USP Formulary Guidelines Back In Spotlight With Essential Health Benefits Proposal

HHS proposes to use USP’s drug classification system, created as a guideline for Medicare Part D formularies, to facilitate “review, analysis and comparison” of the breadth of drug coverage offered by individual and small group private insurance plans beginning in 2014.

HHS’ proposal to adopt the U.S. Pharmacopeia’s Medicare Part D formulary classification system to help evaluate the breadth of drug coverage offered by individual and small group private insurance plans, beginning in 2014, puts the USP formulary guidelines back in the spotlight for biopharmaceutical stakeholders.

HHS outlined the plan for using the USP guidelines in its proposed rule on “essential health benefits” (EHB) requirements for individual and small group plans. The proposal, which addresses drug coverage among a number of other issues, implements provisions of the Affordable Care Act impacting private insurance coverage (Also see "Essential Health Benefits Proposal Broadens Formulary Standards By Aligning With State Benchmark Plans" - Pink Sheet, 20 Nov, 2012.).

Released Nov. 20, the proposal requires that plans cover at least one drug per category and class or the same number of drugs in each category and class covered by the EHB benchmark plans selected by states, whichever is greater. That will provide for broader formularies than would have resulted from an earlier approach suggested by HHS; a sub-regulatory bulletin released in December 2011 said HHS was considering requiring that formularies cover only one drug per category and class.

The proposal does not establish policies promoting drug access, such as establishing formulary “protected classes” or prohibiting the use of specialty tiers, as patient groups and others had requested. But drug companies are likely to be comfortable with the department’s revised standard for formulary breadth. Stakeholder comments on the proposal are due Dec. 26.

HHS proposes to use USP’s classification taxonomy to facilitate “review, analysis and comparison” of the number of drugs on a plan’s list compared to the number covered by a benchmark plan selected by the state. Plans qualified for exchanges must report their drug list to the exchange for evaluation, while plans operating outside exchanges must report drug lists to state authorities. Multi-state plans would be required to report drug lists to the Office of Personnel Management.

USP has been developing and revising formulary model guidelines for the Part D program since passage of the Medicare Prescription Drug Improvement and Modernization Act of 2003. The organization released model guidelines annually beginning in 2005 and then switched to a three-year revision cycle in 2008, at the request of the Centers for Medicare and Medicaid Services. The current guidelines, known as version 5.0, were released in early 2011 for the 2012 benefit year (Also see "How Often Should Part D's Model Formulary Be Revised? USP And CMS Disagree" - Pink Sheet, 4 Apr, 2011.).

Part D plans can either adopt the USP model formulary framework or design one of their own. Conformance with the USP structure provides a “safe harbor” against charges that a plan’s formulary violates the law by discouraging enrollment of certain individuals. Medicare drug plans are generally required to include on their formularies at least two drugs for each distinct therapeutic category and pharmacologic class. The USP guidelines are also used by CMS during the formulary review process to identify formularies that may be outliers with respect to coverage and require further evaluation.

Stakeholders have closely watched the development and revisions of USP guidelines because of their influence on Part D formularies. However, over the years, as plans became more familiar with the Medicare program, they have increasingly opted to develop their own formulary structure. Nevertheless, HHS’ proposal to use the USP classifications for EHB plans will likely renew interest in the program.

USP Formulary Guidelines 5.0

The 5.0 guidelines include 50 drug categories and 146 classes. In the USP system, categories provide a high-level formulary structure designed to include all potential therapeutic agents for diseases and conditions of Part D beneficiaries, while classes are therapeutic or pharmacologic subgroups. The 5.0 guidelines are somewhat less granular than in previous years because they no longer drill down to groupings known as “formulary key drug types.” USP dropped the key drug type categories at CMS’ request.

HHS says it is considering using the most recent version of USP’s classification system because it is “publicly available, widely used and comprehensive.” However, one issue that may arise is whether a drug classification system tailored to Medicare beneficiaries is appropriate for the younger individuals expected to obtain insurance through the EHB plans.

The timeliness of the classification system is another issue for consideration. The next version of the USP guidelines is scheduled to be released in 2014, and apply to benefit years 2015 through 2017. So EHB plans would have to rely on the 2011 version for their 2014 formularies, which may raise questions about how accurately the guidelines reflect the current marketplace.

As HHS moves forward with its proposal to use the USP classification, it will “continue to assess the need for and value of such a tool and intend to work with states and the [National Association of Insurance Commissioners] to facilitate state use of the USP classification system as a comparison tool,” the proposal says.

State Mandates

The proposed rule touches on other issues that may impact formularies, including how existing state mandates fit with the EHB requirements.

The ACA allows states to require EHB plans to offer benefits in addition to those designated by the EHB regulations but directs that states defray the cost of those additional benefits. That raises questions regarding some state drug coverage mandates, such as laws requiring cost-sharing parity for oncology drugs or prohibitions against the use of formulary specialty tiers.

A growing number of states have passed laws aimed at requiring insurers to cover oral oncology drugs with the same member cost-sharing required for intravenous or injected chemotherapy agents (Also see "State Mandates On Oral Chemo Copay Parity Push Payers To Control Costs In Other Ways" - Pink Sheet, 24 Sep, 2012.). Although few states have actually passed laws banning specialty tiers – New York and Vermont are two that have done so – legislation prohibiting specialty tiers has been introduced in a number of state legislatures in the recent past and is likely to be considered again (Also see "State Bills Setting Specialty Tier Limits Await Health Reform Developments" - Pink Sheet, 22 Aug, 2011.).

To provide further clarity around which state mandates would have to be paid for by the state, HHS proposes that exchanges identify the benefits that are “in excess” of the EHB standards. The department also said it will publish a list of state-required benefits for exchanges to use as a reference tool.

Actuarial Value

The proposal includes detailed instructions on how insurers determine the actuarial value of plans to describe their level of coverage. Under the law, plans covering 60% of the costs of benefits will be designated as “bronze,” those covering 70% will be “silver,” 80% will be “gold” and 90% coverage will be “platinum.” The designations are intended to help consumers choose between plans but would not reflect plan features such as formulary breadth or whether a formulary includes only generic drugs.

To determine actuarial value, insurers input information on cost-sharing parameters to an AV “calculator” developed by HHS. Cost-sharing information would include deductibles, copays, coinsurance and out-of-pocket limits.

In its description of the AV calculator, HHS notes that cost sharing for a typical drug benefit design could include consideration of member coinsurance for drugs placed on specialty tiers. HHS’ reference to specialty tiers in the AV guidance is interesting, since most employer plans do not currently include them. According to the 2012 Employer Health Benefits Survey conducted by the Kaiser Family Foundation and the Health Research and Educational Trust, 14% of plans currently have four or more formulary tiers and in those plans, coinsurance for fourth-tier specialty drugs averages 32% of a drug’s cost. However, the use of specialty tiers in private insurance plans is a growing trend, which HHS apparently recognizes.