Group Title: Health coverage update
Title: A dilemma for state medicaid programs: a look at the methods of addressing rising pharmaceutical expenditures for treatment of mental health disorders
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Title: A dilemma for state medicaid programs: a look at the methods of addressing rising pharmaceutical expenditures for treatment of mental health disorders
Series Title: Health coverage update
Physical Description: Serial
Language: English
Creator: Florida Center for Medicaid and the Uninsured, College of Public Health and Health Professions, University of Florida
Publisher: Florida Center for Medicaid and the Uninsured, College of Public Health and Health Professions, University of Florida
Place of Publication: Gainesville, Fla.
Publication Date: January 2005
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Bibliographic ID: UF00091098
Volume ID: VID00002
Source Institution: University of Florida
Holding Location: University of Florida
Rights Management: All rights reserved by the source institution and holding location.


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Florida Center for Medicaid and the Uninsured
Sh ap i g Hea~h i i c ae Po 1 i cy

Health Coverage


Issue Brief January 2005

A Dilemma for State Medicaid Programs:
A look at the methods of addressing the rising pharmaceutical
expenditures for treatment of mental health disorders


Mental health drug costs are rising rapidly within the Florida Medicaid program and elsewhere.
Patients with mental health diagnoses are often clinically complex. Therefore, physicians require flexibility in
prescribing drug regimens.
Some studies indicate that providing mental health drug benefits may lead to higher costs in the long-term.
Efforts to specifically address drug costs should be only one component of a broad reform effort that would
include addressing utilization patterns, marketplace incentives, and accestbiility of the relevant data.

In the past three years, state
Medicaid programs have seen an
a\ erage price increase of 37% for
all classes of prescription drugs.'
Reasons for this include escalating
prices, an increase in the number
of prescriptions per patient, and
swelling Medicaid enrollment as a
result of the expansion acti cities
that have occurred over the past

Mental health care drugs represent
as much as a quarter of overall
prescription drug costs within
state Medicaid programs. Recent
innovations in mental health
medications have positit ely
:mnpacted the treatment of mental
health patients. New generation
drugs include antipsvychotics
such as Zvprexa and Risperdal,
as well as selective serotonin
reuptake inhibitors (SSRIs), such
as Prozac, Zoloft, and Lexapro,
which are commonly used to
treat depression and other mental
disorders. The popularity of
these new drugs is explained

by the fact that they have fewer
side effects and, in some cases,
improved efficacy compared with
some of the traditional drugs.2
But these improvements have
come at a price. A result of their
effectiveness has been a rapid
growth in their utilization and
a matching increase in drug

Over the course of the last several
decades, Medicaid has become
a major source of funding for
patients with mental health
disorders. In fact, nationally more
than 60% of all expenditures
for mental health benefits come
from the Medicaid program i. and
there is growing concern that
without major programmatic
changes, mental health drug
expenditures will not slow in their
rate of growth. Since Medicaid
programs pay for more than half
of the national expenditures
that go towards antipsychotic,
antidepressant. anticonvulscant
and other psychotropic

+ Antipsychotics
'Atypical' antipsychotics
(dopamine and serotonin
antagonists) and older

+ Antidepressants
Tricyclic antidepressants,
reuptake inhibitors
(SSRIs), Monoamine
Oxidase Inhibitors

4* Anxiolytics

+ Barbiturates, sedatives,
hypnotics barbiturates
and non-barbiturate
sedatives and hypnotics

+ Antimania lithium





C le iiIuh Atllli

$4393)3 L. 148

r 1

_i 9_
-- ~~y

S2OO.lOO.IOo S23j-.684 098

%100.000.000 -
CiZ1 11ru1 A.11 I

a 2000)

*2001 a 21n2
State Fiscal Year Ending

C 2003

Source: Governor's FY 2004-05 Budget Recommendations presented to the
Senate Health and Human Ser\ ices Appropriations Committee (Sharpe, 2004;
Agency for Health Care Administration).

medications, states have begun
paying closer attention to the
utilization of these specific drugs.

