Initial Adoption of Indication-Based Formularies as a Formulary Management Tool

In August of 2018, CMS announced that Medicare Part D Sponsors have the option to use indication-based formularies starting January 1, 2020.  Prior to this change, formulary medications were considered covered under the Part D benefit if they were being used for a labeled or compendia-supported indication.  Sponsors that choose to use indication-based formularies can tailor Part D drugs to specific indications instead of opening up to the drug to all labeled or compendia-supported indications.  However, the Part D Sponsor must ensure they cover other formulary medications that can be used to treat the other labeled or compendia-supported indications that would no longer be covered by indication-based medication.  CMS states this policy change is an effort to broaden formularies while enabling Part D Sponsors additional flexibility to negotiate lower drug prices.

Using the data from Medicare Part D Sponsor’s 2020 formularies within the Public Use Files, 19 different organizations submitted at least one drug to CMS with a specific covered indication in 2020.  Of these organizations, 17 only submitted Acthar for their indication-based formulary with the indication for treating infantile spasms.  This product can be over $40k per prescription and it may be very costly to utilize this product for other indications that can be treated with less expensive drugs.

Other products that were approved for an indication-based formulary in 2020 include Tumor Necrosis Factor (TNF) Blockers (Humira, Cimzia, Simponi, and Stelara) as well as interleukin antagonist drugs (Stelara, Kineret, and Taltz).

Currently, Part D sponsors utilize step therapy-like requirements within their prior authorization criteria to administer indication-based formularies.  For those drugs that are FDA labeled for an indication, or meet the compendia requirements, they would need to fail or be unable to take the preferred agent for a specific indication. Part D sponsors could have a significant savings by adopting indication based formularies, as they could designate less expensive agents as first line and/or contract with manufacturers for this preferred position in order to drive costs of therapy lower.  However, there are reasons why more plan sponsors did not adopt indication-based formularies and why more drugs were not included in indication-based formularies for 2020.  There are several operational changes that would need to be considered in terms of how this change impacts operational areas including claim adjudication, marketing, customer service, and the prior authorization department.  It is recommended any organizations interested in moving forward with indication-based formularies perform a full evaluation of their PBM or internal operations to ensure all areas and staff are fully equipped to support this new process.

Several plans may be using calendar year 2020 as a test run for indication-based formularies and only time will tell if the Part D industry fully adopts this additional indication-based utilization management strategy in future years.