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Preferred Drug List Annual Report

Prepared by the 
Texas Health and Human Services Commission

January 2005

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Table of Contents

Introduction

Background Information on Preferred Drug Lists and the H.B. 2292 PDL Requirements

  • What is a Preferred Drug List?
  • Overview of House Bill 2292 Preferred Drug List Requirements

Medicaid PDL Development and Implementation

  • Texas Pharmaceutical and Therapeutics Committee
  • Hiring of Contractors
  • PDL Development Timeline
  • PDL Development Process
  • Prior Authorization Process
  • Prior Authorization Criteria

Cost of PDL Administration

PDL Savings

Statistical Information on Prior Authorization

Next Steps for the PDL Development Process

  • Twice a Year PDL Updates
  • Possible Changes to the P&T Committee Process

Appendix A 

  • Prior Authorization Study
  • CHIP PDL
  • Generic PDL Strategy
  • Program Benefit Proposals

Appendix B

Appendix C

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Introduction

House Bill 2292, 78th Legislature, Regular Session, 2003 directed the Texas Health and Human Services Commission (HHSC) to implement preferred drug lists (PDLs) for Medicaid and the Children's Health Insurance Program (CHIP) by March 1, 2004.

House Bill (H.B.) 2292, Section 2.11 also requires that HHSC provide a written report on the PDL program to the Legislature and the Governor each year. The report is to include:

  1. the cost of administering the PDLs;
  2. an analysis of the utilization trends for medical services provided by the state and any correlation to the PDLs;
  3. an analysis of the effect on health outcomes and results for recipients; and
  4. statistical information related to the number of approvals granted or denied.

HHSC implemented the first phase of the Medicaid PDL on February 23, 2004, and has added drug classes to the PDL periodically since then for a total of 60 drug classes representing about 70 percent of Medicaid pharmacy expenditures. Since this is the first year of the program, HHSC has included in the January 2005 report:

  • background information on preferred drug lists and the H.B. 2292 PDL requirements;
  • how the Medicaid PDL was developed and implemented in the first year;
  • the cost of administering the PDL;
  • anticipated savings from the PDL;
  • statistical information related to the prior authorization process and the number of approvals granted and denied in State Fiscal Year 2004; and
  • next steps for the PDL development process.

As the PDL program has been operational for less than a year, HHSC needs additional time to compile clinical data to analyze the effect of the PDLs on health outcomes and results for recipients as well as utilization trends for medical services provided by the state and any correlation to the PDLs.

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Background Information on Preferred Drug Lists and the H.B. 2292 PDL Requirements

What is a Preferred Drug List?

A preferred drug list is a tool used by many states to control growing Medicaid drug costs while also ensuring that program recipients get the medicines they need.

The Federal Omnibus Budget and Reconciliation Act of 1990 (OBRA 90) requires that state Medicaid outpatient drug programs cover all products for which a manufacturer has signed a Medicaid rebate agreement with the Federal government. Based on Federal law, state Medicaid outpatient drug programs cover a broad array of drugs and drug classes.

Prescription drug costs have been the fastest growing element of state Medicaid budgets in recent years, with drug spending increasing by 15 to 20 percent per year. To help curb growing drug costs, many states have developed and implemented preferred drug lists.

With a preferred drug list, Medicaid clients still can receive all the drugs that Medicaid is required to cover under Federal law, including those covered before the PDL was established. The PDL controls spending growth by increasing the use of preferred drugs - prescription drugs selected for the PDL that are determined to be safe, clinically effective and cost effective compared to other drugs on the market. Non-preferred drugs, which are drugs reviewed but not selected to be on the PDL, require prior authorization. Unless Texas Medicaid has information that indicates a patient meets the State's prior authorization criteria, a physician's office must call to obtain prior approval before a non-preferred drug can be dispensed.

By containing drug costs, the PDL will help preserve in the long run Medicaid's ability to meet clients' increasing prescription drug needs and other health care needs.

Overview of House Bill 2292 Preferred Drug List Requirements

States have taken different approaches to developing preferred drug lists based on Federal and State law. In Texas, H.B. 2292, 78th Legislature, Regular Session, 2003 directed HHSC to implement PDLs for Medicaid and CHIP, and provided direction on how to do so. H.B. 2292 also allowed the adoption of PDLs for other state programs.

