Episode 7 of The 80 Million Podcast: Paying for Cures — Medicaid’s Next Financing Test
The next generation of curative therapies is coming faster than Medicaid’s financing system can adapt. Outcomes-based payment can help, but it will not be enough.
In this episode of The 80 Million Podcast, Manatt Health Senior Managing Director and 80 Million Editor Patti Boozang speaks with Oklahoma Health Care Authority Chief Pharmacy Officer Terry Cothran and Manatt Health Partner Ross Margulies about one of the most urgent questions facing Medicaid: how to make transformative, evidence-based therapies available to beneficiaries when treatments can cost millions of dollars per patient and the financing system was not built for them.
Authors: Patti Boozang, Terry Cothran and Ross Margulies
Editor: Amanda Eisenberg
tl;dr
High-cost therapies like cell and gene therapies could transform care for Medicaid beneficiaries with serious conditions, but their upfront prices — often $500,000 to $5 million per patient — do not fit a financing system built around predictable, chronic-care spending.
The pressure will only grow as the pipeline expands, eligible populations broaden and treatments become easier to administer. Medicaid’s fixed budgets, enrollment churn and limited data infrastructure make it hard to pay for these therapies at scale or capture their long-term value.
Outcomes-based payment and Centers for Medicare & Medicaid Services (CMS) models are important near-term tools, but they are not enough. Durable access will require bolder federal financing solutions such as reinsurance, risk pooling or a dedicated funding stream for transformative therapies.
The 80 Million Impact
The promise and the problem of high-cost therapies are both compelling: a breakthrough in care that should be celebrated, a Medicaid program obligated to cover people who need care and a financing structure that is not ready for the future it is about to face.
These therapies are potentially life-changing, but they arrive inside budgets set in advance and are constrained by annual appropriations. Oklahoma’s Medicaid program requested a budget appropriation of just under $500 million and was appropriated roughly $250 million. Against that backdrop, a therapy priced at $3 or $4 million is not simply another drug claim. It is a budget event.
For now, the pressure is contained. Some therapies apply to small populations or require burdensome treatment journeys that limit uptake. But the science is moving rapidly toward larger populations, more personalized therapies and easier administration. That is the central point: This problem isn’t static. It will grow, and Medicaid will be on the front line. Many conditions for which high-cost therapies are being developed affect children, people with rare diseases and populations for whom Medicaid is often the primary source of coverage.
Why the Current Model Breaks Down
Traditional prescription drug coverage was built around chronic-care therapies: drugs taken monthly, often for years, with costs that are recurring and relatively predictable. High-cost therapies invert that model. Many are administered once or over a short period, with costs that are front-loaded and benefits that may unfold over years or decades.
That mismatch creates a core market failure: A therapy can produce enormous social value, but the payer responsible for the upfront cost often cannot capture that value. Medicaid may pay today, while the clinical and financial benefits accrue years later to Medicare, an employer plan, another state or society more broadly.
The budget problem is immediate. A $3 million therapy does not spread neatly across time. It hits when the person needs treatment, regardless of whether the state has budgeted for that utilization. And because eligible beneficiaries are unevenly distributed across states and plans, a handful of payers may face catastrophic costs while others face none.
The evidence challenge compounds the financing problem. Many therapies come to market through accelerated or expedited approval pathways because they address serious conditions. That may be appropriate, but it means Medicaid programs must make multimillion-dollar coverage decisions with smaller trials, narrower populations and less long-term durability data than they would want.
That is not a sustainable way to finance the future of medicine. When therapies are priced in the millions and state budgets are fixed, access can become a function of timing, geography and fiscal luck — not clinical need.
Outcomes-Based Payment Helps — But It Cannot Carry the Whole Load
Outcomes-based contracting is one of the most important near-term tools available to tackle these challenges. Oklahoma has been among the states using these agreements, including in the high-cost therapy space. The theory is straightforward: If a manufacturer believes a therapy delivers durable results, payment should be tied in some way to those outcomes. If the expected outcomes aren’t achieved, the manufacturer may provide rebates, refunds or other offsets.
