Fact Sheets

Indication-Based Formulary Design Beginning in Contract Year (CY) 2020

Indication-Based Formulary Design Beginning in Contract Year (CY) 2020
CMS action will ensure Medicare enrollees receive individualized drug treatment targeted to meet their needs

Today, the Centers for Medicare & Medicaid Services (CMS) announced additional flexibilities in the Medicare Part D program to allow for innovative formulary design as a valuable approach to expand drug choices and address the challenge of high drug costs for seniors and government programs. As part of the agency’s ongoing efforts to deliver on President Trump’s promises outlined in the HHS drug pricing blueprint, CMS will provide Medicare Part D plan sponsors with additional formulary management tools that will put patients’ needs first by facilitating access to broader formularies while also enabling sponsors to negotiate lower drug prices. Medicare Part D plan sponsors will have the choice of implementing indication-based formulary design beginning in CY 2020.

What is Indication-Based Formulary Design?
Indication-based formulary design is a formulary management tool that allows health plans to tailor on-formulary coverage of drugs predicated on specific indications. Under this type of formulary design, health plans have the ability to negotiate formulary coverage based on specific indications. 

How is this Different from Existing Policy?
Existing CMS policy requires that if a Part D plan includes a particular drug on its formulary, the plan must cover that drug for every indication approved by the U.S. Food & Drug Administration, except for those uses that are statutorily excluded from Part D coverage, even if the plan would otherwise instead cover a different drug for a particular indication. Medicare Part D plan sponsors are able to use utilization management tools, such as step therapy and prior authorization requirements to promote cost-effective drug therapy by encouraging the use of preferred formulary agents.

This new guidance expands upon our existing policy by allowing Medicare Part D plan sponsors to tailor which drugs are on their formulary by specific indications, starting in CY 2020. This will provide Medicare Part D plan sponsors additional negotiating leverage with manufacturers, which can reduce beneficiary and program costs. If a Medicare Part D plan sponsor chooses to tailor on-formulary coverage of drugs to certain indications, it must ensure that there is another therapeutically similar drug on the formulary for the non-covered indication in order to meet the anti-discrimination requirements described in section 1860D-11(e)(2)(D)(i) of the Social Security Act.

How will Medicare Enrollees Benefit?
We expect this will increase the number of drugs available on formularies and promote diversity of formularies. By virtue of these broader formularies and underlying negotiations, beneficiaries will be able to access more drugs at lower prices. Since this policy provides sponsors the flexibility to add a drug to their formularies for specific indications, as opposed to leaving the drug off of the formulary altogether, patients in need of the drug will have access to the negotiated price and will have to rely less on the appeals process. This formulary approach will help ensure Medicare beneficiaries receive individualized drug treatment that is targeted to meet their needs.

How will Medicare Enrollees Know Which Drugs Will be Covered and for What Indications?
Medicare Part D plan sponsors will be required to update their applicable CY 2020 beneficiary materials to ensure that the presence of indication limitations is displayed to prospective enrollees. If a Medicare Part D plan sponsor opts to implement indication-based formulary design for CY 2020, the plan must disclose that some drugs may be subject to these requirements in the plan’s Annual Notice of Change (ANOC) and Evidence of Coverage (EOC) documents. In addition, Medicare & You will be updated to help educate beneficiaries that formulary coverage may also depend on the disease state, or indication, for which the drug is being prescribed.

To ensure Medicare beneficiaries are able to make informed enrollment decisions based on information available within the Medicare Plan Finder (MPF), the application of indication based management to a drug will be included in MPF for display under the drug coverage information section.

What Protections will a Beneficiary Have?
If a Medicare Part D plan does not include particular indications for a Part D drug on its formulary, requests for coverage of the drug for those indications will be treated similar to any other formulary exception request for an off-formulary drug. Part D transition requirements will still apply under this formulary design.

To view the memo that was sent to Medicare Part D sponsors, please visit:

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