New Part D Negotiating Strategy: Indication-Based Formulary-Design

CMS released an August 29th memo indicating that Part D plans could implement indication-based formulary design for the 2020 contract year.  Indication-based formulary design already exists in the commercial space, but CMS notes that this will be a new negotiation tool for Part D plan sponsors.

Under the current system, Part D plans can use prior authorizations or step edits to vary the drug approval criteria based on patients’ indications.  For example, in the Health Plan Management System July 25th memo, CMS states that a Part D sponsor may require that a specific tumor necrosis factor (TNF) blocker (e.g. Humira) be used for plaque psoriasis patients before approving a non-preferred agent (e.g. Cimzia).  However, a different TNF blocker (e.g. Enbrel) trial may be required before the non-preferred agent (e.g. Cimzia) is approved for a rheumatoid arthritis patient.  Although the approval criteria can differ based on indication, current policy dictates that an on-formulary drug is covered for all FDA-approved indications, assuming the indication is not a Part D excluded indication.

Under the new approach, on-formulary coverage may be determined based on specific indications.  Only certain indications will be considered on-formulary for the given drug, while other indications will not be covered.  For non-formulary-indication coverage, a patient or provider would need to submit an exception request to the health plan; this is identical to the process currently needed for a non-formulary drug to be covered.  Although a Part D sponsor can exclude drug coverage for an indication, they must provide formulary coverage for another therapeutically similar drug for that indication.  For example, a Part D plan may indicate that a specific TNF blocker (e.g. Remicade) is considered non-formulary for plaque psoriasis, since other TNF blockers (e.g. Humira, Cimzia) are on-formulary for this plaque psoriasis indication.

Medicare Part D plans wishing to implement indication-based formulary coverage will need to submit this information to CMS.  In order to capture the indication information, CMS will use a standardized terminology system, with Medication Reference Terminology (MED-RT) being referenced in the August 29th memo.  The submitted information will need to be put into Health Plan Management System (HPMS) file layouts and used to update the Medicare Plan Finder so that beneficiaries and physicians can accurately search for and compare plan formulary information.  CMS has indicated that detailed submission instructions will be provided to Part D sponsors in subsequent guidance.

Stakeholders should expect to see indication-based utilization management on 2020 Medicare formularies, especially for crowded drug categories with many competing brand manufacturers.  Indication-based coverage will be more prevalent in the specialty drug space, where prescribers are typically already including the indication when prescribing.  If indication-based coverage is implemented in the small molecule space, it may require a shift in prescriber habits, since many physicians do not currently include indications on these prescriptions.  The indication would be required to determine whether or not the drug was covered, and if not included, could result in numerous call-backs from pharmacies.  With the coming changes, having accurate formulary lookup tools in EHRs for prescribers to reference will become increasingly important.

By Ann Johnson


Published October 2018

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