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

DEA Drug Take-Back Day

Mark the calendar because October 27, 2018 from 10 AM to 2 PM is National Prescription Drug Take-Back Day! Each year thousands of unwanted prescription medications are left in medicine cabinets or thrown away and end up in the wrong hands. This event will allow YOU to take part in keeping the community safe by responsibly disposing of your unwanted medications.

Visit to find a location site near you and learn more about Drug Take-Back Day.

Certain medication that cannot be taken at the collection sites are liquids, needles, sharps, and anything that can be pressurized such as inhalers. Examples of medicine that can be taken at collection sites are any over-the-counter drugs and controlled or noncontrolled medications in tablet, capsule, or patch form.

If you cannot make it to the scheduled event to dispose your medication, you can use the DEA’s collection site locator to find authorized collectors in your area all year-round.


PQA Opioid Core Measure Set

The Pharmacy Quality Alliance (PQA) has released performance measures to create metrics that measure and help address the opioid epidemic.  The PQA Opioid Core Measure Set includes 4 measures that can be analyzed to help ensure safe and appropriate prescribing of opioids. The fours measures are:

  • Use of Opioids at a High Dosage in Persons without Cancer (OHD)
    • Proportion of individuals with daily dosage >120 MME for 90 or more consecutive days
    • Excludes hospice and cancer patients
    • Used in both Medicare Part D Patient Safety and Medicaid Adult Core Set
  • Use of Opioids from Multiple Providers in Persons without Cancer (OMP)
    • Proportion of individuals with four or more prescribers AND four or more pharmacies
    • Excludes hospice and cancer patients
    • Used in Medicare Part D Patient Safety
  • Use of Opioids at High Dosage and from Multiple Providers in Persons without Cancer (OHDMP)
    • Proportion of individuals with daily dosage >120 MME for 90 or more consecutive days, AND patients who received opioid prescriptions from four or more prescribers AND four or more pharmacies
    • Excludes hospice and cancer patients
    • Used in Medicare Part D Patient Safety and planned for 2019 Part D display page
  • Concurrent use of Opioids and Benzodiazepines (COB)
    • Percentage of patients 18 years and older with concurrent use of prescription opioids and benzodiazepines for 30 or more cumulative days
    • Excludes hospice and cancer patients
    • Used in Medicare Part D Patient Safety and planned for 2021 Part D display page, also used in Medicaid Adult Core Set

These 4 measures have been utilized by the Centers for Medicare & Medicaid Services (CMS), which are reporting all four PQA opioid measures in their Medicare Patient Safety reports.  The Part D display page will incorporate the measure assessing high dosage and multiple providers (OHDMP) in 2019. The Medicaid Adult Core Set of 2018 includes PQA’s opioid high dosage (OHD) and concurrent opioid and benzodiazepine (COB) use measures.

The PQA has formed a taskforce that is developing 3 new measures focused on initial opioid prescribing. These 3 measures relate closely to the recent opioid guidelines from the CDC advising providers to what to avoid the following when starting opioid therapy:

  • Percentage of patients with Long-Acting/Extended Release Opioids prescriptions
  • Percentage of patients with 50 or greater morphine milligram equivalents (MME) per day
  • Percentage of patients with more than 7 days’ supply

These 3 new measures will be completed and added to the Opioid Core Measure Set in 2019 for providers to assist in ensuring appropriate use of opioids.

According to the CDC a dose of 20-50 MME/day is considered a low dose.  The risk of death and overdose is directly proportional to the MME amount and a higher MME has not shown to reduce pain over time. Therefore, higher doses will increase the risk of harm to the patient without providing any benefit of pain relief. The Veterans Health Administration (VHA) reported between 2004 and 2009, patients who died of opioid overdose were prescribed an average of 98 MME/day. To put this in perspective 50 MME/day is equivalent to:

  • 50mg of hydrocodone (10 tablets of hydrocodone/acetaminophen 5/300)
  • 33mg of oxycodone (roughly 2 tablets of oxycodone sustained-release 15mg)
  • 12mg of methadone (<3 tablets of methadone 5mg)

Providers should refrain from starting a patient on long acting formulations of opioids to decrease the risk of dependency and overdose. However, the OHD, OMP, OHDMP, and COB measure sets may be considered too liberal to change patient outcomes.   A patient who has an opioid abuse problem can easily be under the proposed thresholds and therefore the results of each measure may exclude patients with opioid problems.  These metrics will likely be refined once the they are used and evaluated in the market.


Published September 2018

“What Happens When We Run Out of NDC Numbers?” – FDA Announces Public Hearing

Just over a year ago, I wrote an article published in Computer Talk for the Pharmacist titled “What Happens When We Run Out of NDC Numbers?”  Many may have thought that there was still plenty of time to address the issue of running out of NDC labeler codes or that maybe this was not an immediate concern.

Now there is an indication that this issue is real.  The FDA announced a public hearing November 5, 2018 to consider the future format of the NDC.  A change will be necessary when the agency runs out of 5-digit labeler codes.  The FDA states it is aware that any modification to NDC format or length will impact all systems that use the NDC.