Below is a summary of the major PDL provisions from H.B. 2292:

  • The PDL may contain only drugs for which the drug manufacturer or labeler has reached a supplemental rebate agreement or program benefit agreement with HHSC.
  • HHSC or its designated contractor is to negotiate with manufacturers and labelers of both brand name and generic products for supplemental rebates.
  • A governor-appointed Pharmaceutical and Therapeutics Committee (P&T Committee) of physicians and pharmacists makes recommendations to HHSC about which drugs to place on the PDL based on clinical efficacy, safety, cost effectiveness, and other program benefits.
  • HHSC decides which drugs go on the PDL based on the recommendations of the P&T Committee, clinical efficacy, the net price of competing drugs to the state, and program benefit offers.
  • HHSC must protect the confidentiality of drug pricing information.
  • The physician or other prescriber must obtain prior authorization (PA) for non-preferred drugs, which are drugs reviewed by the P&T Committee but not selected to be on the PDL.

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Medicaid PDL Development and Implementation

There were a number of steps involved in developing and implementing the Medicaid PDL, including: the appointment of the Texas P&T Committee, hiring of contractors, establishing a PDL phase-in timeline, frequent meetings of the P&T Committee followed by HHSC PDL decisions and communications, implementing a prior authorization process, and setting prior authorization criteria. More detail follows on these steps undertaken in the first year of the program.

In addition, Appendix A includes information on additional considerations in the first year PDL process, including the prior authorization study, the CHIP PDL, HHSC's approach to generic drugs, and how HHSC has handled program benefit proposals offered in lieu of cash supplemental rebates.

Texas Pharmaceutical and Therapeutics Committee

Governor Rick Perry appointed six physicians and five pharmacists to the Texas P&T Committee in November 2003. The committee provides recommendations to HHSC on which drugs to place on the PDL based on clinical efficacy, safety and cost effectiveness. The 11 P&T Committee members represent diverse specialties, geographic areas, and practice settings.

P&T Committee Members

  • Dr. Harris Hauser, MD, Chairman, Psychiatrist and Neurologist
  • Donna Rogers, RPh, Vice Chair, Director of Pharmacy at the TexSan Heart Hospital
  • Dr. Richard Adams, MD, Developmental Pediatrician
  • Dr. Anthony Busti, PharmD, Assistant Professor at Texas Tech University Health Sciences Center School of Pharmacy
  • Dr. Melbert "Bob" Hillert, MD, Cardiologist
  • J.C. Jackson, RPh, Retail Pharmacy Manager, Kelsey-Seybold Clinic
  • David King, RPh, Managed Care Manager at Randalls/Safeway Inc.
  • Julie Lewis, RPh, Lead Consultant Pharmacist at PharMerica
  • Dr. Valerie Robinson, MD, Pediatric Psychiatrist
  • Dr. Guadalupe Zamora, MD, Family Practitioner
  • Dr. John Zerwas, MD, Anesthesiologist

H.B. 2292 required that the P&T Committee meet monthly for the first six months and at least quarterly thereafter. The committee has met eight times, meeting monthly from December 2003 through May 2004, and then quarterly in August and November 2004.

Hiring of Contractors

As allowed by H.B. 2292, HHSC, through a competitive bid process, awarded contracts for PDL and prior authorization services.

HHSC awarded a contract to Provider Synergies, LLC to negotiate rebates on behalf of the state, to provide information to the P&T Committee on the clinical efficacy, safety and cost effectiveness of products in each drug class, and to assist HHSC and the P&T Committee with PDL development and maintenance, including PDL communications to stakeholders and identifying which drug classes the state may want to include on the PDL. HHSC's contract with Provider Synergies is a fixed fee contract through August 31, 2006.

HHSC also awarded a contract to Heritage Information Systems, Inc. (now ACS-Heritage Information Systems) for prior authorization services. ACS-Heritage provides prior authorization services both through a prior authorization call center with a toll-free number, and through an automated prior authorization system called SmartPA. HHSC's contract with ACS-Heritage is a transaction-based contract through August 31, 2006.

PDL Development Timeline

H.B. 2292 included the following major PDL development milestones:

  • The Governor was to appoint the P&T Committee by November 2003;
  • The P&T Committee was to make PDL recommendations to HHSC by January 1, 2004; and
  • HHSC was to implement the PDLs by March 1, 2004.

HHSC developed the Medicaid PDL in several stages in order to meet these milestones and to stagger new prior authorization requirements for Medicaid physicians, pharmacies and other stakeholders. See Appendix B for the prior authorization implementation schedule by drug class.

