MassHealth Fact Sheet – FY10 H.1 
Retail and Specialty Pharmacy





Overview

Driven by escalating prices for brand name drugs, pharmacy program costs continue to grow 
despite a very high penetration of generic drug use,.  In addition, the relative proportion of the 
budget consumed by certain classes of branded drugs—particularly atypical antipsychotics (such 
as Seroquel), and so-called specialty pharmaceuticals (such as Enbrel)—is also growing.  
Management controls, including utilization review, prior authorization, and rate controls for these 
types of drugs, are required to keep the rate of financial growth within budget.

FY10 Initiatives
 
$20M Savings for Retail and Specialty Pharmacy 

Specialty Pharmacy

High cost injectable, biotechnology drugs represent the fastest growing segment of the pharmacy 
budget.  These drugs are associated with complex management issues concerning pricing, 
distribution, site of administration, utilization management, and internal (MassHealth) program 
authority.  Commercial insurers have developed effective specialty pharmacy programs, portions 
of which are transferable to the Medicaid arena. 

This proposal is to establish a cross-program specialty pharmacy management program for 
MassHealth.  One approach is to select a single provider, or other selective network; alternatively, 
reduced reimbursement rates for these products can be established.  In addition, enhanced 
utilization management programs can be implemented to ensure the use of the lowest cost 
clinically appropriate therapeutic alternative.

Under this proposal, MassHealth can establish a Maximum Allowable Cost (MAC) limit for high-
cost injectable biotechnology drugs. This ceiling could be indexed to Medicare rates, or a similar 
formula, to generate savings.

Other than the MAC, no one approach is applicable for all so-called specialty pharmaceuticals.  
The initiative will involve a series of actions that will be implemented in a step-wise fashion by 
therapeutic category (e.g., arthritis drugs, growth hormone, etc.)

The specialty pharmacy initiative(s) will have minimal impact on MassHealth fee for service 
members.  Some members may be directed to different sites of care (e.g., doctor’s office vs. 
hospital clinic) and may be impacted by a prior authorization requirement on a biotechnology 
drug.  Certain pharmacy (and perhaps other) providers will also be impacted, however the 
management strategies envisioned are very similar to those used by commercial payers to 
handle these types of drugs. 

Retail Pharmacy

The proposal will reduce the pharmacy reimbursement formula. MassHealth can reduce the 
current formula or adopt other formulas in determining the reimbursement rate for generic and 
brand name drugs.  MassHealth pays retail pharmacies by calculating an estimated acquisition 
cost (EAC) and adding a dispensing fee.  Generic drugs are further capped by establishing a 
maximum allowable cost (MAC).  MassHealth can change either formula by reducing the 
percentage associated with the EAC to Wholesale Acquisition Cost (WAC) plus 3%, decreasing 
the MAC for generics, or decreasing the dispensing fee.


 
Any changes to the pharmacy reimbursement rates will require a change in regulation (both 
MassHealth and DHCFP).  Rate changes will also require a federal State Plan Amendment 
(SPA).  The creation of a selective network for specialty pharmacy will require legislation and 
perhaps a federal waiver in addition to a SPA.