CMS Allows Medicare Part D Indication-Based Formulary Design

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The Centers for Medicare and Medicaid Services (CMS) has just announced a significant shift in Medicare Part D formulary design to allow Part D sponsors to customize their formularies based not just on the drug, but also based on the drug’s indication, or the patient condition that the drug is intended to treat. Currently, drugs that are included on a Part D plan’s formulary must be covered for all FDA-approved indications for that drug, except those indications that are statutorily excluded under Part D. While Part D sponsors are permitted to use separate prior authorization approval criteria specific to a drug’s indication, this new policy goes a step further to incorporate drug indications directly into formularies themselves.

CMS will allow indication-based formulary design beginning with the 2020 plan year and all existing Part D formulary requirements will still apply once the change goes into effect. For instance, if a Part D sponsor limits formulary coverage of a drug to certain indications, it must still include a therapeutically similar, on-formulary drug for that non-formulary indication. Sponsors must also continue to process formulary exception requests made by beneficiaries and providers for excluded indications of on-formulary drugs.

While this change remains in the not-too-distant future, Part D sponsors, pharmacy benefit managers (PBMs) and pharmaceutical manufacturers will soon be negotiating formulary inclusion and pricing well in advance of the 2020 plan year. In addition, Part D sponsors and PBMs must begin planning for operational changes as well, including possible impacts to the Pharmacy & Therapeutics Committee evaluation process for approving formularies, an expected increase in the volume and complexity of formulary exception requests and a redesign of Medicare Plan Finder and other beneficiary notices and materials.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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