PDL Development Process

Based on the parameters in H.B. 2292, HHSC worked with the P&T Committee and other stakeholders to establish the PDL development process.

The P&T Committee reviews drugs for the PDL by pharmacologically determined drug class. Once HHSC decides which drug classes will be reviewed at the upcoming P&T Committee meeting, the PDL contractor solicits rebate offers from drug manufacturers and labelers on HHSC's behalf. After the rebate offers are received and reviewed, the PDL contractor provides HHSC and the P&T Committee with clinical efficacy, safety and cost effectiveness information on the products in each drug class. Also, drug manufacturers, labelers and other interested parties may submit written evidence to the P&T Committee supporting the inclusion of a drug on the PDL in advance of the P&T Committee meeting.

At each meeting, the P&T Committee accepts public testimony on the drugs being reviewed at that meeting. For some meetings, the P&T Committee has heard testimony from over 60 people. Following the public testimony, the PDL contractor provides the P&T Committee and the audience a verbal summary of the clinical and safety information provided to the P&T Committee in advance of the meeting.

Since HHSC and the P&T Committee must protect confidential pricing information, the P&T Committee then adjourns to a working session to decide which products in each drug class it will recommend be placed on the PDL taking into account three factors - clinical efficacy, safety and cost effectiveness. The P&T Committee then returns to the public meeting and announces its recommendations for each drug class.

Following the P&T Committee meeting, HHSC makes a PDL decision, posts the decision on the website, and then posts the updated Medicaid PDL with prior authorization criteria. HHSC must provide a minimum of 30 days notice before implementing new PDL prior authorization requirements.

For the first several phases of the PDL, HHSC mailed information about pending PDL changes and prior authorization requirements to Medicaid physicians and pharmacies before the prior authorization implementation date. In addition, for some large drug classes, HHSC sent targeted letters to high-volume physicians letting them know which of their patients were taking non-preferred drugs that would either need to be switched to preferred drugs or obtain prior authorization once the PDL went into effect. Now that the program is up and running, HHSC notifies stakeholders via e-mail about P&T Committee meetings and changes to the PDL or PA criteria. There will also be a PDL mailing to providers and pharmacies at least once a year.

As required in H.B. 2292, the P&T Committee reviews PDL drug classes at least once a year to the extent feasible. The committee completed its first year reviews of 60 drug classes for the Medicaid PDL in August 2004, and did its second review of 15 drug classes in November 2004.

Prior Authorization Process

H.B. 2292 requires that the prescribing physician or other prescribing practitioner obtain prior authorization (PA) for non-preferred drugs before the drug can be dispensed. Non-preferred drugs are drugs that have been reviewed by the P&T Committee, but were not selected for placement on the PDL. PDL-related prior authorization is not required for drugs and drug classes that the P&T Committee has not reviewed. These drugs continue to be available to Medicaid clients according to HHSC Vendor Drug Program policies.

HHSC contracted with Heritage Information Systems, Inc. (now ACS-Heritage Information Systems) to provide prior authorization services. ACS-Heritage provides prior authorization services both through a prior authorization call center with a toll-free number, and through an automated prior authorization system called SmartPA.

When a pharmacy submits a Medicaid claim for a product subject to prior authorization, the SmartPA system checks the patient's available medical and prescription drug claims histories to determine whether the information in the system shows that the patient's condition meets the State's established criteria. If the patient's medical and claims histories demonstrate the criteria are met, the claim will be approved in seconds at the pharmacy point of sale and no prior authorization phone call is required. If the patient's medical and claims histories do not demonstrate that the patient meets the criteria, the pharmacy will receive a message indicating that the prescriber needs to call the Texas Prior Authorization Call Center at 1-877-PA-TEXAS. HHSC has allowed the prescriber or their representative, such as an office nurse, to request a prior authorization.

In compliance with Federal law, ACS-Heritage must respond to prior authorization requests within 24 hours, and a 72-hour supply of a drug must be provided in an emergency or if a response to a PA request cannot be provided within 24 hours. The call center is open Monday through Friday from 7:30 am to 6:30 pm Central Time. If a patient goes to the pharmacy to pick up a non-preferred drug outside of call center hours and a PA call is required, then the pharmacy can provide a 72-hour supply of the drug to give the physician's office time to request the prior authorization.

