A closer look at Medicaid waivers, part 2: two recent high-profile denials

Although the Centers for Medicare and Medicaid Services (CMS) urged states to submit waiver proposals for greater flexibility for their Medicaid programs, CMS has denied two high-profile waivers that would have tested how far states can go to reshape Medicaid.

First, CMS denied Kansas’s request to institute a lifetime limit on Medicaid: under the proposal, certain low-income adults could only be covered under Kansas’s Medicaid program for 36 months. CMS Administrator Seema Verma said that such a lifetime limit failed to recognize that “people’s circumstances change over time. They may get a job, and then something happens. Those are the things we want to keep in mind.” Other states — Arizona, Utah, Maine, and Wisconsin — with similar requests are unlikely to obtain federal approval.

Second, CMS denied a proposed waiver from Massachusetts regarding how it would cover prescription drugs in its Medicaid program. Under federal law, states’ Medicaid programs must cover a drug if its manufacturer has agreed to participate in the Medicaid prescription drug rebate program and pay a rebate that is divided between the federal government and the state. Massachusetts asked CMS to waive this requirement to create a “closed” drug formulary in which Medicaid would only need to cover one drug in a therapeutic class, allowing it to negotiate even deeper discounts potentially. Although Massachusetts would have created an appeals process if a Medicaid beneficiary needed a drug, a coalition of patient advocates and pharmaceutical manufacturers opposed this waiver because of its potential effects on patients’ access to care.

However, CMS suggested an alternative option for states to consider: drug coverage under Medicaid is an optional benefit, and states could decline this option and instead cover drugs under a waiver. While this could be more administratively burdensome, it could allow a state to cover only drugs it selects as part of a waiver. Additionally, some observers note that the federal government seems to be interested in this approach. They note that the Trump budget request in February included a request for Congress to allow for a Medicaid demonstration to allow five states to create closed formularies.

Finally, an update on a legal challenge reported in the prior blog on Medicaid waivers for community engagement (more commonly referred to as work requirements): a federal judge in Washington, D.C., blocked Kentucky’s Medicaid waiver from going into effect as scheduled on July 1. CMS Administrator Verma has stated that including work requirements, particularly on expansion populations, will “help people rise out of poverty” while allowing states to focus on the “most needy.” CMS has not yet announced if it will appeal the decision. Of the states that had approved waivers for community engagement, Arkansas is moving forward with implementing its requirement while Indiana’s and New Hampshire’s waivers do not go into effect until January 2019.