Covering weight loss drugs driving Virginia Medicaid costs higher

HARRISONBURG — One of the bigger drivers of Medicaid's rising costs in Virginia is the ballooning expense of covering weight loss drugs, a state Senate Finance Committee review found.

That cost climbed to $267.8 million for the fiscal year that ended June 30, more than three times the bill from when Virginia Medicaid began covering the increasingly commonly prescribed medicationsfor obesity and diabetes two years earlier, senior legislative analyst Mike Tweedy told the committee at its annual retreat at the Hotel Madison in Harrisonburg.

Virginia Medicaid program faces $632 million hole

But when the state Department of Medical Assistance Services added coverage of the new weight loss drugs in November 2022, decision makers had no information about the fiscal impact, he said.

About 13 states cover the medications.

With the federal Centers for Disease Control and Prevention's view that obesity has become a major public health issue and as regulators consider authorizing use of the drugs for other conditions, the new medications look set to put still more upward pressure on Medicaid costs, Tweedy said.

The managed care plans that cover most of Virginia Medicaid's patients began reporting significant price increases to Medicaid officials in late spring last year.

The drugs are expensive, and Americans pay more for them than people in other countries do, according to a U.S. Senate Health Education and Pensions Committee study. Ozempic costs diabetic patients here $969 a month, more than six times the Canadian price, while Wegovy costs Americans using it to treat obesity $1,349 a month, or more than 14 times the price in Great Britain.

Tweedy said the standards for when and how the department pays for the medications is one area where it needs to focus on cost effectiveness and controlling spending growth.

Emergency room care also a factor

Another is emergency room payments.

Medicaid's payments for ER care have increased 15% a year for the past two years, Tweedy said.

The state last year lost a federal court case challenging a longstanding policy toward cutting Medicaid payments to emergency room physicians if a patient came to the ER with a nonemergency, paying instead as if the doctors performed more routine care.

While the General Assembly approved a new program last year, Medicaid has not implemented the program, Tweedy said.

Policymakers and insurers have long tried to rein in claims for unnecessary ER visits, arguing that they are one reason why U.S. health care costs are so much higher than in other nations.

One reason why many Medicaid patients may be turning to emergency rooms for treatment is that Medicaid, unlike commercial insurance, does not require the people it covers — basically low-income families and adults as well as people with severe disabilities — to pay for part of the cost out of pocket, Tweedy said.

They often don't feel there are other available options for care, either.

One approach some hospitals have started using — setting up urgent care clinics near their ERs in order to triage care — is less common in urban areas where many Medicaid recipients live, he said.

Virginia Medicaid is facing an unusual need for additional funds this year and next than the current budget for those years set aside: some $632.4 million.

One reason for that is a $160 million shortfall Medicaid saw at the June 30 end of the last fiscal year, mainly because the post-pandemic decline in enrollment happened more slowly than expected, Tweedy told the committee.

Others include a projected $289.7 million increase in fee for service payments, a $36.2 million increase in managed care rates, a $61.7 million increase in supplemental payments to hospitals and $59.2 million for Indian Health Clinics to cover specified nontribal costs.

In addition, increased payments to Medicare — the federal insurance program for people ages 65 or older and people with certain disabilities — and pharmacy rebates are pushing up Medicaid costs.