Medicare Part D: Formularies Offered by Part D Insurance Plans Provide Patients with Access to Effective, Safe and Affordable Medications

AMCP Opposes a Government-Mandated National Formulary The Academy of Managed Care Pharmacy (AMCP) supports the current law that requires Medicare Part D drug benefit plans to develop and manage their own drug formularies. The Academy opposes proposals that would give the federal government responsibility for establishing a single “national formulary” that these plans would be required to offer to their Part D beneficiaries. What Is a Formulary? A formulary is a regularly updated list of preferred medications and related information that incorporates the clinical decisions of physicians, pharmacists and other experts who diagnose and treat disease and promote health.1 In a managed health care organization, the formulary is a significant part of a well-structured drug benefit. The formulary is an important tool for managing the drug benefit when used in concert with other clinically appropriate techniques such as: • “tiered” copayments; for example, enrollees usually pay the least for a generic drug on the lowest tier and the most for a non-preferred drug on the highest tier • quantity limits • preferred dosage forms • prior authorization, a process that requires approval by the drug plan before a prescription can be filled. Press coverage and general commentary on Capitol Hill, however, indicate that most people who use the term “formulary” believe it is just the list of medications. This paper will therefore discuss only the basic definition of the term formulary, that is, a list of drugs. [For a summary of the current Part D formulary requirements included in the Medicare Modernization Act (MMA), please see endnote 2.] The Academy strongly believes that a national formulary would be ineffective, and would eventually weaken the Medicare Part D program. The Part D Program Is Based on Competition between Prescription Drug Plans A mandatory national formulary would conflict with the way the program was designed and restrict the ability of beneficiaries to make choices to fit their needs. The needs of patients and

the ability of health care professionals to provide quality, safe and affordable health care are best served when the government promotes effective competition. When the government imposes mandates on health care programs, those programs become less responsive to varying patients’ needs. A competitive design allows and encourages plans to offer beneficiaries a broad choice of options. Beneficiaries can then select the plan that provides the level of insurance coverage they need and with premiums and cost-sharing they can afford. Neither the government nor the beneficiary will have to pay for more than they need. Managed care organizations that administer Part D drug plans use the same managed care techniques and strategies commonly and successfully used in their non-Medicare business. Formularies are an essential component upon which effective drug benefit plans are built. Giving the federal government responsibility to impose and manage a mandatory national formulary would deprive Part D plan sponsors of this fundamental capability. It would remove the competitive foundation of the Part D design and ultimately weaken the effectiveness of the benefit. The results of such a change would result in unacceptable negative outcomes for the government, for plan sponsors, and most importantly, for beneficiaries: (1) A mandatory Part D national formulary would eliminate one of the key factors beneficiaries evaluate when they select a plan. Choice, in terms of premium levels, co-payments and formularies give beneficiaries a wide range of options from basic and less expensive plans to more costly benefit-rich plans. Choice is fundamental to the Part D program’s success because it allows beneficiaries to differentiate between plans and select the one that best meets their individual health and financial needs. (2) A mandatory Part D national formulary would weaken the ability of drug plan providers to negotiate best prices with drug manufacturers. This ability to negotiate for formulary placement has been central to the success of the Part D program, making it possible for plans to charge lower premiums, and keep the costs of the program to the federal government in check. (3) The large number of formularies and wide variety of benefit structures that exist under Part D are generating a wealth of information. By evaluating the preferred treatment options listed by the plans and used by prescribers, researchers and the Medicare program can make determinations about what is working and what is not in terms of medical outcomes, cost effectiveness and patient safety. Maintaining this competitive environment will ultimately lead to improvements in the health care delivery system. A National Formulary Raises Serious Operational Issues and Concerns It is unclear as to how a “national formulary” might be developed and put in place. There are two main approaches examined below that could be introduced: use of a broad national formulary or use of a narrow national formulary. Either approach could create significant stumbling blocks for beneficiaries in terms of their ability to obtain safe and affordable medications and could also undermine the entire financial structure of the Part D benefit. The primary responsibility of the federal government in providing a drug benefit to the nation’s citizens is to provide plan coverage and program oversight. The Academy believes there are serious concerns as to whether the Department of Health and Human Services (HHS) has the