Policy Tradeoffs
The challenges of managing
a heterogeneous and complex
population of individuals utilizing
psychotropic medication has
convinced many states that
restricting or cutting mental
health benefits and/or drugs must
be done carefully. States have
eliminated preventive services only
to see increases in more expensive
categories. States have focused
on pharmacy expenses without
addressing the full continuum of
care. Several states' experiences are
worth noting:


Mental Health Expenditures in Florida
* Of the top 20 Medicaid drugs, ranked by total annual dollars spent, mental health drugs hold 7 of
those positions-with the number one spot held by Zyprexa, an atypical antipsychodc.
* Medicaid spending on mental health drugs grew by 35% annually from 2000-2002, compared to 11%
for all other drugs.
* In recent years, the growth in spending for mental health drugs is outpacing total pharmacy budget
growth by nearly 20q6 per year.
* More than $4,000,000 was spent on mental health drugs in 2003, representing nearly 25% of the
total pharmaceutical expenditures in Medicaid.
Sources: Agency for Health Care Administration. (2003).
index.shtml ; Agency for Health Care Administration. (2004). "Medicaid Mental Health Drug
Recommendations." Governor's FY 2004-05 Budget Recommendations to Senate Health and Human
Services Appropriations Subcommittee, March, 2004; McCombs, Jeffrey S. Mulani, P.,Gibson J.
"Open Access to Innovative Drugs: Treatment Substitutions or Treatment Expansion?" Health Care
Financing Review. Washington: Spring 2004.Vol.25, Iss. 3; pg. 35, 19 pgs.

Fiscal Year 2002-03 Florida Medipass Claims Analysis
An analysis of claims from Florida Medicaid's Primary Care Case Management Program revealed:
* Over 500,000 MediPass (Medicaid's Primary Care Case Management Program) recipients, or more
than 50 percent of individuals enrolled in the MediPass program, had one or more paid claims for a
mental health medication.
* Depression was the most common mental health diagnosis among MediPass patients with paid
psychotropic claims, numbering in excess of 126,000 throughout the year.

quetiapine, olanzapine, clozapine)

* The "newer" atypical antipsychotics (ziprasidone, risperidone,
accounted for $210 million in drug expenditures.

. .n ll .l l


page 2






80,000 --

24,oo00 --

U 'eirr Menial Illne's U Subswiant bu-e



Source: Governor's F 2'i004-05 6tii gEl Rc. i:.rnmeriarnoins prIesented t1 ihe Sernrar Health and
Human Services Apprc.i r.iocin; Cornniiree iSharpe. :004. gen.., r:ir -ealth Care A\dmir nl.tr3r[on


tNote: MediPass is Florida's Primalry Care Case Management Program that cares
for nearly half of the State's enrollees)






0 2001 o 2002
State Fiscal Year Ending

Source: Agency for Health -dministrarion (t20041

*One study of 1,600 mental
health patients in San
Diego revealed that 20%
of the patients filled their
medication too frequently.
These "excessive fillers"
cost California's Medicaid
program $3,500 more per
patient per year than patients
who were considered
"adherent" to their

In California, when MediCal
provided 'open-access' to
previously restricted new
generation drugs, two of the
new antipsychotic brands
soon became the most
expensive drugs for the
entire Medicaid program.
However, access to the drugs
also reduced costs for other
high cost patients, giving
the lawmakers conflicting
expense implications of the

* When Tennessee carved out
its mental health benefits
in a way that significantly
restricted the patients'
options, the transitions
that were imposed on the
mental health patients led
to negative outcomes with
respect to adherence and
continuity of care.6

* After Texas eliminated
coverage for licensed
psychologists, social workers,
and other advanced mental
health practitioners, there
was an increase in crisis
center visits-a more
expensive treatment option.5

* In Colorado, nonspecific
cuts in Medicaid services
resulted in increased visits
to the emergency room for
recipients with mental health

florida Center for Medicaid and the Uninsured page 3

I ~-

page 3

Florida Center for Medicaid and the Uninsured

These experiences show that
it is important to recognize the
potential increase in costs that can
accompany restricting mental health
services. A reduction in, or limits
on, mental health drugs may result
in more hospital inpatient stays and
more visits to the emergency room.

Methods of Managing
Health plans and Medicaid agencies
have employed a variety of methods
aimed at reducing pharmaceutical
expenditures. However, both states
and managed care organizations
have had difficulty in identifying
which types of measures are best
able to address costs.

A formulary limits access to only
those medications identified on a
preferred drug list. It saves money
by reducing the range of available
drugs to patients. Formularies can
be used in tandem with tiered
co-payments, prior authorization
requirements, and treatment
protocols as a means to encourage
patients and their providers to
select cheaper drugs. The use of
formularies has been shown to
effectively reduce costs by shifting
prescription patterns to cheaper
drugs and increasing bargaining
power with drug manufacturers as a
consequence of the higher and more
predictable volumes for a standard
set of drugs.

The use of generic medication is
one of the simplest strategies for
managing pharmaceutical costs.
On average, generic medications
cost one-third less than brand name
medications.8 However, there has
been considerable price inflation
in recent years for generic drugs.
offsetting some of the positive
benefits of using generics.