But outcomes-based agreements have limits. They are manageable when the patient population is small enough to track manually, but they become much harder when the eligible population grows. A manual process will not work at scale and there are fundamental data problems.
Medicaid claims can show that a test was performed — but not always the result. Claims can show utilization, but not always functional improvement, disease progression, lab values or clinical markers that determine whether a therapy worked. The data needed for that assessment often live in electronic health records, specialty provider systems and lab systems that aren’t integrated into Medicaid claims operations.
Interoperability, health information exchange, better data infrastructure and technology-enabled intermediaries will be necessary. Private companies are beginning to aggregate data and sometimes take on financial risk. That may help. But these tools are early, and they do not eliminate the need for public financing solutions.
The Federal Government Is Starting to Move
CMS and CMMI are beginning to play a more active facilitator role.
The Cell and Gene Therapy Access Model, focused initially on sickle cell disease, is designed to support outcomes-based agreements between states and manufacturers. It gives CMS a role in helping negotiate payment and access criteria and reflects the reality that states should not have to solve these arrangements one by one.
The emerging GENEROUS Model would incorporate international reference pricing into manufacturer pricing for states. States will need to see whether the discounts are better than, equal to, or less favorable than existing Medicaid rebates, supplemental rebates and outcomes-based arrangements.
Both models matter because they signal that CMS sees the problem and is willing to use federal leverage in new ways, but neither appears designed to solve the full long-term financing problem. The scale of the coming pipeline will require more than negotiated agreements, state-by-state participation and better contracting. It will require a durable financing architecture.
What a Workable System Would Require
A workable system will require more than private contracting or state-by-state improvisation. It will require a financing architecture that spreads risk beyond any one Medicaid program or managed care plan, supports evidence generation over time and ensures that access does not depend on whether a state happens to have room in its budget when a patient needs care.
A new federal funding source — conceptually, something like a “Medicare Part E” — could be one such model. Others have discussed federal reinsurance, national or multi-state risk pools, or other mechanisms that spread risk and protect states from catastrophic, unevenly distributed costs. These ideas are still conceptual, but the need for them is becoming concrete.
Manufacturers will need to pair access with accountability: outcomes-based arrangements, real-world evidence generation and pricing approaches that reflect uncertainty when durability data is still developing. Market access will increasingly depend on evidence strategies that give payers confidence beyond the initial trial.
States will need better infrastructure to measure outcomes, including integration of pharmacy data, medical claims, lab results and clinical information. They will also need tools to mitigate risk, including reinsurance, risk pools, managed care protections and participation in federal models where those models advance access.
Providers will need support, too. These therapies are not simple pills dispensed at a pharmacy counter. They often require specialized centers, complex administration, patient navigation, follow-up and long-term monitoring. A financing model that ignores delivery infrastructure will fail patients even if the drug itself is covered.
And the federal government will need to decide whether it is willing to do more than facilitate. If these therapies are the future of medicine, and if Medicaid beneficiaries are among the people most likely to need them, then a durable national financing strategy is not optional. It is the price of equitable access.
The Bottom Line
High-cost therapies are exactly the kind of breakthrough we should want: treatments that may cure disease, extend life, and transform what is possible for children and adults with serious conditions. But Medicaid’s financing system was not built for $3 million cures delivered at scale.
Outcomes-based contracts are important. Better data, interoperability and real-world evidence will make those arrangements more credible and scalable. CMS models are promising signs of federal engagement, but none of that is enough by itself.
The therapies are coming. Eligible populations will grow. The current Medicaid financing model cannot sustainably absorb the cost. If we want Medicaid beneficiaries to benefit from the future of medicine, policymakers need to build the financing system now — not after the floodgates open. That means bolder federal solutions, shared risk, public-private partnership and a willingness to recognize this for what it is: a structural financing problem that individual state Medicaid programs cannot solve alone.
Listen to the full conversation of The 80 Million Podcast on Spotify, Apple Podcasts or wherever you get your podcasts to hear why HCBS are at an inflection point, what the fraud framing really means and what bold reforms could finally address the structural flaws at the heart of America’s long-term care system.
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