Formulary Strategy Planning for 2020-Indication Based Formulary Design Considerations

By December 1, 2018CMS, EOC, FDA, Part D

The 2019 plan year has not commenced, yet plans are already developing formulary strategies for 2020. Indication-based formulary designs will add a new twist for plan sponsors to consider as part of their overall formulary strategy.

Beginning in the 2020 contract year (“CY2020”), the Centers for Medicare & Medicaid Services (“CMS”) will permit Part D sponsors to implement indication-based formulary designs that tailor formulary coverage of drugs predicated on specific indications.  Using this formulary design, a Part D sponsor’s formulary may cover a given drug for only certain U.S. Food & Drug Administration (FDA)-approved indications.  CMS anticipates this will provide Part D sponsors with enhanced negotiating power over drug manufacturers and may help them negotiate reduced prescription drug prices, especially as related to high-cost drugs.

If a Part D sponsor intends to limit on-formulary coverage of drugs to certain indications in CY2020, it should consider taking the following steps:

  • Begin planning negotiations now with drug manufacturers for CY2020 formulary inclusion;
  • For each drug for which only certain FDA-approved indications will be on-formulary in CY2020, ensure there is another therapeutically similar drug on-formulary for the other, non-formulary indication(s);
  • When designing the CY2020 formulary, be sure to follow all current formulary requirements, as outlined in 42 CFR § 423.120(b)(2) and Chapter 6 of the Medicare Prescription Drug Benefit Manual;
  • Submit indication information in HPMS for CY2020, using detailed submission instructions from CMS (to be released in future guidance);
  • Update CY2020 beneficiary materials to ensure that indication limitations are displayed to prospective enrollees;
  • Disclose in the member CY2020 Annual Notice of Change (ANOC) (in the “Changes to Part D Prescription Drug Coverage” section) and Evidence of Coverage (EOC) (in the “Using the Plan’s Coverage for you Part D Coverage” section) that some drugs may be subject to indication-based formulary requirements;
  • After the indication-based formulary is implemented in CY2020, a Part D sponsor should update its policies and procedures so that if a beneficiary requests coverage for an excluded indication for a particular drug, the Part D sponsor treats this request as an exception request for an off-formulary drug. Part D sponsors should train staff on this updated policy and procedure.

The ability for Part D sponsors to implement an indication-based formulary design is a change from existing CMS policy.  Currently, CMS policy requires Part D sponsors to cover all indications that are approved by the FDA for each on-formulary drug, except for those uses that are statutorily excluded from Part D coverage.

However, as reiterated in its July 25, 2018 memo, current CMS policy permits Part D sponsors to deploy indication-based utilization management (“UM”) strategies in their formulary design by using CMS-approved prior authorization (“PA”) and step therapy-like requirements to promote cost-effective drug therapy.  Such approved UM strategies require beneficiaries to use a preferred formulary agent for a certain indication prior to authorizing coverage of a non-preferred formulary agent for that indication.  CMS also currently permits Part D sponsors to vary these requirements across indications.  If a Part D sponsor applies this type of UM strategy, the Part D sponsor must clearly define the requirements in its HPMS formulary submission and accompanying PA criteria.