Generics are often a part of tiered
formularies and first-line therapies.

Tiered formularies involve the
use of separate co-payments for
more expensive types of drugs. For
example, the patient may pay $5
for the generic, $10 for the branded
drug on the formulary, and $20
for drugs that are not a part of
the preferred drug list. First line
treatments (otherwise known as
"first fail" treatments) prescribe a
chronology of treatment options,
requiring enrollees to use a specific
drug or treatment before moving to
the next, more expensive, drug or
method of treatment.

Health plans and state agencies are
often able to negotiate supplemental
rebates and other discounts with
pharmaceutical companies whose
drugs are selected to be included on
the formulary or preferred list. The
potential increase in sales volume
can enhance a state's bargaining
power with drug firms.

Prior authorization is often used
as a complement to a formulary
or preferred drug list. Typically,
physicians are required to gain
authorization from the health
plan for drugs that are not on the
formulary or that exceed other
limits. This strategy can be effective
in reducing costs but it may act as
an obstacle to care for patients if
physicians must continually seek
permission to prescribe a needed

Treatment protocols, algorithm s.
disease management programs,
evidence based management and
best practice measures involve the
use of guidelines and standards that
direct practitioners in their treatment
of patients, for the purpose of
managing utilization, controlling
costs, and improving patient

Other potential measures, many of
which are often interwoven into the
above strategies, include:

The use of a pharmacy and
therapeutics committee (P&T
committees) to provide a
multidisciplinary perspective
on drug-related decisions to
be made by states;

Per member per month
(PMPM) prescription
limitations. An example
is the Florida Medicaid
policy requiring separate
authorization for patients
requiring more than four
different brands of drugs per

Contracting with pharmacy
benefits management
companies (PBMs) to
outsource the administrative
tasks of managing drug

Value-added programs,

Expand the four-brand
limit to include mental
health drugs
* Rejected

Expand PDL prior
authorizations program
to include mental health
* Rejected

Limit use of Zyprexa to
one dose per day
* Adopted

Adopt Florida Best Practice
Algorithm Project
* Adopted

Shift mental health
patients to managed care
* Adopted


I.~----~-L~-~~C--. ~ irU-_ _~-~~~~--I__...._ ~- ---^~l~-~------LIIII_-L- ---- -------


page 4

which solicit discounts or
cash investments from drug
manufacturers in exchange
for the states placing their
drugs on the preferred drug
list; and

*Provider profiling, which
is a means of incentivizing
physicians to change
treatment behavior by
providing feedback about
their relative prescription

Several states have used the above
measures and others to specifically
reduce mental health drug related
expenditures The following are
some of the programs that are being
considered or have already been

Oregon has eliminated
outpatient mental health,
alcohol and drug benefits,
and a 24-hour local crisis

Kentucky excluded Zyprexa
from its preferred drug list;4

New Hampshire, Missouri,
and California are
considering removing mental
health drugs from their
existing exemption status.4

In the 2004 legislative session, five
proposals from Florida Medicaid
were presented to the Florida
legislature that relate to mental
health drug costs. The options

The expansion of the four brand
limit to mental health drugs and the
expansion of the prior authorization
requirement were rejected in the '04
session due to concerns voiced by
mental health advocacy groups and
other interested parties.

One measure that was adopted
was the one-dose limit on Zyprexa,
an antipsycholic medication. The
measure was drafted in response to
reports by the Florida Agency for
Health Care Administration (AHCA)
+ Severe mental illness (SMI)
schizophrenia or psychotic
+ Substance abuse (SA)
any type of substance abuse or
dependence (e.g., alcohol, illicit
+ Depression (DEP)
major depression, bipolar
disorder, dysthymia, or
adjustment disorder with
depressed mood
+ Anxiety (ANX)
panic disorder, post-traumatic
stress disorder, generalized
anxiety disorder, social anxiety
disorder, or phobias

that approximately 30% of Medicaid
recipients taking Zyprexa were
receiving multiple doses per day.
Current medical practice standards
dictate that this drug should be
taken once daily, and adherence to
the treatment regime, which is a
concern in individuals with severe
and persistent mental illness, can be
improved with single daily doses.

Another measure adopted in
'04 is the Florida Algorithm
Project (FALGO), an industry-
sponsored project that includes
financial support from a variety of
pharmaceutical companies toward
creating evidence-based best
practices. The project, which has
developed treatment guidelines for
depression, bipolar disorder, and
schizophrenia, includes guaranteed
savings to the state of around
$34 million, according to AHCA's

pharmacy director. FALGO will need
continued monitoring for its impact
on the quality of health care services
and effectiveness in reducing mental
health expenditures.

