Effects of Indication-Based Formulary Design

A recent Centers for Medicare & Medicaid Services (CMS) announcement has seemingly come and gone without the amount of discussion I thought we would see when I first heard about it. As I read that Medicare Part D plans would be allowed to design their formularies by indication starting in 2020, I recognized that this has the potential to affect the managed care industry well beyond just Part D plans. Although CMS policies for Part D plans do not directly affect other areas of managed care, there is an undeniable link in practice and in vocabulary to non-Medicare plans. Concepts and practices such as avoiding exclusions within protected classes and using standard levels of evidence for evaluating medically accepted uses of a drug have benefited from a strong CMS standard.

I believe that part of the reason we may not be hearing much about this recently announced change is related to a sentiment I have heard from more than one colleague. They have told me that they believe this change toward indication-based formulary design is just CMS catching up to the rest of the industry. Many commercial plans, for example, have driven formulary preferred agents by indication through prior authorization requirements in certain therapeutic areas. I do agree with my colleagues to a point. Where I do think the CMS change will have an impact however is in how the industry talks about these practices and what potential changes in vocabulary and perception may mean for rebate contracting.

I have personally taken part in discussions among formulary decision makers within PBMs and health plans where frustration was expressed amount the lack of indication-based rebate contracting opportunities available. Many plans would like to create drug preferencing based on price and clinical information for drugs related to specific disease states in order to drive to the best possible drug for a specific indication. A shift toward this way of thinking could be quite beneficial in classes such as autoimmune diseases and oncology. The problem most plans have found is hesitation from manufacturers to offer these kinds of indication-based contracts. An overall market shift to allow this kind of contracting could be a win for all parties as it would provide access to the most cost-effective treatments for a member’s actual condition.

As the Medicare space begins to shift the mindset of plan sponsors, manufacturers, and members toward formulary coverage based on indication; I believe it will help shift the mindset industry-wide. Manufacturers will become used to the idea of contracting based on indication and I believe they will see a positive impact of doing so on their business interests. This likely will not be an instantaneous shift in the managed care and drug industries, rather it will be a gradual conversion to using indication within formulary design and contracting as an industry standard. It may happen without much notice as it goes along, but looking back years from now I think we will be able to pinpoint this CMS decision as a turning point in this change.

While the CMS announcement to allow Part D plans to design formularies based on indication is not an earth-shattering change to formulary operations, I think it will trigger an important shift in how the industry talks about and perceives indication-based evaluation within managed care. I believe this will be a win for most, if not all, parties involved as it should allow patients access to better drugs for their condition while keeping costs lower and providing utilization for a manufacturer’s product earlier in treatment. As this is implemented in 2020, it will be important to keep an eye on the progress and how we can use it to better manage our populations and related drug coverage costs.

Russ J Spjut, PharmD, is owner of Formulary Intel Consulting. He is a residency trained pharmacist in managed care with experience in both commercial and Medicare Part D PBM operations. He has been involved in formulary management, P&T committee presentations, clinical program development, formulary strategy, clinical analysis, client management, and review of coverage determination requests for a major health care management company.

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