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CMS Announces New Flexibilities in Medicare Part D

Summary

Under an indication-based formulary design approach, Part D plans will be able to tailor the drugs that are on their formulary by indication.

The new policy lifts a requirement that Medicare Part D plans must cover a drug for every FDA-approved indication. The changes will take effect in contract year 2020.

The announcement is the latest in the Trump administration’s efforts to lower drug costs, as outlined in its drug pricing blueprint released in May. This blueprint focused on several key themes: enhanced drug competition; expanded coverage and negotiation flexibility; transparency into drug prices; and incentives to explore value-driven payment and contracting in both commercial and government programs.

Avalere experts offer the following observations on the Medicare Part D program change:

  • This policy change is identified as a key priority area in the administration’s drug pricing blueprint, which highlighted the potential for further action to enable indication-based pricing and coverage in Part D
  • Part D plan sponsors will have an additional formulary management tool to negotiate net drug prices for multi-indication therapies and to decrease total drug spend in Part D
  • Patients’ ability to evaluate drug treatment options across a specific indication or disease will be important to ensuring continued access
  • Structural changes may be necessary to operationalize this policy, specifically the ability to process payment and out-of-pocket costs when the same drug is prescribed for different indications.

“Coverage based on indications is consistent with the administration’s goal of implementing value-based incentives within the Part D benefit,” said Lance Grady, vice president at Avalere Health. “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.”

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