Medicare Drug Plan Formularies

I. Introduction

The majority of Medicare drug plans use "formularies," lists of the drugs the plan will cover, to define their drug benefits. Each drug plan develops its own formulary. Part D plans must include at least two drugs in each category and class the plan designates, although the Centers for Medicare & Medicaid Services (CMS) may require plans to include more than two drugs for some categories and classes. Plans may use or refer to a model created by the United States Pharmacopoeia (USP) in setting up their formularies, but they are not required to do so. The USP's model formulary contains 50 unique therapeutic categories.

CMS must review and approve all Medicare drug plan formularies. CMS evaluates the formularies for adequacy of access to medically necessary drugs and to make sure that no groups of Medicare beneficiaries will be discouraged from joining a plan due to a discriminatory formulary. For example, CMS would not approve a formulary if it did not include insulin and oral anti-glycemic agents, as such a formulary would discriminate against people with diabetes. But because formularies are a means to provide access to medically necessary treatments and contain costs, Medicare drug plan formularies will include both generic and brand name medications among their covered drugs.

II. How to Find Part D Plan Formularies

Medicare drug plans must make information about their formularies available; they also must provide information about how to obtain a copy of the complete formulary. Beneficiaries can obtain a drug plan's list of covered drugs by calling the plan or visiting the plan's website. Medicare also will post the information on its Formulary Finder website. Plans must provide beneficiaries with an abridged formulary at least at the time of enrollment and annually thereafter. Moreover, plans must provide this information to Medicare beneficiaries by posting it on the plan's Web site and making it available to customer services representatives staffing the plan's toll-free telephone service. CMS provides a model abridged formulary to guide plans. CMS also provides a Model Part D Comprehensive Formulary to plans. Upon request, plans must provide the comprehensive formulary.

III. Drugs a Part D Plan MUST Cover

Covered Medicare Prescription Drugs include any of these if they are used for a medically accepted indication:

Drugs dispensed only by prescription and approved by the FDA
Biological products dispensed only by a prescription, licensed under the Public Health Service Act (PHSA), and produced at a facility licensed under the PHSA
Medical supplies related to the injection of insulin (e.g., syringes, needles, alcohol swabs, gauze)
Vaccines licensed under the PHSA
Insulin and supplies required for administration of insulin

According to CMS Medicare drug plans must provide access to "all or substantially all" prescription drugs from the following six treatment categories in their formularies.

Antidepressant medications
Antipsychotic drug medications
Anticonvulsant drugs
Anticancer drugs
Immunosuppressant drugs
Antiretroviral medications

CMS acknowledges that patients being treated for diseases in these six categories are predicted to have some of the highest drug and medical costs among all Medicare beneficiaries yet has stated that it recognizes that patients being treated with a drug from one or more of these six categories have special needs for uninterrupted therapies with drugs that have proven therapeutic effectiveness for these individuals. This formulary directive aims to substantially reduce any attempts by Medicare drug plans to discriminate against these patients (i.e., cherry-picking).

CMS defines the expression, "all or substantially all" as follows:

Substantially all" in this context means that all drugs in these categories are expected to be included in plan formularies, subject only to the specific exceptions noted below. While patients newly prescribed to certain treatments in these six categories may be subject to utilization management techniques, CMS requires that plans proposing to use such techniques as prior approval, generic substitution, etc. on those patients already stabilized on specific drugs "demonstrate extraordinary circumstances" for their ruling.

With the exception of most antiretroviral drugs, patients newly prescribed one of the drugs in these six categories of medications may be subject to utilization management techniques, such as prior approval, quantity limits, step therapy or generic substitution. However, CMS requires that plans which use utilization management techniques for enrollees stabilized on specific drugs "demonstrate extraordinary circumstances" for use of such techniques in their formulary rules.

Medicare drug plans may not have any way of knowing that an enrollee has been using a drug in one of these six categories and is not a new user of one of these medications. Patients, their doctors, and other advocates may need to bring this to the attention of Medicare drug plans in order to assure access to the prescribed medication.