Approved requests for prior authorization are valid for one year. If the call center denies the prior authorization request, the prescriber can either prescribe a preferred product or request reconsideration. If the prescriber's request for reconsideration is denied, ACS-Heritage sends the client a letter notifying them of their right to appeal the decision and how to appeal.

Prior Authorization Criteria

Each public or private insurance program that has a drug prior authorization program establishes prior authorization criteria that are used to determine whether a prior authorization request is approved or denied. The PA criteria provide physicians and other providers with information when writing prescriptions. For instance, if a physician knows that his Medicaid patients must try and fail on Drug A before Medicaid will pay for Drug B for that patient, then the physician will prescribe Drug A first unless he knows of a clinical or safety reason why the patient cannot take Drug A, such as a drug allergy or a drug interaction with another drug the patient is already taking.

Given legislative deadlines and anticipated savings for the Medicaid PDL, HHSC initially published the following three general prior authorization criteria for most drug classes on the PDL: therapeutic failure, allergy, or contraindication with preferred product(s). HHSC selected these three criteria based on other states' PDL experience as well as prevailing and generally accepted medical practices. HHSC instructed the call center to approve non-preferred prescriptions if the patient met one of these three general criteria or if the physician provided another clinical reason why the patient needed to receive a non-preferred product instead of a preferred product.

For three mental health drug classes - Atypical Antipsychotics, SSRI Antidepressants and Atypical Antidepressants - HHSC enacted an exception to the prior authorization requirements to maintain continuity of care. For these three drug classes, Medicaid patients who are stable on a non-preferred drug are allowed to continue receiving that drug without a prior authorization phone call. For clients new to Medicaid or in cases where HHSC is not aware that a patient is stable on a non-preferred drug, the physician's office must call one time to let HHSC know that the patient is stable on a non-preferred drug.

Once the Texas P&T Committee had made recommendations for most drug classes to be included on the Medicaid PDL, HHSC began the process of customizing PA criteria for each drug class. In the summer of 2004, HHSC implemented more specific prior authorization criteria for three drug classes - Proton Pump Inhibitors (gastric acid reducers), Lipotropics, Statins (cholesterol lowering drugs), and Minimally Sedating Antihistamines.

HHSC also notified stakeholders that the HHSC Drug Utilization Review Board (DUR Board), which like the P&T Committee is comprised of Texas physicians and pharmacists, would be accepting public comments and making recommendations to HHSC on possible changes to PDL prior authorization criteria at its August 2004 meeting and future meetings.

In August and November, HHSC staff proposed more specific PA criteria for certain PDL drug classes to the DUR Board based on written input from stakeholders, other states' and private sector experience, and generally accepted medical practices.

At its August and December meetings, the DUR Board heard public testimony on the proposed PA criteria for certain PDL drug classes as well as the PDL PA criteria already in place, and made several PA criteria recommendations to HHSC. HHSC implemented the DUR Board's August recommendation for the Beta Agonist Bronchodilators drug class (for asthma treatment), and is reviewing the DUR Board's December recommendations.

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Cost of PDL Administration

Costs for PDL administration are included in the Provider Synergies and ACS-Heritage contracts, which totaled $3,342,780 from November 2003 through August 2004. Aside from the contracts, state staff time and resources have been provided within HHSC's existing budget.

HHSC's contract with Provider Synergies is a fixed fee contract with HHSC options for additional services. From November 2003 through August 2004, Provider Synergies provided HHSC $1,261,867 in services. The base price of the Provider Synergies contract was $1,078,508. In addition, in SFY 2004 HHSC exercised contract options for $183,367 for review of additional drug classes and extra PDL mailings to Medicaid providers and pharmacies.

The ACS-Heritage prior authorization contract is reimbursed on a per prior authorization transaction basis with several HHSC options for additional services. HHSC pays $5.25 or less per PA transaction, with the cost per transaction decreasing as a higher percentage of prior authorization requests are handled through ACS-Heritage's automated SmartPA system instead of through the PA call center. For November 2003 through August 2004, ACS-Heritage provided a total of $2,080,913 in prior authorization services to HHSC. This included $1,744,163 in PA transaction costs and $336,750 for services prior to the February 23, 2004 PDL implementation date and for two targeted mailings to high volume Medicaid physicians at the start of the program.

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PDL Savings

The fiscal note for H.B. 2292 assumed that Texas would save about $150 million General Revenue in the 2004-2005 biennium on an incurred basis through the implementation of the PDLs. PDL savings are generated from new supplemental rebates and from shifting prescribing patterns toward less expensive preferred drugs.