In my article last year, I posed several questions to start a discussion regarding this issue.  Length and utilization of alphabetical characters were two topics to consider.  The FDA is proposing four options regarding NDC length and some general questions to contemplate while studying the options.  PHSI encourages our readers to review the options and ask themselves the questions posed by the FDA.

FDA’s options A and B are the status quo, but at some point, the FDA will start assigning 6-digit labeler codes which will result in NDCs in five different configurations – the three currently used: 4-4-2, 5-3-2, and 5-4-1, plus two new configurations: 6-3-2 and 6-4-1.

FDA option C converts the current FDA 10-digit NDC to the 11-digit NDC format used by pharmacies and in claims processing systems.  When the FDA runs out of 5-digit labeler codes, it will begin assigning 6-digit labeler codes to be used in 6-3-2 and 6-4-1 formats.  A potential concern with this option exists because it could possibly lead to an identical 11-digit NDC for two different products, one with a 6-digit labeler code and the other with a 5-digit labeler code.

FDA option D has the FDA “harmonizing” NDC assignment by moving to a uniform NDC in a 6-4-2 format at a future date.  This results in every current 10-digit NDC being converted to a 12-digit NDC.  The FDA will give the industry time to prepare for this major change, but the industry MUST be ready when it is time for the FDA to assign the first 6-digit labeler code and requires NDCs to be presented in the 6-4-2 format.

I like Option D because it is the change that will take the industry well into the future without needing to resolve potential issues caused by Options A, B, and C.  However, I question if there is going to be expansion of the NDC and all the fields that accommodate the NDC, why not take it further, such as up to the 19 digits already allocated in the NCPDP standard?

For example, using the same format basis used now, create an 8-8-3 format.  Even though the addition of a digit to each section of the NDC exponentially increases the number of NDCs available, there may be a need to differentiate newer products (e.g., a radiologic, or a new dosage delivery system) at the product or package size level requiring an extra digit or two.  Sometime in the future there might be a move toward real harmonization of the various identifiers for health care products, such as the NDC and the UDI, which might require an extra digit or two to help with harmonization and differentiation.  It is also possible one or two digits would be needed to identify a product number as an NDC or UDI (like the UPC value used to do that), which might require the creation of a fourth partition.  These are ideas that stakeholders using NDC numbers need to consider when thinking about their response to the FDA options.

The industry needs to assess this situation, voice their position on each option, and consider the lead time required to implement any of the changes required by the final resolution.  I mentioned in my article last year that it would be better if the industry initiated the effort as opposed to the government.  Now the government is facilitating a discussion.  In one response, NCPDP’s Maintenance and Control Work Group has reactivated its NDC Scarcity Task Group to prepare comments on the proposed FDA options.  It is important the industry participates to prevent a government mandate with an aggressive timeline that does not meet industry needs.

By Dave Schuetz


Published September 2018


2018 Fall Newsletter:

Formulary Exclusion Lists for 2019

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Medicare Part B Allowing Step Therapy

The Centers for Medicare & Medicaid Services (CMS) announced a change in guidance on the use of step therapy on Part B drugs in Medicare Advantage plans.  In 2012, CMS prohibited the use of step therapy on Part B drugs.  CMS reversed that decision and will now permit the use of step therapy.

The CMS change becomes effective January 1, 2019 and allows the use of step therapy for new patients initiating therapy on a Part B drug.  Patients receiving Part B drugs today are excluded from the step therapy requirements.  The existing exception process for Part B drugs allows beneficiaries to bypass the preferred product for medically necessary conditions.

This change will allow Part B plans to guide therapy to preferred products for new patients.  By regulation, the Medicare Advantage plan’s preferred option in the step therapy must be a covered Part B or Part D drug.

Biosimilars may experience increased use on Medicare Advantage plans if they receive preferred placement in the step therapy protocol.  Originator biologics remain available to those receiving treatment before the step therapy implementation or for medical necessity exceptions.  Medicare Advantage plans use of step therapy on Part B drugs may accelerate biosimilar uptake in the future.


Published September 2018

Medication Adherence Metrics

The two most widely used approaches for calculating medication adherence are medication possession ratio (MPR) and proportion of days covered (PDC).

The MPR is likely to overestimate adherence levels because the formula does not account for early refills. Using MPR to measure adherence can produce outcomes greater than 100. Consider if a patient were to pick up their prescription for 30 tablets of atorvastatin 40mg taken once daily and came back to the pharmacy 25 days later to refill this prescription. In this case, the patient would be five days early picking up their atorvastatin refill. The sum of days’ supply for all fills in the refill period is 30 while the number of days in the refill period would be 25. MPR would be 1.2. This problem was resolved by the PDC adherence measurements.


PDC caps the adherence rate at 100 because the PDC accounts for patients that refill their prescriptions early. The overlapping days’ supply on an early refill will be moved forward to the first day that the patient would not have medication from their previous prescription fill. PDC has been endorsed by Pharmacy Quality Alliance (PQA). The Centers for Medicare and Medicaid Services (CMS) have incorporated PDC as the medication adherence metric for plan ratings. PHSI recommends use of the PDC when calculating patient adherence.


