Medicare Formulary Model Seen by Many as Too Inclusive

The issue is how extensive the list of covered medications should be for the new Medicare pharmaceutical benefit. The stakes are enormous.

The United States Pharmacopeia isn’t what you’d consider a controversial organization. But when Congress selected USP to develop a model drug formulary that could be adopted by pharmacy benefit managers and health plans for the upcoming Medicare drug benefit, creating a so-called “safe harbor” provision for the groups that adopt the formulary, it stepped right into a policy combat zone.

When the USP rolled out its draft formulary guidelines Aug. 19 — listing 146 drug categories and classes — and invited public comment, the group was inundated by more than 1,100 responses from industry groups, health plans, pharmaceutical giants, and activists of every stripe.

On one side: MCOs and PBMs, interested in reining in the overall number of drug categories and classes that could be included in a model formulary. By keeping a reasonable limit on the size of the formulary, they argue, they can get extra leverage in negotiating prices while maintaining a comprehensive selection of medications. Not unreasonably, they contend that lower prices are needed to keep the cost of the benefit from spinning out of control, a key factor for health plans weighing the risks of going back into the business of catering to Medicare patients.

On the other side: An alliance of drug companies, pharmaceutical industry lobbyists, patient advocacy groups and a host of drug experts who say that a broader formulary is absolutely essential to good medicine. Not unreasonably, they argue that properly treating Medicare beneficiaries often requires a broad array of medications — many of which could be excluded by the model they’ve seen.

The stakes are enormous for everyone.

The government has committed billions to support a partial drug benefit; health plans don’t want to get stuck with the bill; drug companies are angling over market share; and patients want the drugs their doctors recommend. Ultimately, the size of the formulary will help decide the popularity of the program.

In a briefing document released in mid-October, USP stressed that no final decisions had been made. But the group also noted that its expert committee would re-examine a series of recommended drug subdivisions listed in a third column of its draft formulary. The USP’s expert committee is considering merging that third column into its second column of classes and categories, greatly swelling the number of drug classes that would be featured in the model, from 146 to 235.

“Ultimately,” USP notes in its brief, “science will be the arbiter of the decisions.”

But nothing about the process so far has been that simple.

The way the Medicare bill worked in setting up the model formulary guidelines, says Judy Cahill, executive director of the Academy of Managed Care Pharmacy, was to have USP come up with a model for categories and classes and then have drug plans populate it.

Backward approach?

The whole process went in reverse from the way an average pharmacy and therapeutics committee would operate. In most plans, she explains, a P&T committee evaluates which drugs should be included and then finds a particular category for them to fit under. There may be 30 classifications or there could be 300, with one or several drugs in each. But USP’s process — mandated by Congress — demands that its expert committee create categories and then mandates that drug plans provide two drugs in each category. If the third column of subdivisions is folded into the mix of classes and categories, say some, it could exponentially increase the number of drugs that would be arbitrarily required.

“You’d end up with an excessive number of drugs subject to negotiation, reducing leverage with manufacturers,” says Cahill. “If I’m a manufacturer of drugs that must be included, must I negotiate?”

For example, she adds, if there is a category for Cox-2 inhibitors requiring two drugs, and there are only two to pick from — Celebrex and Bextra — “what sort of negotiating power do you have?”

“It’s a big concern for us,” agrees Nan North, senior policy analyst for the Blue Cross and Blue Shield Association. “If we have no tools to manage benefits, premiums will increase, making the program unaffordable.” And mandating two drugs per category is not the best way to negotiate a deal — either on price or efficacy. “In some categories, we’d like just one drug; winner take all for the drug manufacturer willing to provide the best price.”

Absorbing the third column of recommended subdivisions into the main menu of classes and categories will expand 146 “categories” into “235 classes,” she adds, and that could burden the system with a smorgasbord of drugs that most P&T committees wouldn’t countenance.

Earlier problems

Marissa Schlaifer, AMCP’s director of pharmacy affairs, says that could lead to a repeat of the earlier problems seen when health plans pulled out of Medicare+Choice regions when they couldn’t negotiate favorable contracts with provider groups. This time, they may choose never to jump in if they are threatened with getting left on the hook for high drug prices after agreeing to a premium schedule with Medicare.

It all flies in the face of the way PBMs have operated in the private sector for years.

“PBM clinical and cost-management tools — including formularies — provide broad access to drugs while reducing costs an average 25 percent, according to PricewaterhouseCoopers,” says Mark Merritt, president of the Pharmaceutical Care Management Association. Implementing a Medicare formulary with hundreds and hundreds of therapeutic classes would, in fact, jeopardize the long-term viability of the program and put seniors’ access to medications at risk.”

Goals not achieved?

Not so fast, counter their opponents.

“USP’s current draft model would allow plans to exclude from coverage numerous types of medicines that patients routinely need and that private plans routinely cover,” shot back Alan Holmer, CEO of the Pharmaceutical Research and Manufacturers Association after USP issued its draft proposal. “Therefore, it does not achieve Congress’s goals.”

Folding the third column into the required set of classifications would be a “major step in the right direction,” says Andrew Sperling, lobbyist for the National Alliance for the Mentally Ill. Right now, he says, USP’s draft formulary imperils many of the mentally ill. “USP could provide safe harbor … by adopting what we believe is a formulary … that is simply not where the science is.”

For now, at least, CMS is staying on the sidelines.

“We are continuing to talk to USP,” CMS spokesperson Peter Ashkenaz notes, “but no decisions have been made. We do want to ensure that beneficiaries get the drugs they need and will provide oversight to the plans to do that.”

The USP’s next step comes in early December, when it submits a new draft. A final draft is due by the end of the year. That will leave health plans only a matter of months to evaluate the formulary guidelines and decide if they can live with them or not.

For now, says Cahill, most plans are working with scenarios, trying to determine what they’ll do, given the range of options still in front of the USP.

“We’re all playing a big guessing game now in what will surface in the final model,” Cahill says.

John Carroll, a freelance writer living near Austin, Texas, has been a Managed Care contributing editor for four years.

Our most popular topics on