HHSC's first supplemental rebate agreements took effect January 1, 2004, and HHSC implemented prior authorization for the first 15 PDL drug classes on February 23, 2004. HHSC has invoiced manufacturers for supplemental rebates for the first three quarters of calendar year 2004. For January 2004 through September 2004, HHSC has invoiced manufacturers for supplemental rebates totaling about $82 million All Funds. Rebate billings have increased each quarter as more drug classes have been added to the PDL and prescribing patterns have shifted to preferred products.

Based on HHSC's PDL actual savings to date and future forecasts, HHSC now estimates PDL savings of approximately $140.5 million General Revenue in the 2004-2005 biennium on an incurred basis before administrative costs. The $140.5 million savings estimate includes $90.5 million in supplemental rebates and $50 million from shifting prescribing patterns toward less expensive preferred drugs. On a cash basis, HHSC projects savings of about $114.3 million General Revenue for the 2004-2005 biennium, which includes $64.3 million in supplemental rebates and $50 million from shifting prescribing patterns toward less expensive preferred drugs. Cash savings are lower than incurred savings because it takes several months to invoice and collect supplemental rebates from drug manufacturers at the end of each quarter.

Projected savings for the 2004-2005 biennium are estimated to be lower than the fiscal note amount for several reasons. First, the fiscal note assumed a full PDL implementation by March 1, 2004. HHSC set an ambitious PDL phase-in timeline and worked with the P&T Committee and contractors to implement the first phase of the PDL for 15 drug classes on February 23, 2004. HHSC implemented 45 additional PDL drug classes in later phases, so HHSC did not begin to generate savings for these drug classes until after March 1, 2004.

Second, part of the fiscal note savings estimate assumed that under the PDL, Texas prescribers would shift their prescribing patterns toward less expensive preferred drugs.
Since the Medicaid PDL was implemented, prescribing patterns have shifted toward preferred products over time. Texas, however, has not generated as much of a shift in prescribing patterns as some other states have experienced. This is probably attributable to HHSC's broad prior authorization criteria, the fact that HHSC allows physicians' staff to request a prior authorization, and high prior authorization approval rates. HHSC continues to work with the DUR Board on the PDL prior authorization criteria, and will also continue to educate physicians and other prescribers about the goals of the PDL program.

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Statistical Information on Prior Authorization

HHSC implemented prior authorization for the first 15 PDL drug classes on February 23, 2004, and implemented prior authorization for additional drug classes in late March, late April, early June and late July. See Appendix B for the prior authorization implementation schedule by drug class.

Chart 1 and Table 1 show the trend in PDL prior authorization transactions from February 2004 through August 2004. Automated prior authorizations are approved through the SmartPA system at the pharmacy point of sale without the need for a phone call if the patient's Medicaid medical and claims histories demonstrate the patient meets the PDL prior authorization criteria. If the claims history does not demonstrate the patient meets the prior authorization criteria, then the prescriber or his representative must request a prior authorization through the call center.

Chart 1
Chart 1: Medicaid Preferred Drug List Prior Authorization Transactions. A chart depicting Monthly amounts of Call Center PAs and Automated PAs.  Numbers are included in the table below.

Table 1

 

Feb-04 Mar-04 Apr-04 May-04 Jun-04 Jul-04 Aug-04

Call Center PAs 

5,602 39,639 47,114 51,962 35,452 24,418 18,792

Automated PAs 

1,376 11,945 37,983 13,427 6,878 8,535 21,518

Total PAs

6,978 51,584 85,097 65,389 42,330 32,953 40,310

Based on ACS-Heritage invoiced prior authorizations as of December 22, 2004.

HHSC rolled out prior authorization for the largest PDL drug classes on February 23, 2004 and March 29, 2004. The number of PDL prior authorizations peaked in April at 85,097, and declined to 32,953 by July as physicians and other prescribers became familiar with the PDL and began to prescribe more preferred drugs.

In late July, HHSC and ACS-Heritage established a real-time interface between the HHSC pharmacy claims processing system and the SmartPA system. As a result, while the number of call center prior authorizations has continued to decline since July, automated prior authorizations increased in August as the SmartPA system identified more patients who met the PDL prior authorization criteria for non-preferred drugs based on their Medicaid claims histories.

Table 2 lists the drug classes for which HHSC has received the most prior authorization requests for non-preferred drugs.

