Indication-based Formulary Design Chases Medicare Market

June 12, 2019

CMS introduced indication-based formularies as a voluntary tool for plans to implement in 2020.

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.

Related article: CMS Proposes Actions to Lower Prescription Drug Costs: 4 Things to Know

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.

“Determining payments for and coverage of drugs based on indication has the ability to undermine personalized medicine and the ability for patients to receive treatments appropriate to their unique health characteristics, as well as the ability of physicians to prescribe the most effective course of pharmaceutical treatment for their patients. A blunt indications-based pricing model that assumes an identical clinical response to a particular drug for all patients across age groups, gender, racial/ethnic characteristics, genotypes, etc., could lead to certain subgroups of patients not having access to a medication, even though it may be fully effective in their particular subpopulation. It also needs to be assessed how indication-based pricing would impact the ability of physicians to prescribe drugs for their patients for conditions other than which they have been officially approved.

“In short, the CMS proposal to allow indication-based formulary design does not comply with AMA policy on incorporating value into pharmaceutical pricing.”

Miller says that the AMA is opposed to the new model because physicians don’t want plans handing down requirements and restricting access. In addition, he notes that physicians do not have sufficient information about which drugs are covered on various formularies and often must play a guessing game. “There is a lack of interoperability between plan, a doctor’s EMR, and a PBM,” he says.

On the other hand, the Pharmaceutical Research and Manufacturers of America (PhRMA) believes that approaches to indication-based coverage must continue to support patient access to the medicines that best meet their needs, as well as support innovation. “It is also important to consider how any policy on indication-based coverage interacts with existing beneficiary protections and other structural aspects of the Part D program,” says Tom Wilbur, spokesperson for the trade organization that represents drug manufacturers.

Advantages of indication-based formulary

Miller says an indication–based formulary would provide a mechanism to put a drug with multiple indications on a formulary for a specific indication instead of excluding it altogether. To avoid covering a drug, plans could choose to give a drug non-formulary status, thus adding an additional barrier to access.

For example, a drug approved for three different cancers-renal, lung, and breast- might be the best choice for renal cancer but not for the other two indications.

“Therefore, by allowing the drug to be on a formulary for renal cancer only opens it up to additional formulary access where the drug would otherwise be completely excluded to prevent it from being used for breast cancer or small cell lung cancer,” Miller says.

Related article: Formulary Drug Exclusions on the Rise: What Health Execs Should Know

“This could make life easier for specialists,” he says. “Access to drugs for one particular indication makes a non-formulary drug available when it might otherwise not be.”

Harold Carter, senior director, clinical solutions, Express Scripts, a PBM headquartered in St. Louis, says that oncology and inflammatory diseases present conditions that would most likely be affected by indication-based formulary design-given that both have many indications and drugs to treat them.

“It is important to have clinical data to determine which drugs to promote based on effectiveness and to see how patients respond-not just which drugs will save an insurer money,” he says.

Express Scripts has deployed an indication-based formulary for inflammatory and oncology conditions since 2017. During the first year using the model, 25% of clients enrolled in the PBM’s Inflammatory Conditions and Oncology Care Value programs experienced negative cost trend for those therapy classes. As many as 35 million lives are enrolled in Express Scripts’ two care value programs.

“Historically, we have observed a higher rate of discontinuation and switching in the inflammatory conditions class when patients first start on therapy if a therapy isn't working as needed or side-effects are not manageable,” Carter says. “In 2016, we observed that up to one-third of patients with a new prescription for an inflammatory drug discontinued therapy in the first 90 days to switch to a different medication. Part of the cause of this trend was that despite there being more than 15 available inflammatory therapies on the market, only two were widely prescribed. Early discontinuation and switching are not beneficial for the patient, and also generate a lot of waste and unnecessary cost.”He says that the PBM observed an early discontinuation drop of 30% through its Inflammatory Conditions Care Value program in 2018, partly because indication-based reimbursement provides patients with access to a greater number of preferred therapies, which allows them to start on a medication specifically indicated for their condition.

“Plans must ensure they understand clinical data (in the real world) first and then bring cost effectiveness into the equation,” Carter says. He also notes that it is important to learn how to execute indication-based formularies on the physician level through education; implementing an electronic prior authorization process; and realizing how these formularies relate to value-based arrangements-how well are patients performing on them, cost savings, and outcomes.

Both Cournoyer and Miller concur that plan sponsors would accrue more discounts by negotiating different rates per indication rather than aggregating costs. For example, a drug approved for five indications might generate a flat rate of 40%, while discounts on individual indications could be higher.

Related article: The 5 New Pharmacy Care Models

“It’s important to determine an appropriate drug mix yielding the highest discounts,” Cournoyer says. “However, that will only happen if rebates still exist.”

What will 2020 bring?

Miller says it will be interesting to see how the new formulary ruling will play out. “Plans might opt out of the new model because they don’t want to violate protected classes and stay with prior authorization,” he says.

Cournoyer agrees that the impact of the new model will probably be small because only 15% of the population is covered under Medicare and only 5% of drugs are considered specialty.

Carter says that indication-based formulary design is growing in the commercial space, but that plans are not yet taking full advantage of it. “If private plans have not already used the model, they will need guidance,” he says.

Mari Edlin, a frequent contributor to Managed Healthcare Executive, is based in Sonoma, California.