CMS Greenlights Indication-Based Formulary Design: What Do You Need to Know?

In its latest effort to implement the Trump administration’s plan to address concerns over the cost of drugs, the Centers for Medicare and Medicaid Services (CMS) announced that Part D drug plans can begin applying indication-based criteria to formulary design beginning in 2020.

At its core, indication-based formulary design allows payers to cover drugs differently based on the therapy’s indication. For example, payers could apply lower patient cost-sharing amounts or reduced utilization management protocols (prior authorization, step therapy, etc.) when a drug is prescribed for particular conditions. While commercial payers have been moving toward such models in recent years, CMS has previously ruled against this practice for the Part D program. The new provision will allow Medicare drug (Part D) plans to employ such models beginning in 2020.

As with most every policy proposal, particularly in complex areas like drug formularies, the full scope of this change will be further defined in future guidance. Patient groups may have the most at stake, particularly for populations where medications are indicated for multiple conditions.

For patients, indication-based formularies, at their best, could create improved access to more efficacious therapies. If payers can determine formulary placement at the condition level, they can facilitate access (or enhanced access) to the drug for certain conditions but not others. Based on what has occurred in the commercial marketplace, this proposal would most significantly impact higher-cost drugs that have received FDA approval for multiple conditions.

For example, in 2016, pharmacy benefit manager (PBM) Express Scripts launched an Inflammatory Conditions Care Value Program oriented around each condition rather than the larger drug class. In launching the program, Express Scripts touted its ability to more precisely manage the formulary and its potential to improve access to drugs that are more narrowly indicated — and which may not have been covered under many benefit plans.

The merits of indication-based formulary design, as noted above, are considerable, but so is the consumer education task associated with explaining it.

If this policy change enables Part D beneficiaries to obtain earlier and more affordable access to drugs that may have limited coverage today despite their high degree of efficacy, beneficiaries could be winners. But conversely, beneficiaries who respond favorably to a drug treatment deemed to be less-efficacious for their condition could face challenges accessing the drug.

A number of important questions remain. First and foremost, what data would Part D plans use as the basis for indication-based formulary decisions? Product manufacturers are likely to be concerned about the use of data from the Institute for Clinical and Economic Review (ICER) or similar entities that seek to evaluate the monetary value of therapies. And with the FDA focused on drug efficacy and safety (and not cost), there is no government entity tasked with making such value determinations.

Indication-based formularies would also necessitate a change, at least in part, to existing rebate arrangements between PBMs and manufacturers if a drug will be covered differently depending upon the condition being treated.

Another question being asked is if such a proposal would actually advance the goal of limiting or controlling drug prices. Despite the intention to enable payers to provide value-oriented care by allowing a more nuanced coverage policy based on a drug’s impact on a single condition, some stakeholders — like the Pew Charitable Trust — have expressed concerns that manufacturers may respond by increasing the price for such uses, negating the proposal’s intent. At the same time, however, it could expose some manufacturers to additional competition from more limited-use drugs for particular conditions.

For Part D plans and CMS, the public education side of this policy change poses obvious challenges. Part D is already a complicated benefit governed by different types of cost sharing, utilization management tools (such as prior authorization requirements), and newly loosened formulary stability rules that are likely to increase the number of mid-year coverage changes. The merits of indication-based formulary design, as noted above, are considerable, but so is the consumer education task associated with explaining it.

Ultimately, all stakeholders, especially patient advocates treated by therapies indicated for multiple conditions, will want to pay close attention to the process going forward and actively engage CMS, legislators and others about their hopes and concerns. Data on patient access from commercial payer indication-based pricing scenarios, even if limited, could also prove useful to supporting advocacy efforts.