Finally, as a general method of
reducing overall costs for the
population. Florida's Medicaid
mental health patients will see a
shift to managed care organizations
in the coming months and years.
As a consequence of a provision
that was included in the state's
budget, mental health patients will
soon begin shifting to HMOs and
community health centers in several
Florida counties.

Are Pharmaceutical
Measures For Mental
Health Drugs Effective?
Several factors contribute to the
difficulty of reducing drug benefits
as a means to lower Medicaid
1) medical complexity and
heterogeneity of patients suffering
from mental disease is significant,
2) the actual effectiveness of mental
health drugs is often uncertain, and
3) evaluations of cost reduction
measures are often difficult to

Patient Complexity
One problem that state officials face
when considering ways to reduce
expenditures associated with mental
health drugs is the complexity of the
population treated. More so than
other patient groups, the mental
health population is considered
to be extremely heterogeneous,9
making it difficult to standardize
their treatment. Within Medicaid,
patients who benefit from mental
health drugs include those who
suffer from severe mental illness,
substance abuse, depression, or
anxiety disorders. Mental health
drugs are critical to the well being of



page 5

a wide array of patients with unique
sets of potential complications
and comorbidities that need to be
carefully weighed in their treatment.
making it a significant challenge to
uniformly address their treatment.
Further exacerbating the issue,
mental health patients tend to have
high noncompliance rates, making
them a difficult group to effectively

Doctors will often use trial and
error in prescribing for mental
health patients, because it is
often impossible to predict which
combination of drugs will be most
effective for each patient. The
primary care doctors, psychiatrists,
and other specialists who care for
patients with mental disorders have
continually urged managed care
organizations and state Medicaid
programs to give them the flexibility
to individualize their treatment
to the unique characteristics and
circumstances of each of the mental
health patients who come through
their doors. Since mental health
drugs serve such an important
function in the lives of people
with serious mental illness, often
meaning the difference between
psychotic and appropriate behaviors,
there is significant risk associated
with formulary approaches in this
population. Limits on prescription
drugs for this population have the
potential to increase the chance of
negative outcomes in the form of
poorer quality of life and increased
emergency visits, incarcerations and
homelessness. Providers maintain
that restrictive formularies and
other policies limit their ability to
"individualize" pharmaceutical

Some advocates have recommended
that all mental health drugs be
exempt from restrictive state
policies, pointing to the negative
health outcomes that can be
experienced when such restrictions

are in place.,1,"',12, For this reason
many states have chosen to carve
out their mental health benefits or to
exempt mental health benefits from
restrictions that are implemented on
other drug benefits.

Effectiveness of Some Drugs is
The difficulty in implementing cost-
reduction measures is compounded
by the fact that many of the new-
generation mental health drugs
have not yet provided the medical
community with a clear advantage
of one drug over another. As one
expert stated:

At this point we do not fully
understand the mechanisms of
action for various antidepressant
medications, nor can we predict
which drug will be the best match
for a given patient, because of the
lack of specific biological markers to
distinguish the different subtypes.14

Such lack of clarity greatly inhibits
efforts to standardize treatments or
develop best practices that will be
adopted by clinicians. Costs are
thus much more difficult to address
by uniform measures, in the face of
an abundance of treatment options

Program Evaluation is Difficult
Evaluating the effectiveness or
appropriateness of restrictive
measures for mental health drugs is
not an easy task. There are several
challenges to effect\ ely monitoring
the effectiveness of cost-reduction

*States need rational and
comparable data by which
to judge the effectiveness
of such policies. To date,
few states have endeavored
to create longitudinal data
sets that produce such
information. States will have
to develop better capabilities
for understanding,

organizing, and accessing
appropriate information.
The generally disorganized
and nonstandard nature of
utilization, clinical outcomes,
and cost data makes it
difficult to effectively
conduct program evaluations.
Pharmaceutical costs should
be carefully tracked, but only
as a component of evaluating
costs associated with treating
the diagnosis over the full
continuum of care. If at
all possible, contractual
arrangements with HMOs,
PBMs, and physicians should
include arrangements that
provide the states with
access to meaningful data in
a standardized fashion.

* Case mix differences, severity
variances, comorbidities,
and other complications
are important issues to
consider in the design
and collection of relevant
data. Not appropriately
adjusting for differences in
disease severity can lead to
erroneous conclusions.

