CMS loosens restrictions on Part D drug formularies to allow indication-based coverage

Drugs and money
CMS will allow "indication-based formularies" among Part D plan as another tool to lower drug costs. (Getty/LIgorko)

The Trump administration is changing the way Part D plans construct drug formularies, offering more flexibility for sponsors to add or exclude drugs based on a particular indication.

Officials say the change adds a significant negotiating tool for plan sponsors to lower the cost of drugs.

Known as “indication-based formulary design,” the approach represents another notch in President Donald Trump’s drug pricing blueprint. The Centers for Medicare & Medicaid Services (CMS) announced the change, effective Jan. 1, 2020, in a memo (PDF) to Part D plan sponsors on Wednesday.

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“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,” CMS Administrator Seema Verma said in a statement.

Currently, Part D plans are required to cover every FDA-approved indication for each drug on their formulary. In the private sector, insurers frequently tailor formulary coverage based on specific patient condition, providing a negotiating lever with pharmaceutical manufacturers.

RELATED: Trump targets Medicare, PBMs in plan to lower drug prices

CMS says the change will increase the number of drugs available to Part D beneficiaries as well as the diversity of plan formularies. Sponsors that elect to limit drug coverage based on certain conditions must ensure there is a therapeutically similar medication for nonformulary indications.

“Providing Part D plans with the flexibility to employ the latest formulary tools would enable them to better negotiate for prescription drugs, especially high-cost drugs,” the memo states. “The ability to exclude drugs from their formulary for specific indications will provide additional negotiating leverage with manufacturers, which can ultimately reduce beneficiary and program costs.”

CMS plans to update the online tools beneficiaries use when selecting their plan to make them aware of changes going into 2020. The agency will also require plans to explain the change to beneficiaries in annual documents.

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