Can States Do a Better Job of Buying Drugs? Hepatitis C medication data suggest that pharmacy benefit managers are better than direct government purchasing at controlling prices.

• Author: Brannon, Ike

State Medicaid departments have a great deal of discretion over how they run and organize their Medicaid programs. This discretion ranges from the level of reimbursements for providers, to whether the program itself is centrally managed and run by the state or contracts care delivery to private managed care organizations (MCOs).

States can also choose to blend those latter two approaches. On one hand, a state's size and concomitant bargaining power could allow it to obtain sizable discounts for services, drugs, and medical supplies. On the other, an MCO brings a wealth of experience from around the country and in the private insurance and Medicare sectors that could be leveraged into providing care at a lower cost. Blending the two approaches hopes to capture both benefits.

We suggest that market power alone, harnessed by centralized purchasing, is not sufficient to justify state governments managing their Medicaid contracts. To support this, we use data from Michigan and Illinois to show that, with cutting-edge drugs, Illinois's decision to make extensive use of MCOs saved taxpayers tens of millions of dollars.

HEPATITIS C'S DEADLY AND GROWING THREAT

Hepatitis C is a liver infection that is spread primarily through contact with blood from an infected person. Most people become infected with the hepatitis C virus by sharing needles or other equipment used to prepare and inject drugs. For some people, hepatitis C is a short-term illness lasting less than six months, but for about 80% of infected people it becomes a chronic infection. Chronic hepatitis C can result in life-threatening health problems like cirrhosis and liver cancer, and it is the primary indication for liver transplant. While there are vaccines available for hepatitis A and B, there is no vaccine for hepatitis C.

In the most recent data, the U.S. Centers for Disease Control and Prevention estimate there were 50,300 new cases of hepatitis C in 2018, up from an estimated 24,700 cases in 2012. There is a wide gap between the number of reported cases and the number of estimated cases, which researchers ascribe to the fact that many people with hepatitis C are asymptomatic and not everyone with symptoms seeks testing and treatment. Further, local and state jurisdictions with inadequate state or local public health offices can fail to count even those who have been diagnosed. Some 15,713 deaths were attributed to hepatitis C in the United States in 2018. That figure almost assuredly underestimates the true number.

Because of the nature of how hepatitis C spreads--mainly via sharing needles among drug addicts--its sufferers skew younger and tend to be from lower-income households. The CDC reports that two-thirds of acute hepatitis C cases reported in 2018 were 20-39 years of age. Nearly three-fourths of those with acute cases who were asked reported injection drug use.

A TREATMENT BREAKTHROUGH

The introduction of direct-acting antivirals in the early 2010s was a game-changing moment, providing a cure for hepatitis C. The treatment is not cheap, at least in relation to extant pharmacotherapies. The list retail price for a course of these drugs was nearly $100,000 when they were first introduced, although it fell significantly as more pharmaceutical companies entered the market with...