to the state general fund will likely have to be repaid.

"It can't be a permanent sweep," Denning said. "We may be able to sweep it for a while, but when we get the (updated) caseloads back in April, we might have to put some of that back."



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