Indication-Based Formulary Design in CY2020

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.

BluePeak Advisors can help pharmaceutical companies with strategies to minimize the impact of this new CMS policy.  We can also assist you with any questions about this federal policy or any other Medicare, Medicaid or Commercial requirements. Call us for a free consult today.