Medicare usually sets the pace in healthcare, but in the case of indication-based formularies, CMS introduced the new model as an option for 2020 while it’s already available in the commercial marketplace.
Indication-based formulary design is a tool that allows health plans to negotiate formulary coverage based on specific indications. Currently, CMS policy requires Part D plans to cover a drug for every one of its indications approved by the FDA—even if a plan would otherwise have covered a different drug for a particular indication.
Under the new guidelines, spurred by President Trump’s blueprint to lower drug prices, Part D plans have the flexibility to choose a different drug for an indication by using step therapy and prior authorization to promote the most cost-effective option. With the change, an indication might be excluded from a formulary, but plans must ensure that there is another therapeutically similar drug on formulary to replace the non-covered indication. CMS will require plans to explain what the change will mean to beneficiaries.
“It is confusing for patients to decipher formularies especially when they have low healthcare literacy,” says Wayne Miller, RPh, vice president, pharmacy solutions, Gorman Health Group in Orlando. The AMA echoes his sentiment, saying the new proposal will confuse beneficiaries with its complex regulations.
CMS says the new formulary model will provide access to more drugs at lower prices and provide additional negotiating leverage with manufacturers. Part D plans and manufacturers will begin negotiations on drugs this fall for 2020 formularies.
Miller believes that CMS introduced indication-based formularies to encourage value-based benefit design by looking at cost and effectiveness to ensure each drug is truly the most efficacious for each of its indications.
He says that CMS expects indication-based formularies to reduce cost, provide flexibility to select drugs with best the outcomes, and accrue cost savings due to a reduction in the total cost of care.
Andrew Cournoyer, RPh, vice president, director, payer access solutions, Precision for Value, a consulting firm based in Gladstone, New Jersey, says indication-based formulary provides an opportunity to find the safest and most effective drug for each indication. He admits that the ability of indication-based formularies to improve outcomes has not yet been established.
He notes that the infrastructure—implementing claims, administration, prior authorization, and capturing utilization based on indications to help design contracts—is already in place due to experience in the commercial space.
AMA opposes indication-based formularies
The AMA provided its opinion on the new formulary in a July 2018 letter to HHS Secretary Alex Azar:
“Initiatives to determine value-based pricing for pharmaceuticals should aim to ensure patient access to necessary prescription drugs and allow for patient variation and physician discretion … While we recognize that certain drugs generally are more effective in treating certain diagnoses over others, making definitive payment and coverage decisions based on such generalities can have unintended consequences on patients being able to access and afford the prescription drugs they need.