necessary data, technology or staff to develop and successfully manage a nation-wide formulary. HHS has limited experience running a prescription drug benefit, particularly compared with the experience of the drug benefit plans that have been qualified to manage the Part D drug benefit for Medicare beneficiaries. When it comes to creating flexible and efficient programs, the Academy believes that those with the required clinical and business expertise and decades of experience meeting the needs of beneficiaries are far more likely to be effective. In addition, given the conflicting pressures any government purchasing agency is subject to from competing vendors, it is difficult to perceive how HHS could provide the level of impartial review that is integral in a successful formulary decision making process. I. The Implications of a Broad National Formulary If the broadest possible selection of medications were contained on a national formulary, Medicare Part D plans would be forced to supply coverage for all of them. A federally mandated formulary that takes this approach could potentially require the inclusion of all or most of the medications in many if not all drug categories. One only has to point to the successful political pressure from special-interest groups that led the federal government to adopt formulary rules requiring Part D plans to include all or substantially all medications in six specifically designated classes of drugs to support the likelihood that this could occur. Having a broad and all-inclusive range of medications would have negative and far-reaching effects. • The way the Part D benefit was designed, it takes into account the individual medical needs of beneficiaries and the regional and other variations in treatment practices of physicians. The possibility of inappropriate medication use is lessened by a thorough pharmacy and therapeutics (P&T) committee clinical review process. A P&T committee is made up of physicians, clinical experts and pharmacists who evaluate a drug for its effectiveness and safety prior to any other decisions being made as to whether or not it would be suitable for that plan’s beneficiary population. If it is judged safe and effective, then it can be compared to other, similar drugs in its class, and its cost and other factors can be considered for a formulary position. • All drugs do not have the same safety and effectiveness characteristics. All groups of beneficiaries do not have the same health needs and life-styles. All plans do not have identical groups of beneficiaries. Any formulary that does not take these facts into account will most likely fail to meet the clinical and treatment needs of widely different beneficiaries. Because of the P&T committee’s clinical review process, the current Part D system of multiple plan formularies is more likely to provide for individualized clinical and medical needs and treatments, and reduce the probability of inappropriate medication. As the age and other characteristics of each group of beneficiaries change, there is a continual need to evaluate the formulary. If a national formulary required Part D prescription plans to cover the broadest possible range of medications, there would be little need to require the same level of ongoing medical and clinical examination of safety and effectiveness studies that exists in the current Part D P&T process. As

a result, there could be an increased chance of inappropriate use, the potential for increased undesirable side effects and the possible overuse or under-use of medications. • A national formulary that requires Part D prescription drug plans to cover the broadest possible range of prescription drugs will significantly increase costs to beneficiaries and to Medicare for two reasons. First, because this type of formulary focuses on simply providing access to a broad assortment of drugs, rather than on evaluating and promoting quality and value, health care resources that are available would not be used to their full benefit, because there is no incentive on the health plan part to do so. The result is that the affordability of the program for beneficiaries would be put in danger. Individualized care would be threatened, and the long-range financial ability of the Part D benefit to succeed would be compromised. Second, the way the current Medicare law is designed, Medicare Part D plans are required to negotiate with pharmaceutical manufacturers to secure low drug prices. A plan’s ability to obtain lower prices is in part dependent upon a drug product’s placement on its formulary. If a national formulary existed that mandated the broadest possible number of drugs, negotiating ability would be meaningless, or at least severely damaged. There would be little reason for a manufacturer to agree to a price adjustment if it knew that its drug had to be included on the plan’s formulary. II. The Implications of a Very Limited National Formulary The other general approach could limit the number of drugs available on the national formulary, and require Medicare Part D plans to provide coverage for only those drugs. As the federal government attempts to manage the significant costs of the Part D benefit, this restrictive or “narrow” formulary may be determined necessary. Such a formulary may have only one low-cost medication selected in each covered class of drugs. This kind of approach, significantly limiting the number of medications in a national formulary, would have negative and far-reaching consequences as well. • Limiting the drugs included on a formulary does not automatically indicate a poor formulary. The issue is the criteria that would be used to choose which drugs would be included and which would be excluded. There are some states that have used Preferred Drug Lists (PDLs) in their Medicaid programs that have been based mainly on cost considerations.3 When this fact becomes the principal logic for placing a drug on a formulary, rather than its clinical effectiveness, quality and safety issues may be put aside, and the health care of beneficiaries may be put at risk. The priority for including a drug on a formulary should always be its clinical value. • A national formulary that limits the number of drugs that can be covered will deny certain beneficiaries access to the medications that work best for them which is clearly opposite of the “non-discriminatory” requirements that CMS held part D plans to during the original rule and application process. This approach is by definition a “one-size-fits-all” mentality. Such a program clearly cannot serve the unique needs of individuals. It could require a beneficiary to (a) obtain a drug that could pose a risk to that particular beneficiary; (b) obtain a