IV. Drugs a Part D Plan May Cover

Medicare drug plans may cover any brand name or generic drug that is not specifically excluded from the program. Plans need not, however, include all prescription medications in their formularies. CMS says that the drug plans must make sure that people who join the plans have access to all medically necessary drugs. CMS written guidance requires that drug plan formularies "ensure that beneficiaries have access to a broad range of medically appropriate drugs to treat all disease states…." If a Medicare drug plan decides not to provide or pay for a medically necessary drug that has been prescribed for a beneficiary, the law established procedures for beneficiaries to contest the plan's decision.

V. Limits on Drugs in a Formulary

Medicare drug plans can use a number of utilization management tools that are in common use by other drug plans in the private sector, in state Medicaid programs, and in Federal Employee Health Benefit plans. These tools include:

Prior authorization
Step therapy
Quantity limitations
Generic substitution
Tiered cost sharing

Utilization management tools may affect access to certain drugs. Prior authorization procedures require the patient's physician to seek the plan's approval before dispensing a medication. Usually, this process involves providing information that justifies the medical need for the drug. Step therapy requires patients to use a less costly medication on the plan's formulary before advancing to a more costly drug. Quantity limits preclude the dispensing of more than a specified amount of a drug at one time (i.e., a patient is only allowed 30 pills regardless of how many the physician has prescribed). Plans using cost-sharing tiers charge lower co-payments for "first tier drugs" and increasingly higher co-payments for "preferred" but more costly drugs in second, third, and fourth tiers. If a Medicare Drug Plan decides not to cover a drug because of the application of a utilization management tool, enrollees may request coverage determinations from their plans.

VI. Prescription Drugs Excluded From Medicare Drug Coverage

Medicare drug plans do not cover drugs that a person receives under Medicare Part A as a hospital or Skilled Nursing Facility (SNF) inpatient and drugs that a person receives under Medicare Part B. These include certain immunosuppressants following organ transplants, many chemotherapy drugs, and anti-emetics that are often prescribed in conjunction with anti-cancer agents.

In addition, certain drugs generally may not be covered by a Part D plan.¹ These drugs include:

Drugs prescribed for weight-loss or weight-gain
Drugs prescribed for the symptomatic relief of coughs and colds
Prescription vitamins, with the exception of prenatal vitamins and fluoride
Over-the-counter drugs, with the exception of insulin
Drugs prescribed to promote hair growth
Fertility drugs
Drugs prescribed for cosmetic purposes
Prescription drugs that must be monitored by testing services that only the manufacturer provides, such as certain anti-psychotic medications
Barbiturates (drugs used to control seizures or used for sedation or anesthesia such as Phenobarbital or Nembutal®)
Benzodiazepines, often referred to as minor tranquilizers, used to treat anxiety or insomnia (such as Xanax®, Valium® and Ativan®)
Erectile dysfunction drugs, when prescribed for the treatment of sexual or erectile dysfunction²

VII. Changes to a Medicare Drug Plan's Formulary

Medicare drug plans may only change the therapeutic categories and classes in their formularies once each year. Part D sponsors may add drugs to their formularies, place drugs on lower cost-sharing tiers, or delete utilization management requirements at any time during the year. The plans also must give a 60-day notice to beneficiaries whose drug is removed from the formulary or whose costs are changing because of a shift in a drug's tier placement. If the plan does not provide prior notice, it must authorize a 60-day fill of the drug and provide notice at the point of sale. Plans may not remove drugs from the formulary during the Annual Election Period (November 15th through December 31st each year), nor during the first 60 days of the plan year. Unless the FDA removes its approval for a drug, Part D plans typically may not remove drugs from their formularies mid-year. If CMS approves a plan to remove a drug (not due to FDA disapproval), plans must ensure that no enrollee currently taking that drug is negatively affected.

[1] Enhanced Medicare drug plans may opt to cover drugs specifically excluded by Medicare as an extra benefit.
[2] For Contract Year (CY) 2006 Erectile Dysfunction (ED) drugs met the definition of a Part D drug and were available on Plan Sponsor formularies. On October 26, 2005, Section 1860D-2(e)(2)(A) of the Social Security Act was amended to exclude ED drugs when prescribed for the treatment of sexual or erectile dysfunction, for CY 2007 and beyond. Please see the CMS Q&A on ED drugs for more information.