CMS Introduces Flexibility to Part D Formularies

CMS has announced they will give health plans the option to adopt new formulary design strategies that improve consumer choice as well as lower drug prices.

According to the memo from CMS, payers will be able to utilize indication-based formulary design. This design, currently used in the private sector, will enable Part D plans to negotiate lower prices for patients. Further, targeted formulary coverage based on indication also provides Part D beneficiaries with more drug choices.

“This action delivers on President Trump’s drug pricing blueprint by offering Medicare plans new tools to negotiate lower drug prices and offer patients better choices,” HHS Secretary Alex Azar, said in a statement. “This is a significant step in modernizing the successful Medicare Part D program by giving plans the tools that serve patients well in the private sector.”

Currently, Part D’s formulary method requires payers to include all related FDA-approved drugs into a treatment formulary for a single condition. According to the agency, the requirement to cover drugs in this manner can potentially discourage Part D plans from including additional drugs on their formularies. Further, this requirement can limit the power to negotiate discounts. 

CMS believes this formulary design will put Part D health plans in a better position to negotiate drug prices with manufacturers, since plans can now choose individual medications to include in formularies. Based on the new memo, plans will have more flexibility to tailor their formularies so different drugs can be included for different indications. 

“For example, if a tumor necrosis factor (TNF) blocker is FDA-approved for both Crohn’s disease and plaque psoriasis, but the Part D plan will include it on the formulary only for plaque psoriasis, the plan must ensure that there is another TNF blocker on formulary that will be covered for Crohn’s disease,” CMS explained.

Health plans must provide therapeutically similar drugs on a formulary for the drug’s non-covered indications under the new methodology.

The new policy is expected to increase the number of drugs available on a given plan’s formulary and the diversity of plan formularies available. 

“President Trump and Secretary Azar are working to get the best deal for American patients,” CMS Administrator Seema Verma, MPH, said in a statement. “By allowing Medicare’s prescription drug plans to cover the best drug for each patient condition, plans will have more negotiating power with drug companies, which will result in lower prices for Medicare beneficiaries.”

Plans will be able to switch to the new formulary method beginning in 2020. Further, in order to help ensure that enrollees understand their coverage, CMS has emphasized it will update online tools that beneficiaries use when selecting a Part D plan. CMS will ensure that beneficiaries will see that a plan’s coverage for a drug varies by indication before they make a choice in 2019 for their 2020 plan.

—Julie Gould