drug that had been previously prescribed but had not worked well or caused side effects for that patient; or (c) switch to a different drug after having been stabilized on a prior non-formulary medication. Ultimately, it could require a beneficiary to show “medical necessity” through an appeal process in order to gain access to a non-formulary drug that would be more suitable for that patient. • A decision-making process for a single national formulary that determined “winners” and “losers” among drug companies would place enormous direct and indirect political pressure on the formulary selection process. Both organizations that represent patients with specific diseases and pharmaceutical manufacturers would seek to exert pressure on governmental agencies to ensure that their choice of drugs were included on a national list. The extent to which such pressures exist today would seem pale in comparison to what could possibly occur. CONCLUSION The Academy believes that the Medicare Part D drug benefit program is working well. The benefit plan choices available are proving to be much more effective and affordable than was initially thought, and beneficiaries are able to obtain a wide range of the medications they need. Requiring the federal government to develop and implement a mandatory national formulary is unnecessary, and it could harm the effectiveness of the program. Part D plans currently have the flexibility they need to design and manage effective benefit plans and are holding costs down. Mandatory requirements imposed by the government could weaken the program, disadvantage beneficiaries and threaten the long term financial success of the benefit.

September 2007

For further information:

Edith A. Rosato, R.Ph., IOM Chief Executive Officer 703-683-8416

The Academy of Managed Care Pharmacy (AMCP) is a national professional association of pharmacists and other health care practitioners who serve society by the application of sound medication management principles and strategies to improve health care for all. The Academy’s more than 6,000 members develop and provide a diversified range of clinical, educational and business management services and strategies on behalf of the more than 200 million Americans covered by a managed care pharmacy benefit.

ENDNOTE

1

Academy of Managed Care Pharmacy, et. al., “Principles of a Sound Drug Formulary System,” October 2000, http://www.amcp.org/cfr/waSys/f.cfc?method=getLinkAsset&id=AA97A902 (25 July 2007). 2

Current Part D Formulary Requirements Based on extensive private sector experience, the Medicare Modernization Act of 2003 (MMA), which established the Medicare Part D outpatient prescription drug benefit, requires that each Medicare Part D drug benefit plan sponsor that implements a formulary establish a pharmacy and therapeutic (P&T) committee to develop a quarterly (or more frequent) review of its formulary. The committee is required to base its formulary inclusion decisions on an evaluation of scientific evidence and standards of practice. This would include assessing peer-reviewed medical literature, such as randomized clinical trials, pharmacoeconomic studies and outcomes research data. The committee is required to take into account whether including a particular covered drug has therapeutic advantages in terms of safety and efficacy. MMA explicitly precludes the Secretary of Health and Human Services (HHS) from establishing and implementing a national formulary. The legislative proposals that have been introduced in the 110th Congress to modify the Part D program, including those that would grant the federal government authority to negotiate Medicare Part D drug prices with pharmaceutical manufacturers, retain the prohibition against the establishment of a national formulary. Some of these proposals, in fact, explicitly state that they are not to be construed as “authorize(ing) the Secretary to establish or require a particular formulary.” 3

S. Soumerai, “Benefits and Risks of Increasing Restrictions on Access to Costly Drugs in Medicaid,” Health Affairs 23, no. 1 (2004): 135–144.