Formularies under Medicare Part D

November 7, 2005

Lawmakers crafting the Medicare Modernization Act (MMA) intentionally created incentives favoring the use of formularies based on the premise that competition among manufacturers would lower program cost. CMS subsequently issued regulations about formularies and cost-sharing strategies that would balance the needs of persons with Medicare against the cost-control measures typically imposed by PBMs.

Plans must form a P&T committee to develop and review the formulary and utilization management strategies to be employed. The P&T committee must meet at least quarterly and review covered drugs by therapeutic classes at least annually. A majority of the committee members must be practicing pharmacists and physicians, and the committee must include at least one pharmacist and physician with expertise in the relevant therapeutic areas, and specifically the care of the elderly or disabled. At least one R.Ph. and one physician on the committee must meet specified criteria for independence from the prescription drug plan (PDP) and pharmaceutical manufacturers.

CMS then reviewed the plan formularies as a condition of participation in the Part D program. As expected, plans devised formularies and made provisions for prior authorization, quantity limits, and tiered co-pays as incentives for members to use the most cost-effective therapies. A formulary and any cost-sharing provision that is "likely to substantially discourage enrollment of certain beneficiaries" may be disapproved by CMS.

Drugs that were covered under Medicare Part B, primarily drugs administered as part of a physician office visit, will remain under the Part B benefit. Part D will cover all self-administered injectable and infused medications, if they are not already covered by Parts A and B. PDPs will cover all drugs listed on the formulary, along with insulin, supplies related to insulin, vaccines, and smoking-cessation products.

Compounded drugs will be covered, and the pharmacy will be reimbursed for the most expensive ingredient that is covered in the formulary. No OTCs or noncovered Rx products may be billed as a compounded Rx, and the dispensing fee is considered coverage for labor cost. Any compounded prescription not covered by the plan can be billed directly to the Medicare patient.

Some drugs were excluded from Medicare Part D by law: drugs for weight control, fertility, cosmetic purposes or hair growth, and relief of cough and cold symptoms; Rx vitamins and minerals (except for prenatal vitamins and fluoride preparations); nonprescription drugs; barbiturates; and benzodiazepines. Web sites created by CMS and by individual plans will allow Medicare beneficiaries to compare plan premiums, the drugs that are covered, and the co-pay structure that applies.

Government regulations also provide for the needs of persons who are stabilized on drug regimens as they transition to new formularies. Wherever the abrupt interruption of certain therapeutic categories could cause significant negative outcomes, plans must set a transition period and establish an appeals process for new enrollees whose current drugs are not on the plan formulary. For example, a plan might cover existing treatment for up to 90 days to stabilize a patient on a new regimen or to appeal for a formulary exception. PDPs are not allowed to have a separate formulary for residents of long-term care (LTC) facilities, but the plans may create a separate set of provisions for utilization management or exception requests to ensure access to medicines needed by LTC residents.

Pharmacists and patients will be pleased to know that if there is a change of formulary drug or a shift to a higher co-pay during the year, the plan must notify affected patients, prescribers, and R.Ph.s 60 days in advance of implementing the change. To ensure fair marketing practices, plans are not permitted to make formulary changes between the beginning of initial enrollment and for 60 days following the start of a contract year. These provisions are in addition to notifying CMS monthly of any proposed changes to the formulary or cost-containment measures so that the agency can continuously verify that the formulary meets Medicare standards.

THE AUTHOR is associate professor, Department of Pharmacy Health Care Administration, University of Florida College of Pharmacy.