Articles on Pharmacy Benefit Management

Part D Sponsors Scramble to Make Changes on 2008 Formularies

Reprinted from the April 20, 2007, issue of DRUG BENEFIT NEWS, biweekly news, data and business strategies for health plans, PBMs and pharmaceutical companies.

Medicare Part D sponsors burned the midnight oil to meet CMS's April 16 deadline for submitting 2008 Part D formularies — a process that industry observers and executives say was made tougher by the agency's delayed announcement of changes to formulary submission requirements. While CMS officials say the new requirements for 2008, unveiled March 20, contained "no major changes," others described them as "significant and unexpected."

For example, CMS made thousands of changes to its formulary reference file, a list of drugs with national drug codes (NDC) that Part D sponsors use to build formularies, says David Smith, vice president of product development at formulary management technology firm Zynchros, Inc. The formulary reference file provides proxy NDC codes (i.e., unique identifiers used by CMS for reporting purposes) on drugs cleared for CMS reimbursement. The file previously contained more than 7,000 NDC codes, he tells AIS.

"They dropped that down to about 4,500 in 2008," he says. "A whole bunch of products were taken off the list. In a few situations, these were products they didn't want to cover anymore, but mostly they were eliminating a whole bunch of redundancies in the original formulary reference file." CMS also added roughly 1,000 NDCs, he says.

Additional changes included new fields on the formularies that classify drugs by type (i.e., brand, generic, non-preferred brand), specialty pharmacy and those that require prior authorization, Smith explains. CMS announced the changes during a March 20 Webcast, but didn't publish the list of changes until March 23, three days before Part D sponsors could start submitting their 2008 formularies, he notes.

"All of these plans that have been busily preparing for 2008 — they had been using the 2007 formulary reference file assuming there wouldn't be too many changes," he says. "Everybody expected a few tweaks here and there, but enough that you could fix it and go on. But this was such a huge change that people had to take thousands of products off their current formulary [and] add a whole bunch of new products."

"Based on what we hear from our customers, it has been a nightmare for everyone," Smith adds. Zynchros markets an online tool that allows for the automatic translation of the 2007 formularies to the new 2008 drug list.

Plans, PBMs Note Tighter Deadline

Part D sponsors and experts queried by AIS agreed the changes were significant, but can be accommodated. They also note that CMS's required changes came later than expected.

"We are working hard to meet their time frame," Jennifer Luddy, spokeswoman for Medco Health Solutions, Inc., said right before the formulary submission deadline. "It's tight but manageable."

Significant changes for the 2008 formularies, she notes, include raising from $500 to $600 the floor for specialty drugs. In 2008, only Part D drugs with sponsor-negotiated prices that exceed $600 per month may be placed in the specialty tier, according to CMS. Another significant change was CMS's decision to review formularies for a greater number of the most commonly used drugs "long after pharmacy and therapeutic decisions have been made," Luddy says.

Most of the changes were "a cleanup of the NDC proxy files," says Robert Giles, Pharm.D., formulary and specialty pharmacy manager at BlueCross BlueShield of Tennessee (BCBSTN).

"That was something they needed to do," he adds. "It was just not very timely. I wish they had done that two months ago, as we were doing our preparatory work putting it together." For its Part D business, BCBSTN partners with Blue Cross Blue Shield of Alabama, which serves as the Tennessee Blues' PBM, Giles says.

He adds that the formulary submission process is always tedious. "My anxiety level always gets high the week before it goes in," Giles says, noting that he's not sure why CMS requires plans to prepare formularies eight months prior to the start of the year. "We don't run our commercial business with that much lead time," he says.

For its part, Aetna, Inc. points out that health plans receive formulary changes from CMS annually, so the company "was fully expecting to receive changes to the 2008 Medicare formulary," a spokeswoman says. This year's changes differ in a few respects, most notably the timing and method of communication, says spokeswoman Elizabeth Sell.

"We received the changes approximately two weeks later than usual," she says, noting the changes were communicated in a "call letter" rather than a formal guidance document. CMS also required significant additions to classifications and categories, particularly pharmacy access tagging, which identifies whether a drug is available only through a limited distribution network, Sell says.

CMS officials tell AIS there were no major changes. "There may very well be over 2,000 changes" to the formulary reference file and the proxy NDC codes, says Jeff Kelman, M.D., chief medical officer at CMS's Center of Beneficiary Choices. "But there are always going to be changes like this," he asserts. This year's changes are all "small technical comments," Kelman says, and CMS has "made it easier for plans." CMS has not received any complaints from plans about the process, he adds.

During the March 20 Webcast, Brian Martin, lead pharmacist in CMS's Medicare Drug Benefit Group, Division of Finance and Operations, said "changes to the proxy codes [were made] to account for inactive or obsolete products as well as repackaged products." He did warn, however, that "previous versions of the 2007 formulary reference file will include proxy codes that will cause the 2008 formulary submission to be rejected if included on the file."

CMS expects an "increase in the amount of formularies submitted for review in 2008," he added. As such, "the CMS review process will be much less iterative than in years past. We expect all potential issues to be addressed upon CMS's initial communication" with a plan, Martin asserted.

Martin said CMS expects that "all formularies will receive conditional approval by July 16. If deadlines included in the initial submission are missed, a plan "can't get benefit or contract approval," he added. There will "likely be an updated period for formulary submissions before marketing begins in October 2007," but no date has been set, he said.

Abby Block, director of the Center for Beneficiary Choices, said the agency wants plans to submit "accurate and complete information in the formulary reflecting correctly utilization management and tiering that the plan intends to offer throughout the plan year."

Experts Say Changes Are Pushing Quality

Aaron Eaton, director of strategic development at Washington, D.C.-based Gorman Health Group, LLC, and a former CMS formulary official, says most changes are on technical aspects of building the formulary files (e.g., formulary reference files, formulary file layout). "When changes like this occur, plans must recreate the process used to build the files."

Dan Mendelson, president of Washington, D.C.-based consulting firm Avalere Health, says the changes signal that CMS is focusing on new quality measures and indicators. The new drug list is causing some plans to re-evaluate part of their formulary structure, "because when you start making changes in a formulary, there are also other collateral changes that need to happen," Mendelson adds.

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