CMS to Implement Indication-Based Formulary Design for Medicare Part D Plans


Medicare Part D plans will be given flexibility to tailor on-formulary drug coverage based on specific indications.

Beginning in 2020, health plans in the Medicare Part D program will be granted additional flexibility to tailor their formularies so that different drugs can be covered for different indications, according to a memo issued by the Centers for Medicare & Medicaid Services (CMS) on Wednesday.

Currently, if a Part D plan includes a particular drug on its formulary, it must cover that drug for every FDA-approved indication, according to the CMS.

The policy, known as indication-based formulary design, is intended to provide Part D plan sponsors additional negotiating leverage with manufacturers to drive down beneficiary and program costs. Under this formulary design, health plans have the power to negotiate formulary coverage based on specific indications. The approach is part of the agency’s ongoing efforts to carry out the Trump administration’s drug pricing blueprint.

“This action delivers on President Trump’s drug pricing blueprint by offering Medicare plans new tools to negotiate lower drug prices and offer patients better choices,” Health and Human Service Secretary Alex Azar said in a statement. “This is a significant step in modernizing the successful Medicare Part D program by giving plans the tool that serve patients well in the private sector.”

In early August, the CMS also introduced its new step therapy policy as another means to control prescription drug costs. The policy arms Medicare Advantage plans with the option of applying step therapy across medications under Part B and Part D, according to the CMS. However, the decision was met with concern from health advocacy groups over potential access issues for patients with chronic conditions.

According to the CMS press release, the indication-based formulary design policy is expected to increase the number of drugs available on a given plan’s formulary and the diversity of plan formularies available. Of note, the memo emphasizes that if a Part D plan limits formulary coverage of a drug to certain indications, the plan must ensure that there are other therapeutically similar drugs on the formulary for the drug’s non-covered indications.

Related Coverage: Express Scripts Cuts 48 Drugs from 2019 Formulary

“Coverage based on indications is consistent with the administration’s goal of implementing value-based incentives within the Part D benefit,” Lance Grady, vice president of Avalere Health, said in a press release. “Implementation of this formulary design change will depend on key factors such as the evidentiary criteria plans use to inform their decisions and how current pharmacy care management programs and systems will need to adjust so that patient access is maintained.”

The CMS will update the online tools that beneficiaries use when selecting a Part D plan, so that beneficiaries will see that a plan’s coverage varies by indication before they make a choice for their 2020 plan.

The American College of Rheumatology (ACR) released a statement calling on the Trump administration to either not go forward with the plan or to allow exemptions for patients who need a specific therapy for their condition.

“While we appreciate the agency’s efforts to make prescription medications more affordable, we have serious concerns about a new CMS guidance to allow Medicare Part D plan sponsors to implement indication-based formulary designs that allow plans to select drugs for their formularies based only on the disease indications they want to use,” the ACR said in a press release. “These changes are a departure from current policy, which requires plans to cover each on-formulary drug for all indications that are approved by the FDA. It takes clinical decision making out of the hands of providers and puts insurance companies in control of patient treatment plans.”


CMS provides new flexibility to increase prescription drug choices and strengthen negotiation for Medicare enrollees [news release]. CMS’s website. Accessed August 30, 2018.

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