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High Cost/Low Use Drugs: Risks and Opportunities for Medicaid MCOs

High Cost/Low Use Drugs: Risks and Opportunities for Medicaid MCOs

High-cost, low-utilization (HCLU) drugs represent a critical concern for Medicaid plans. While these drugs account for a relatively small proportion of prescriptions, their disproportionate impact on health plan expenditures can destabilize budgets and complicate capitation rate-setting.

CuraFi and ACAP are now recruiting a small group of ACAP member plans to participate in an intensive, small group conversation with CuraFi to explore solutions for managing HCLU drugs.  Join us for this important conversation by responding to jbabcock@communityplans.net.

CuraFi, a venture backed startup focusing solely on the public payor space, has been working with data experts at HMA to analyze spending on medications that cost more than $10,000 per claim.  Using the T-MSIS data set, CuraFi has examined spending trends on these products from FY2019 to FY2023, and the results clearly indicate the expanding role and expense of these products. 

The data set excludes hemophilia drugs (which almost every state manages directly), along with HIV/HCV and opioid medications.  For clarity, we have excluded drugs that can treat rare diseases but generally do not and are therefore used expansively (like Humira®) to focus on those drugs where usage is less than 300 lives in the Medicaid program and can be as low as 1.

While the use of these drugs in this analysis is small – less than .06% of all of the drug claims submitted to Medicaid – the gross spend is extremely large, equaling in FY 2022 nearly 2% of all claims and over 20% of total aggregate spend. 

The challenge with HCLU drugs is both their cost and the statistical probability that a plan will have a member (or members) that need access to these medications.  Unlike commonly prescribed drugs where actuaries can readily determine future plan exposure, the use of these important medications is nearly random when applied to a given plan’s risk.

Here are key reasons why Medicaid plans should pay close attention to HCLU drugs:

1. Financial Impact

HCLU drugs are significant cost drivers despite their low utilization. For example, CuraFi’s analysis identifies a few key drugs with costs exceeding $0.50 Per Member Per Month (PMPM) despite very low use rates. This concentration of spending amplifies the financial risk for Medicaid plans.

2. Unpredictable Budgeting

Year-over-year (YoY) cost variations for HCLU drugs complicate financial planning. CuraFi has identified how certain drugs exhibit notable YoY changes in costs and use, indicating that Medicaid plans may struggle to predict future expenditures accurately. This variability increases the risk of underestimating capitation rates, potentially resulting in financial shortfalls.

3. Disparities Across States and Populations

HCLU drugs exhibit significant cost and utilization variation across states and populations, as shown in state-level analysis performed by CuraFi. For example, PMPM costs and utilization trends differ widely among states, influenced by demographic and programmatic factors like health system “Centers of Excellence.”  Medicaid plans operating in states with high HCLU drug spending must account for these regional disparities when designing benefits and budgets.

4. Challenges in Risk Pool Management

The low utilization of these drugs means that costs are often concentrated among a small number of beneficiaries, making risk pool management quite complex. This uneven distribution of costs can skew risk adjustment models, resulting in inequities in funding allocations among Medicaid managed care plans that may take several years to identify and adjust for at the state risk transfer level.

5. Impact on Population Health

While expensive, many HCLU drugs serve critical roles in treating rare or severe conditions, which may lead to improved outcomes and reduced long-term costs if used appropriately. Medicaid plans must balance cost concerns with the clinical benefits of these therapies to ensure that beneficiaries receive necessary care without creating barriers to access.

6. Regulatory and Policy Risks

HCLU drugs are often at the center of regulatory scrutiny due to their high prices. Medicaid plans may face additional challenges in complying with federal and state-level policies aimed at controlling drug costs. One of the most common is ensuring the right patients have access to these medications.

Recommendations for Medicaid Plans

To address these concerns, Medicaid plans should:

  • Conduct detailed drug-level analyses to understand cost drivers.
  • Implement targeted strategies, such as value-based purchasing or outcomes-based contracting, to mitigate financial risks associated with HCLU drugs.
  • Advocate for policy solutions that promote price transparency and fair pricing for critical therapies.
  • Develop predictive models that account for variability in drug costs and utilization to improve budget accuracy.

 In summary, HCLU drugs represent a disproportionate financial risk for Medicaid plans, compounded by variability, data challenges, and regulatory pressures. Proactive strategies that balance cost control with ensuring beneficiary access are essential for sustainable program management.