Column: How Illinois saved money using the private sector to purchase drugs

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The Illinois State Capitol building.

A sizable part of the Illinois budget provides medical care for its residents who do not have the means to purchase health insurance on their own. While reducing this cost without sacrificing the quality of care can be difficult and politically contentious, the state recently managed to save tens of millions of dollars simply by employing the private sector to help negotiate prices for a new lifesaving drug.

Twenty percent of Illinois’ population is enrolled in Medicaid. Last year the state spent nearly $1 billion for prescription drugs, a good portion of the state’s $43 billion budget. 

A state can either directly manage the purchase of Medicaid drugs itself or partner with a managed care organization. Many states go it alone, figuring that their size gives them the ability to negotiate deep discounts.

For most prescription drugs, that strategy undoubtedly works, as most Medicaid scripts can be filled by inexpensive generics. However, for a few expensive specialty drugs, a state can benefit greatly from a modicum of expert assistance, as Illinois showed when it entered the market for drugs that treat Hepatitis C.

About 3 million people live with the blood-borne disease in the U.S., which gradually weakens the liver until it no longer functions. Until recently, there was no cure other than a liver transplant, which cost about $750,000 and is constrained by the number of available organs.

In 2012, a drug came on the market that completely cured the disease. At the time the drug cost about $80,000, which meant that states could not afford it except for their sickest patients.

However, a slew of competing drugs soon entered the market, and the price for a course of treatment began to fall.

We looked at how Illinois and Michigan each responded to a very complex and rapidly changing market. At the time the first competing Hepatitis C drug entered the market in 2015, both states obtained these drugs without private sector help, and the price they paid for a treatment slowly fell.

However, at the beginning of 2019, Illinois engaged a managed care organization to help it purchase these drugs, and by the fourth quarter its negotiated price fell by more than 50 percent, to below $10,000. Michigan’s price remained over $20,000, as it kept purchasing the well-known brand-name drug and failed to quickly respond to the changing market.

States that judiciously engage with the private sector in administering drug benefits can save taxpayers substantial money and offer more services to Medicaid patients. At a time when the state is debating whether to cut back on such arrangements, that is very much worth keeping in mind.

Ike Brannon is a senior fellow at the Jack Kemp Foundation and a Peoria native. Tony Lo Sasso is professor of economics at DePaul University in Chicago.

via The State Journal-Register

May 30, 2021 at 06:53AM

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