Recently Steve Liles gave a presentation at EMPAA and discussed the situation in Texas where the state will require the Managed Medicaid plans to follow the statewide PDL and also forbids the Managed Medicaid plans from negotiating any further discounts with manufacturers. The Managed medicaid plans will pay the pharmacy claims.

Steve also shared that he did an analysis comparing FFS federal rebates to the federal rebates resulting from MCO controlled pharmacy benefit. Steve basically showed that because the utilization mix would change dramatically under MCO management (because MCO's formularies are driven by reimbursement net and not State net-net  thus resulting in the use of more generics etc), the result would be a SIGNIFICANT reduction in Federal rebates. The difference in rebates was in the range of $50-100 million annually. I believe this certainly was a driving factor in Texas's decision to implement the statewide PDL. I also believe that many states are not factoring this calculation into their analysis when being confronted with legislation moving the pharmacy benefit from FFS to MCO. It will be very unfortunate for those states when 6-9 months into their FFS-MCO transition they discover a shortfall in expected Federal rebates. When the shortfall is discovered and reconciled, they most certainly will look to a change in the MCO capitation rate. We can guess where that could possibly lead.....MCO's withdrawing from participation.

I'm asking that you take a moment and consider the implications that Steve's analysis highlighted and how it should be discussed with other states if they are being faced with pharmacy carve in-carve out scenarios.

Please call with any comments/questions!