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CMS Provides New Flexibility to Increase Prescription Drug Choices and Strengthen Negotiation for Medicare Enrollees

The Centers for Medicare & Medicaid Services (CMS) issued a memo to Medicare Part D plans, which cover prescription drugs that beneficiaries pick up at a pharmacy, offering plans new tools and flexibility to expand choices and lower drug prices for patients.

Currently, if a Part D plan includes a particular drug on its formulary, the plan must cover that drug for every FDA-approved indication, or patient condition, even if the plan would otherwise instead cover a different drug for a particular indication. The requirement to cover drugs in this manner can discourage Part D plans from including more drugs on their formularies and limit their power to negotiate discounts.

Today’s memo explains that starting in 2020, plans will have new flexibility to tailor their formularies so that different drugs can be included for different indications. This policy, known as “indication-based formulary design,” is used in the private sector and will enable Part D plans to negotiate lower prices for patients. Targeted formulary coverage based on indication will also provide Part D beneficiaries with more drug choices and will empower beneficiaries to select a plan that is designed to meet their unique health needs.

“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,” said HHS Secretary Alex Azar. “This is a significant step in modernizing the successful Medicare Part D program by giving plans the tools that serve patients well in the private sector.”

“President Trump and Secretary Azar are working to get the best deal for American patients,” said CMS Administrator Seema Verma. “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.”

Today’s policy is expected to increase both the number of drugs available on a given plan’s formulary and the diversity of plan formularies available. Part D plan sponsors and prescription drug manufacturers begin negotiations in the fall of 2018 for formulary placement in Contract Year 2020, so CMS is making this announcement today to ensure that beneficiaries will see the benefits of this policy in 2020.

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 formulary for the drug’s non-covered indications.

To help ensure that Medicare enrollees understand their coverage, the agency will update the online tools that beneficiaries use when selecting a Part D plan, so that beneficiaries will see that a plan’s coverage for a drug varies by indication before they make a choice in 2019 for their 2020 plan.

CMS will also require plans that implement this tool to explain what it will mean for beneficiaries in the plan’s Annual Notice of Change (ANOC) and Evidence of Coverage (EOC) documents. In addition, the agency will update the 2020 Medicare & You handbook to include information on this new flexibility. CMS looks forward to working with patients and other stakeholders to ensure the successful implementation of this policy.

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