Published on 15 March 2013
Medicare Drug Benefit: Formulary Oversight in Medicare Part D

Medicare Part D, the Medicare drug benefit, served roughly 31 million seniors last year. Medicare Part D is more similar to Medicare Advantage than to traditional Medicare in that enrollees can choose among several private health plans for drug coverage.

The lists of which drugs Part D plans cover – called formularies – are one of the considerations an enrollee should take into account when choosing a plan. Drug formularies are more than simple lists of the specific brand or generic prescription drugs covered in each therapeutic class: They spell out how much beneficiaries must pay for a prescription, drug purchasing limits, step therapy, prior authorization requirements, and incentives or requirements to use generic drugs.

Oversight for P&T Committees Making Formulary Decisions:

Within federal rules on adequacy of coverage for each therapeutic class, Medicare Part D plans – stand-alone Prescription Drug Plans (PDPs) and Medicare Advantage Drug Plans (MA-PDs) have a fair degree of discretion on which particular drugs they cover for any given medical indication.

Federal law requires Part D drug plans to have Pharmacy and Therapeutics (P&T) Committees to make decisions about drug formularies.  P&T committees base their formulary decisions after considering federal requirements, safety, efficacy, and net costs.  Sometimes drug plans hire pharmacy benefit managers (PBM) to handle formularies for them.

In addition, federal laws and rules from the Centers for Medicare and Medicaid Services (CMS) attempt to mitigate potential conflicts of interest for members of P&T committees. For example, CMS is supposed to ensure that at least two members of a P&T committee – one practicing physician and one pharmacist – have no ties to the Part D drug plan or to pharmaceutical manufacturers.

OIG Finds Little CMS Oversight of P&T Committee Conflicts:

The integrity of Medicare prescription drug coverage decision making is critically important for all stakeholders in Part D – beneficiaries, taxpayers, drug plans, pharmacies, and physicians.  A recent report from the Department of Health and Human Services (HHS) Office of Inspector General (OIG) found CMS oversight to be lacking.

“CMS staff reported that they do not look at the information that sponsors and PBMs report about whether each P&T committee member is free of conflict.” writes Inspector General Daniel Levinson.

But the OIG report found conflict of interest oversight equally lax in Medicare Part D prescription drug plans.  For example:

  • Conflict of interest standards for half of P&T committees did not address conflicts prohibited in federal regulations.
  • Two-thirds of P&T committee standards did not define employment with the health plan as a conflict of interest.
  • More than 60 percent of P&T committees allowed their members to determine which financial interests presented conflicts of interest, with little oversight.
Recommendations to Improve Accountability of Medicare Drug Formularies:

The OIG recommends a few CMS Part D policy changes to rectify the lapses it found. They include:

  • Defining pharmacy benefit managers as groups that could benefit from formulary decisions.
  • Update CMS guidance to reflect the fact that employment with the health plan or PBM that runs the P&T committee might pose a conflict of interest.
  • Establish rules to ensure conflict of interest decisions and recusals are objective.
  • Ensure CMS performs compliance reviews for P&T committee recusals and conflict of interest information.

In response to the OIG report, CMS said additional P&T committee oversight is unnecessary because it already reviews formulary decisions and conducts P&T committee audits. CMS also pointed out that, despite finding loose oversight, the OIG investigation did not find any actual conflicts of interest.

About Author

An expert on Medicaid, Medicare, and health reform, Kip Piper, MA, FACHE, is a consultant, speaker, and author. Kip Piper advises health plans, hospitals and health systems, states, and pharma, biotech, medical device, HIT, and investment firms. With 30 years’ experience, Kip is a senior consultant with Sellers Dorsey, top specialists in Medicaid and health reform. He is also a senior advisor with Fleishman-Hillard and TogoRun. For more, visit KipPiper.com. Follow on Twitter @KipPiper, Google +, Facebook and connect on LinkedIn.

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