Table 2

Drug Classes With the Most PDL Prior Authorization Requests
February 2004 - August 2004

Antifungals, Topical

Antihistamines, Minimally Sedating

Bronchodilators, Beta Agonist (asthma treatment)

Fluroquinolones, Oral (antibiotics)

Hypoglygemics, Insulins (diabetes treatment)

Lipotropics, Statins (cholesterol lowering agents)

Proton Pump Inhibitors (gastric acid reducers)

Stimulants and Related Agents (for attention-deficit/hyperactivity disorder)

In alphabetical order

Since the Medicaid PDL was implemented, the percent of prior authorization requests denied by the prior authorization call center has been below 10 percent each month. Chart 2 shows the percent of prior authorization requests denied by the Prior Authorization Call Center from February 2004 through August 2004.

Chart 2
Chart 2: Prior Authorication Call Center Estimated Monthly Prior Authorizatin Denial Rate. Feb-04 8.15%, Mar-04 7.72%, Apr-04 2.44%, May-04 0.74%, Jun-04 5.37%, Jul-04 9.17%, Aug-04 9.86%

Estimates based on ad hoc reports of raw call center data run in December 2004. The August 2004 PA denial rate reflects both PDL prior authorization requests and non-PDL clinical prior authorization requests.

HHSC initially published the following three general prior authorization criteria for most drug classes on the PDL: therapeutic failure, allergy, or contraindication with preferred product(s). HHSC instructed the call center to approve non-preferred prescriptions if the patient met one of these three criteria or if the prescriber provided another clinical reason why the patient needed to receive a non-preferred product instead of a preferred product.

Low call center prior authorization denial rates since the beginning of the program are due in part to HHSC's fairly broad prior authorization criteria. Call center prior authorization rates decreased from February to May as prescribers and their staff became more familiar with what information they needed to provide the call center representatives to get a prior authorization request approved. In mid-June 2004, HHSC established more specific prior authorization criteria for three large drug classes- Proton Pump Inhibitors, Minimally Sedating Antihistamines and Lipotropics, Statins. Based on these more specific criteria, call center prior authorization denial rates for these three drug classes increased in June, July and August.

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Next Steps for the PDL Development Process

Twice a Year PDL Updates

In response to feedback from providers, HHSC plans to make major updates to the Medicaid PDL twice - rather than quarterly - in 2005. The majority of PDL changes will be implemented in January and July. HHSC may make other minimal changes to the PDL throughout the year for new products or new clinical/safety developments. HHSC will continue to work with stakeholders on the feasibility of moving to an annual PDL update schedule in 2006.

Possible Changes to the P&T Committee Process

When the P&T Committee initially met in December 2003, most of the committee members were meeting each other for the first time and learning about how they would work with HHSC to develop the PDL. HHSC continues to work with the P&T Committee to increase the clinical and safety dialogue in the public sessions while protecting confidential drug pricing information as required in H.B. 2292.

As part of ongoing efforts to improve the PDL program, HHSC and the P&T Committee are considering the following:

  • Simplifying the presentation process to provide committee members with the most critical information needed from the public to deliberate on which drugs to include on the preferred list and which drugs to exclude.
  • Documenting the basis of the Committee's recommendation for each drug class and providing this documentation to the public.

Appendix C is a letter from the P&T Committee chairman to the Texas Legislature and the Governor with his perspective on the committee's current process.

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Appendix A

Additional Considerations in the Preferred Drug List Development Process

In developing the Texas Medicaid Preferred drug list in 2004, HHSC considered the following additional issues pursuant to H.B. 2292, 78th Legislature, Regular Session, 2003.

Prior Authorization Study

H.B. 2292 required that HHSC complete a study evaluating the impact of prior authorization on recipients of drugs used to treat patients with illnesses that are life threatening, chronic, and require complex medical management strategies before requiring prior authorization for those drugs.

Based on the requirement that a condition meet all three of these requirements to be included in the study, HHSC medical staff determined that cancer, HIV/AIDS and hemophilia should be included in the study. HHSC later learned that it was also legislative intent to include in the study cancer supportive drugs and drugs used to treat multiple sclerosis (MS) and end stage renal disease (ESRD).

