Currently, if a Part D plan includes a certain drug on its formulary, the plan must cover that drug for every Food and Drug Administration-approved condition. This can discourage Part D plans from including more drugs on their formularies and limit their power to negotiate discounts, the CMS said.
Starting in 2020, plans can tweak their formularies so that different drugs will be covered for a defined set of indications, the agency said.
In addition to improving plans' bargaining power, indication-based formulary design will give beneficiaries more drug choices, according to the CMS.
"By allowing Medicare's prescription drug plans to cover the best drug for each patient condition, plans will have more negotiating power with drug companies, which will result in lower prices for Medicare beneficiaries," CMS Administrator Seema Verma said in a statement.
If a Part D plan limits formulary coverage of a drug to certain indications, the plan must ensure that there are other therapeutically similar drugs on the formulary for the drug's non-covered indications.
The agency will update the online tools that beneficiaries use when selecting a Part D plan so beneficiaries will see that a plan's coverage for a drug varies by indication before they make a choice in 2019 for their 2020 plan.
The CMS will also require plans to explain what it will mean for beneficiaries in the their annual notice of change and evidence of coverage documents. The agency will also update the 2020 Medicare & You handbook.