* The longer-term implications
of various strategies should
be carefully considered.
Specifically, evaluations
should be framed in terms
of the potential cost-savings
to pharmacy programs, but
also must consider other
aspects of the delivery
system. For example, will
restrictions on psychotropic
medications lead to increased
hospitalizations and
emergency room use?

none 6 Florida Center for Medicaid and the Uninsured

At this point, there is little evidence
of a single best approach to
managing Medicaid psychotropic
pharmacy costs. The inherent
complexity of the mental health
population has made it hard for
lawmakers to make decisions
towards the best course of action.
In addition, finding a link between
a policy strategy and positive
outcomes is difficult, because
understanding the true nature of the
costs associated with that decision
is particularly challenging. Solutions
for managing the costs associated
with treating mental health problems
involve taking a broader and
systemic perspective, making sure
to consider the variety of incentives
that currently permeate the health
care industry.

1 Smith, Vernon. "States Respond
to Fiscal Pressure: State Medicaid
Spending Growth and Cost
Containment in Fiscal Years 2003
and 2004." Kaiser Commission on
Medicaid and the Uninsured. Health
Management Associates. September,

2 Amador XF, Fitzpatrick M. "Science
to services: Consumers need 'real-
world' science." Schizophrenia
Bulletin. 29 (1): 133-137. 2003.

3 Kanapaux, William. "Budget Cuts
Continue to Threaten State Medicaid
Programs." Fi'lvhi,:rni Tirnms. Vol. 21
Issue 9, p 1, 3.
Aug 2004.

1 Gilmer, Todd P., Dolder. Lacro.
Folsom. Lindamer. Garcia. Jeste.
"Adherence to Treatment With
Antipsychotic Medication and
Health Care Costs Among Medicaid
Beneficiaries With Schizophrenia."
American Journal of Psychirry. 161:
692-699. 2004.

s Agency for Health Care
Administration. (2004).
"Medicaid Mental Health Drug
Recommendations." Governor's FY
2004-05 Budget Recommendations to
Senate Health and Human Services
Appropriations Subcommittee,
March, 2004.

6 Porter, Michael E., Teisberg. E.
"Redefining Competition in Health
Care." Harvard Business Review.
June 2004.

7Adelmann, P.K. "Mental and
substance use disorders among
Medicaid recipients: Prevalence
estimates from two national
surveys." Administration and Policy
in Mental Health, 31, 111-129. 2003.

s Frieden, J. "Medicaid mental health
bears brunt of state cuts." Clinical
Psychiatry News, 32, 6-7. 2003.

9 Huskamp, Haiden. "Managing
psychotropic drug costs: Will
formularies work?" Health Affairs:
Vol.22, Iss. 5; pg. 84. Sep/Oct 2003.

" Adelmann, P.K. 'Mental and
substance use disorders among
Medicaid recipients: Prevalence
estimates from two national
surveys." Administration and Policy
in Mental Health, 31, 111-129. 2003.

1 National Advisory Mental Health
Council. (1998).

2 National Association for Mental
Illness (NAMI). NAMI Policy
Research Institute. State Action alert.

13 National Mental Health
Association. (2003). "State Mental
Health Assessment Project: Can't
make the grade." Accessed on June
16, 2004.

14 Delgado, P.L and Gelenberg, A.J.,
"Antidepressant and Antimanic
Medications," in Treatments of
Psychiatric Disorders, ed. G.O.
Gabbard (Washington: American
Psychiatric Publishing, 2001), 1137-


Ls_ ~ ~ ~ ~ ~ ~ ~ ._...- ------- ------ -----

page 7

Established in 2000, the Florida Center for Medicaid and
the Uninsured is dedicated to the improvement of health
care in Florida through multidisciplinary collaboration of
academic and policy-making experts. The Center is located
at the University of Florida within the College of Public
Health and Health Professions.

The primary mission of the Center is to foster and develop
research and analysis on issues related to access to quality
health care for Florida's low-income populations. Center
faculty and staff study issues related to the Medicaid
program and other delivery systems for vulnerable
populations. Critical to the Center's mission is the timely
dissemination of information to policy makers, providers,
and health care advocates.

Florida Health Insurance Study
in association with
Florida Center for Medicaid and the Uninsured
College of Public Health and Health Professions
University of Florida
Email: Web:
Phone: 352-273-5059 Fax: 352-273-5061

Heather Steingraber, MAC (ABT)

Jianyi Zhang, Ph.D.

Holiday Alig
Renee Pryce

Eleni Dimoulas, M.S.
Fred Sheriff
Amanda Bhikhari, MHA
Jingbo Yu
Andrea Lee

Samuel Trotman

PO BOX 100227




Robert G. Frank, Ph.D.

Allyson Hall, Ph.D.

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