HHSC contracted with the Center for Pharmacoeconomic Studies at the University of Texas at Austin (UT) to conduct a prior authorization study on drugs used to treat these illnesses. The UT study concluded that due to the limited literature on the prior authorization impact on these classes, HHSC should consider the risks and benefits before implementing PA for these drug classes. Based on the study's conclusions, drugs used to treat HIV/AIDS (antiretroviral agents), cancer (antineoplastic agents), hemophilia (antihemophilic agents) and MS (multiple sclerosis agents) will not be reviewed for placement on the PDL, and therefore will not require prior authorization. The PDL does include certain drug classes used to treat symptoms that may develop from these conditions and ESRD.

CHIP PDL

H.B. 2292 required that HHSC implement PDLs for both Medicaid and the Children's Health Insurance Program (CHIP). HHSC requested that the P&T Committee focus on the Medicaid PDL during its first six meetings because the Medicaid PDL is expected to generate most of Texas' PDL savings. HHSC expects minimal savings from the CHIP PDL for three reasons. First, Texas' CHIP drug expenditures only represent about 5 percent of Medicaid drug expenditures ($94.5 million for CHIP in SFY 2003 vs. $1.87 billion for Medicaid). Second, HHSC cannot receive the same rebates for CHIP drugs as it does for Medicaid drugs due to Federal Medicaid best price law. Finally, HHSC already had a voluntary CHIP drug rebate program in place before the passage of H.B. 2292.

HHSC has not yet implemented a CHIP preferred drug list. The P&T Committee reviewed some CHIP PDL information at its August 2004 and November 2004 meetings, but deferred action on the CHIP PDL at both meetings. HHSC staff is working with the P&T Committee to determine which drug classes to include on the CHIP PDL and to provide available pediatric-specific clinical and safety information for the committee's CHIP PDL consideration. Until a CHIP PDL is implemented, prescription drugs will continue to be available to CHIP clients based on HHSC Vendor Drug Program policies.

Generic PDL Strategy

H.B. 2292 required that the PDLs contain only drugs for which the drug manufacturer or labeler reaches a supplemental rebate agreement or program benefit agreement with HHSC. HHSC or its designated contractor is to negotiate with manufacturers and labelers of both brand name and generic products for supplemental rebates.

Texas is the first state to require that generic manufacturers and labelers sign supplemental rebate agreements for their drugs to be placed on the PDL. HHSC has worked with generic manufacturers and labelers to comply with H.B. 2292, taking into account that generics may usually be, but are not always, less expensive than brand name products.

All generic drugs available through Texas Medicaid must meet federal standards such that one manufacturer's version of the drug can be relied upon to perform in a manner similar to the brand name, as well as all other generic versions. Therefore, when pharmacists judge all other factors to be equal, they frequently purchase generic drugs based on price. For this reason, generics are different than brand name products in that pharmacies rather than physicians decide which specific generic a patient receives. If a physician writes a prescription for a drug and does not specify that the patient receive the brand name product, then the pharmacy fills the prescription with a generic version of the drug that the pharmacy stocks. Each pharmacy has contracts to buy generic products from certain manufacturers or labelers, so Pharmacy A would fill a prescription with a generic product from Generic Manufacturer C while Pharmacy B would fill the same prescription with a generic product from Generic Manufacturer D.

In just a few cases, the Texas P&T Committee recommended and HHSC decided that certain generics be non-preferred and require prior authorization for clinical, safety, or cost effectiveness reasons. For all other generics, HHSC has asked that generic manufacturers and labelers offer HHSC a supplemental rebate of some value in order for their products to be classified as Premium Preferred Generics. Effective December 1, 2004, pharmacies that dispense Premium Preferred Generics receive a 50 cent increase in the pharmacy dispensing fee for those products.

Program Benefit Proposals

H.B. 2292 allows HHSC to sign a program benefit agreement with a drug manufacturer in lieu of a cash supplemental rebate agreement if the program benefit yields savings that are at least equal to the amount the manufacturer would have provided under a supplemental rebate agreement. Program benefits may include but are not limited to disease management, drug product donation, drug utilization control programs, and education and counseling.