Published June 2018

Increasing Naloxone Access

In April 2018, U.S. Surgeon General Jerome M. Adams issued a statement urging more Americans to carry the opioid overdose reversal agent, naloxone. This recommendation was not aimed exclusively at illicit drug users, rather it targeted patients taking prescription opioids, family and friends of someone taking an opioid, and community members who encounter individuals at risk for opioid overdose. Within his statement, Dr. Adams said: “knowing how to use naloxone and keeping it within reach can save a life.”

The emergent need to address opioid abuse in the U.S. has magnified as the number of related deaths has soared in recent years. The number of annual deaths to opioid overdose has doubled since 2010 and quadrupled since 1999. Over 42,000 Americans lost their lives to opioid overdose in 2016. As a result, President Trump released an October 2017 statement declaring the opioid epidemic a public health emergency. Of note, 77% of overdose deaths occur outside of a medical setting, with more than half occurring at home. The fact that so many overdose deaths occur away from medical settings shows the potential impact that increasing naloxone distribution could have.

The pharmacy industry is well poised to help increase access to naloxone.  All 50 states have passed naloxone access laws as of 2017, allowing measures to make the drug easier to obtain, including access to naloxone without a doctor’s prescription in most states. Many pharmacies have seized the opportunity of these laws and make naloxone available for purchase without a prescription where permitted.

Efforts to combat the opioid epidemic are multifaceted.  The Surgeon General’s statement highlights the importance for all of us to take action and potentially acquiring naloxone to have readily available if needed.  No one knows when that time may come but being prepared by having naloxone available will save lives.


Published April 2018

Drug Take Back Day is April 28th!

National Prescription Drug Take Back Day is Saturday April 28th, 2018 from 10 AM to 2 PM, to take back unwanted prescription drugs.  This will be the 15th National Take Back Day, which aims to provide a safe, convenient and responsible means of disposing of prescription drugs while educating the public about the potential for abuse of prescription drugs.  For more information on Drug Take Back Day and to find a collection site near you, please visit


Published April 2018

Hospitals Forming New Generic Labeler

Intermountain Healthcare along with several other hospitals announced the creation of a not-for-profit generic drug labeler.  This new entity intends to sell generic pharmaceuticals for use in hospitals where supply availability has been challenging and costs have risen.  The U.S. Department of Veterans Affairs is also involved but has provided no financial support.  Hundreds of hospital systems have inquired about the new venture and over one thousand hospital systems may eventually participate.

The not-for-profit labeler targets the first quarter of 2019 to begin supplying product.  The new venture plans to deliver up to 20 products.  The hospitals expect to save money by signing long term agreements.

Marc Harrison, MD, President and Chief Executive Officer of Intermountain Healthcare stated in an interview that if the issues with generic pharmaceuticals ended today, the hospitals would stop the project because it would be unnecessary.

PHSI’s Assessment

These hospital systems underestimate the challenges ahead.  Established competition already exists and will not disappear.  The laws of supply and demand are a primary factor in current product availability and cost; whether the generic manufacturer has a profit motive is not a primary factor.  For-profit generic manufacturers have the incentive to produce and sell products where there is sustainable demand and profitably pricing opportunities.  Generic manufacturers are not ignoring their customers and planning on limiting their product sales.  There are challenges with access to quality active pharmaceutical ingredients (API), FDA regulations, and quality injectable manufacturing capacity.  Manufacturing generic injectable products is difficult and requires substantial investment to create and maintain a production facility.  When experienced manufacturers have challenges with manufacturing sterile injectables, how will an upstart project without experience do any better?

Do you think this new venture will succeed?


Published March 2018

Outcomes Based Agreements (OBAs)

Through value-based drug contracts, payments for medications are based on the value they provide to patients. Value-based contracts can include indication-based pricing, outcomes-based agreements (OBAs), and cost cap-based contracting. OBAs have gained publicity for their innovative approach to pharmaceutical contracting. OBAs tie the compensation for a medication with the clinical performance/outcome in a specific patient population. Manufacturers are motivated to participate in OBAs by increased market access for their products, while payers are motivated by risk sharing with the manufacturer.

The biggest challenge for both manufacturers and payers is identifying and measuring outcomes. The outcome measurement must accurately reflect the drug’s intended effect and be readily available. Surrogate markers such as LDL and A1C may be used as they are more easily measured and tracked. Once manufacturers and payers agree on an outcome measure, they must determine how the metric will be monitored. The operating cost to monitor the outcomes must be evaluated. Because of these constraints, the number of OBAs currently implemented in the U.S. are limited. Products that have established OBAs include Harvoni, Repatha, Kymriah, Luxturna, and Entresto.

OBAs are expected to grow and their use will likely be restricted to high cost, brand drugs with specific and measurable outcomes. Further use of OBAs can help to assess the economic impact of costly new therapies on patient outcomes and overall health spending with a focus on pharmaceuticals.

Do you think that OBAs will decrease spending on prescription drugs or healthcare as a whole? What drugs do you think would be ideal candidates for OBAs? What other benefits do OBA’s provide for payers?


Published February 2018