State Administrative Actions

State agencies and the federal government can take administrative actions through various programs to curb the rising cost of prescription drugs. This section explores some of these innovative actions.


Several state Medicaid agencies are taking innovative steps to control drug costs.

Expanding control of state’s formulary: Massachusetts has a request pending for a Medicaid Section 1115 waiver that would enable it to exclude drugs with high costs and low treatment value from its formulary, and to use the formulary as leverage to negotiate larger rebates than can be negotiated today. Massachusetts proposed closed formulary would include at least one drug per therapeutic class.
RESOURCE: A copy of the Massachusetts’ 1115 Waiver request, which was submitted to CMS on September 8, 2017, is available here.

Expanding control of state’s formulary: 
On November 17, 2017, Arizona sent a letter to CMS proposing changes to the prescription drug benefits offered under the state’s Medicaid plan, including authority to exclude drugs from its formulary based on criteria such as value and cost-effectiveness, without losing Medicaid Drug Rebates. Arizona signaled plans to submit a formal waiver amendment.

New York:
Medicaid drug benefit budget cap: 
In 2017 New York’s Legislature enacted a pharmacy cost control law that limits annual Medicaid drug spending growth and provides additional authority for the state to negotiate with pharmaceutical companies. If New York’s drug spending is projected to exceed the annual spending limit, the new law gives its Medicaid program authority to negotiate with drug companies for supplemental rebates. If the state is unable to reach an agreement for supplemental rebates, certain drugs may be referred to the New York Drug Utilization Review Board, which conducts a “value assessment” of the product. Based on that assessment, the board could recommend a target amount for a manufacturer’s “supplemental rebate” to reduce the drug’s cost. If a supplemental rebate agreement is not reached at this point, the drug could be removed from the managed care program formulary.

Greg Allen, policy director of New York’s Office of Health Insurance Programs, described this innovative approach to limit state Medicaid drug spending at NASHP’s 30th Annual Conference on State Health Policy. Allen’s slides are available here.

Authorizing legislation: Section 280 of the Public Health Law (Text Here)

NY (Medicaid Global Spending Cap) – This NY Department of Health webpage describes New York’s Medicaid drug cap implementation progress.

Federal Issues

These articles explore what the federal government could do to help states contain drug prices.

How the Federal Government Can Help States Address Rising Prescription Drug Costs, NASHP, February 2018. (Text Here)

Making Medicines Affordable: A National Imperative, The National Academies of Science, Engineering, and Medicine, November 30, 2017. (Text Here)

NASHP Individual State Initiatives

NASHP awarded $300,000 in grants to Colorado, Delaware, and Oklahoma to help them develop innovative policy solutions to tackle high drug prices. None of the proposals require enabling legislation, but all have the potential to deliver substantial savings. The projects began October 2017.

Oklahoma: Value-based purchasing
Oklahoma is exploring value-based payment contracts for drugs that would allow the state to claim Medicaid supplemental rebates if the drugs failed to deliver agreed-upon outcomes.

RESOURCE: Overcoming Barriers to Value-Based Contracting (University of Oklahoma College of Pharmacy)

Delaware: Cross-agency purchasing
Delaware is creating a common, preferred drug list of several classes of drugs for its Medicaid and corrections programs, and hospitals.

RESOURCE: April 5, 2018 Presentation (Cynthia Denemark, DMMA Pharmacy Director)

Colorado: Alternative payment for physician-administered drugs
Colorado is surveying physicians to better understand acquisition costs for physician-administered drugs (e.g., drugs and therapies administered in hospitals or clinics) and will use that information to implement acquisition–cost reimbursement for Medicaid physician-administered drugs.

Implementation of New Laws

Learn how states are implementing their new laws.

CA (SB17)
The California Office of Statewide Health Planning and Development maintains a “Cost Transparency Rx” website with information on implementing SB 17 including information on upcoming activities, workshops, and FAQs:   

NV (SB539)
Nevada’s Department of Health and Human Services maintains a “ Transparency” website for implementing SB 539, including draft regulations, FAQs, and an implementation timeline:   

NY (Medicaid Global Spending Cap)
This NY Department of Health webpage describes New York’s Medicaid drug cap implementation progress.