In order to maintain a competitive supplemental rebate process for all drug manufacturers, HHSC requires that manufacturers who want to offer a program benefit proposal for a drug must first offer a cash supplemental rebate. The drug's net price after supplemental rebates can then be compared to competing drugs as the P&T Committee recommends and HHSC decides which drugs to place on the PDL. If a product is placed on the PDL, then a manufacturer can work with HHSC to offer a program benefit with expenditures tied to the supplemental rebate amount offered. For instance, if a manufacturer signs a supplemental rebate agreement for $1 per unit and Texas Medicaid pays for one million units of the drug during the supplemental rebate contract term, then the manufacturer must pay HHSC a total of $1,000,000 either in cash, program benefits or a combination of the two. Only the funds invested in the program benefit count to reduce the amount of supplemental rebate owed the state. Any savings that the program may generate to reduce future Medicaid costs do not count towards offsetting the pharmaceutical manufacturer's/labeler's supplemental rebate owed to the state. Such savings represent a value to the state Medicaid program in addition to the supplemental rebate. HHSC is currently negotiating six program benefit agreements with a total annual value of less than $5 million per year.

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Appendix B

Texas Medicaid Preferred Drug List
Prior Authorization Implementation Dates by Drug Class

Drug Class

Initial Prior Authorization
Implementation Date

Ace Inhibitor/CCB Combinations

February 23, 2004

Ace Inhibitors 

April 28, 2004

Alzheimer's Agents 

June 9, 2004

Analgesics, Narcotic 

February 23, 2004

Angiotensin Receptor Blockers 

February 23, 2004

Anticoagulants, Injectable 

January 10, 2005

Antidepressants, Other 

March 29, 2004

Antidepressants, SSRIs 

March 29, 2004

Antiemetics 

April 28, 2004

Antifungals, Oral 

March 29, 2004

Antifungals, Topical 

March 29, 2004

Antihistamines, Minimally Sedating 

February 23, 2004

Antimigraine Agents, Triptans 

February 23, 2004

Antiparkinson's Agents (Oral) 

June 9, 2004

Antipsychotics, Atypical (Oral) 

March 29, 2004

Antivirals (Oral) 

April 28, 2004

Atopic Dermatitis 

July 28, 2004

Beta Blockers 

February 23, 2004

Bladder Relaxant Preparations 

February 23, 2004

Bone Resorption Suppression and Related Agents 

March 29, 2004

BPH Treatments 

April 28, 2004

Bronchodilators, Anticholinergic 

February 23, 2004

Bronchodilators, Beta Agonist 

February 23, 2004

Calcium Channel Blockers (Oral) 

February 23, 2004

Cephalosporins and Related Antibiotics (Oral)

 April 28, 2004

DMARDs, Immunomodulators and IL-1 RA 

June 9, 2004

Erythropoiesis Stimulating Proteins 

June 9, 2004

Estrogen Agents, Combination 

July 28, 2004

Estrogen Agents, Vaginal

 July 28, 2004

Fluroquinolones, Oral 

March 29, 2004

Growth Hormone 

June 9, 2004

Glucocorticoids, Inhaled 

February 23, 2004

Hepatitis B Treatments 

July 28, 2004

Hepatitis C Treatments 

June 9, 2004

Hypoglycemics, Alpha-Glucosidase Inhibitors

 April 28, 2004

Hypoglycemics, Insulins 

March 29, 2004

Hypoglycemics, Meglitinides 

March 29, 2004

Hypoglycemics, Metformins 

April 28, 2004

Hypoglycemics, Sulfonylureas 

April 28, 2004

Hypoglycemics, TZDs 

March 29, 2004

Intermittent Claudication 

July 28, 2004

Intranasal Rhinitis Agents 

February 23, 2004

Iron, Parenteral 

July 28, 2004

Leukotriene Receptor Antagonists 

February 23, 2004

Lipotropics, Other 

February 23, 2004

Lipotropics, Statins 

March 29, 2004

Macrolides/Ketolides 

March 29, 2004

NSAIDS 

March 29, 2004

Opthalmic Antibiotics 

July 28, 2004

Opthalmic Antibiotic-Steroid Combinations

 July 28, 2004

Opthalmic Anti-Inflammatories 

July 28, 2004

Opthalmics for Allergic Conjunctivitis 

July 28, 2004

Opthalmics, Glaucoma Agents 

June 9, 2004

Otic Antibiotic Preparations 

July 28, 2004

Phosphate Binders 

January 10, 2005

Platelet Aggregation Inhibitors 

January 10, 2005

Proton Pump Inhibitors (Oral) 

February 23, 2004

Sedative Hypnotics 

June 9, 2004

Stimulants and Related Agents 

April 28, 2004

Ulcerative Colitis Agents 

April 28, 2004

<<back to top>>


Appendix C

Letter from the Chairman of the Texas Pharmaceutical and Therapeutics Committee (pdf file)

<<back to top>>


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