On August 29, 2018, the Centers for Medicare and Medicaid Services (CMS) issued a memo to Medicare Part D plans, outlining new tools and flexibility to expand choices and lower drug prices for patients. The changes come in response to the Trump Administration’s drug pricing blueprint and will allow Medicare Part D plan sponsors to negotiate lower drug prices and give access to broader formularies. Beginning January 1, 2020, Medicare Part D plan sponsors will have the choice to implement indication-based formulary design.
Indication-based formulary design is a formulary management tool that allows health plans to tailor formulary coverage of drugs based on specific indications, which allows health plans to negotiate formulary coverage based on those specific indications.
Currently, CMS policy requires that if a Part D plan includes a particular drug on its formulary, the plan must cover that drug for every indication approved by the U.S. Food & Drug Administration, except for those uses that are statutorily excluded from Part D coverage, even if the plan would otherwise instead cover a different drug for a particular indication. Medicare Part D plan sponsors are able to use utilization management tools, such as step therapy and prior authorization requirements to promote cost-effective drug therapy by encouraging the use of preferred formulary agents.
This new guidance expands upon existing policy by allowing Medicare Part D plan sponsors to tailor which drugs are on their formulary by specific indications, starting in CY 2020. This will provide Medicare Part D plan sponsors additional negotiating leverage with manufacturers, which can reduce beneficiary and program costs.
If a Medicare Part D plan sponsor chooses to tailor formulary coverage of drugs to certain indications, it must ensure that there is another therapeutically similar drug on the formulary for the non-covered indication in order to meet the anti-discrimination requirements described in section 1860D-11(e)(2)(D)(i) of the Social Security Act.
If a Medicare Part D plan does not include particular indications for a Part D drug on its formulary, requests for coverage of the drug for those indications will be treated similar to any other formulary exception request for an off-formulary drug. Part D transition requirements will still apply under this new formulary design.
To help ensure that Medicare enrollees understand their coverage, the agency will update the online tools that beneficiaries use when selecting a Part D plan, so that beneficiaries will see that a plan’s coverage for a drug varies by indication before they make a choice in 2019 for their 2020 plan.
CMS expects this change will increase the number of drugs available on the formularies and will also promote diversity of formularies, which will in turn allow access to more drugs at lower prices.
“This action delivers on President Trump’s drug pricing blueprint by offering Medicare plans new tools to negotiate lower drug prices and offer patients better choices,” said HHS Secretary Alex Azar. “This is a significant step in modernizing the successful Medicare Part D program by giving plans the tools that serve patients well in the private sector.”
“President Trump and Secretary Azar are working to get the best deal for American patients,” said CMS Administrator Seema Verma. “By allowing Medicare’s prescription drug plans to cover the best drug for each patient condition, plans will have more negotiating power with drug companies, which will result in lower prices for Medicare beneficiaries.”