What is indication-based utilization management and how will it affect Medicare Part D plan members?

Indication-based utilization management (or indication limitations) is a type of utilization management that a Medicare Part D prescription drug plan can implement along with the plan's prior authorization (PA) requirements.

Question: What is an "indication"?

A medically-accepted "indication" refers to the specific medical condition, diagnosis, or disease for which a formulary drug is being prescribed - for example, a doctor may say, "insulin is indicated for the treatment of diabetes".

(see: https://www.medicinenet.com/indications_for_drugs__approved_vs_non-approved/views.htm and
https://www.cms.gov/Medicare/Prescription-Drug-Coverage/PrescriptionDrugCovContra/Downloads/Part-D-Benefits-Manual-Chapter-6.pdf)

Question: Are there benefits to indication-based utilization management?

According to the Centers for Medicare and Medicaid Services (CMS), "indication-based formulary design is a formulary management tool that allows health plans to tailor on-formulary coverage of drugs predicated on specific indications [or medical conditions]." In short, CMS outlines several benefits to the use of indication-based formulary design:

(1) Reduced drug and plan cost.

CMS expects that this form of utilization management will provide Medicare Part D plan sponsors "additional negotiating leverage with [drug] manufacturers, which can reduce beneficiary and program costs."

(2) Increased number of drugs on Medicare Part D plan formularies with a focus on specific medical conditions.

CMS also expects indication-based formulary design "will increase the number of drugs available on formularies and promote diversity of formularies. By virtue of these broader formularies and underlying negotiations, beneficiaries will be able to access more drugs at lower prices. Since this policy provides sponsors the flexibility to add a drug to their formularies for specific indications, as opposed to leaving the drug off of the formulary altogether, patients in need of the drug will have access to the negotiated price and will have to rely less on the appeals process. This formulary approach will help ensure Medicare beneficiaries receive individualized drug treatment that is targeted to meet their [unique health] needs." [emphasis added] Question: What are the downsides to indication-based utilization management?

As noted in an August 30, 2018 press release from the American College of Rheumatology (ACR), allowing Medicare Part D plans to utilize indication-based formulary is a "departure from current policy, which requires plans to cover each on-formulary drug for all indications that are approved by the FDA. It takes clinical decision making out of the hands of providers and puts insurance companies in control of patient treatment plans.

Furthermore, the proposed changes will exacerbate many of the access issues patients currently face with plan usage of existing utilization management practices, such as step therapy. Unlike step therapy, which often delays effective treatments, this proposal would go even further and allow plans to remove therapies from the formulary altogether, leaving patients completely unable to access treatments that doctors and patients choose together."

The ACR were also concerned at how indication-based formulary design would impact the "work being done on compendia inclusion to secure off-label drug coverage if plans don’t have to cover all approved FDA-approved indications."

("ACR Statement Regarding Recent CMS Guidance on Indication-Based Formulary Design", August 30, 2018 https://www.rheumatology.org/About-Us/Newsroom/Press-Releases/ID/945/ACR-Statement-Regarding-Recent-CMS-Guidance-on-Indication-Based-Formulary-Design)

Question: How does indication-based utilization management work?

As with typical prior authorization, a Medicare Part D plan will require a plan member to try a preferred formulary drug before they are provided coverage for, or access to a "non-preferred" drug - however, with indication-based utilization management, the prior authorization requirements can differ depending on the medical condition or "indication".

An example of indication-based utilization management provide by CMS notes, "a Part D sponsor may require a specific tumor necrosis factor (TNF) blocker be used first for [the medial condition] plaque psoriasis, but that same [formulary drug] might not be authorized for rheumatoid arthritis until [the plan members tries] a different TNF blocker."

To meet anti-discrimination requirements, CMS has also stressed that, if "a Medicare Part D plan sponsor chooses to tailor on-formulary coverage of drugs to certain indications, it must ensure that there is another therapeutically similar drug on the formulary for the non-covered indication" - for example, "if a tumor necrosis factor (TNF) blocker is FDA-approved for both Crohn’s disease and plaque psoriasis, but the Part D plan will include it on the formulary only for plaque psoriasis, the plan must ensure that there is another TNF blocker on formulary that will be covered for Crohn’s disease."
Question: How will you know whether your Medicare Part D plan will use indication-based utilization management?

CMS has stated that a Medicare Part D plan must "clearly define the [indication-based] requirements" and this information will be included within the plan's Annual Notice of Change (ANOC) letter and Evidence of Coverage (EOC) document that is sent to every current Medicare Part D plan member in late-September through mid-October of every year. CMS will also update the Medicare & You document, informing all Medicare beneficiaries "that formulary coverage may also depend on the disease state, or indication, for which the drug is being prescribed." In addition, Medicare will update the Medicare Plan Finder to show when a particular drug is subject to indication-based management.

Question: When will we see Medicare Part D plans starting to use indication-based utilization management?

2019 Medicare prescription drug plans can begin to use indication-based management or, as noted by CMS, Medicare Part D plan sponsors "may utilize step therapy-like requirements within their [prior authorization] to promote cost-effective drug therapy by requiring the use of one formulary drug for a certain indication prior to authorizing coverage of a second drug for that indication."

However, CMS provided only a small window of time when Medicare plan sponsors could alter their existing 2019 formulary design and include this form of utilization management. CMS noted: " [2019 Medicare Part D plan] sponsors will be given the opportunity to modify their formulary submissions during the August 6-8, 2018 limited formulary update window in order to incorporate P&T committee-approved indication-based UM."

In 2020, more Medicare Part D plans (PDPs and MAPDs) can be expected to incorporate this new form of utilization management. As noted in the CMS August 29, 2018 Press Release: "starting in 2020, plans will have new flexibility to tailor their formularies so that different drugs can be included for different indications [or medical conditions]. This policy, known as “indication-based formulary design,” is used in the private sector and will enable Part D plans to negotiate lower prices for [plan members]. Targeted formulary coverage based on indication will also provide Part D beneficiaries with more drug choices and will empower beneficiaries to select a [Medicare Part D] plan that is designed to meet their unique health needs."

Question: Can we still ask for our Medicare Part D plan for a formulary exception or coverage determination with indication-based utilization management?

Yes, as noted by CMS, "[if] a Medicare Part D plan does not include particular indications for a Part D drug on its formulary, requests for coverage of the drug for those indications will be treated similar to any other formulary exception request for an off-formulary drug. Part D transition requirements will still apply under this formulary design."

As of June, 2025, the number of 2025 Medicare Part D plans using indication-based formulary designs remains small -- only thirty plans are participating. Only nineteen drugs on these formularies fall under the indication-based requirements and only fourteen different conditions are indicated, including: Arthritis, Psoriatic; Arthritis, Rheumatoid; Asthma; Cataplexy; Colitis, Ulcerative; Crohn Disease; Cryopyrin-Associated Periodic Syndromes; Major Adverse Cardiac Events; Migraine Disorders; Narcolepsy; Prurigo Nodularis; Pulmonary Disease, Chronic Obstructive; Spondylarthritis; and Spondylitis, Ankylosing.

Primary Sources:

"CMS provides new flexibility to increase prescription drug choices and strengthen negotiation for Medicare enrollees", August 29, 2018 (https://www.cms.gov/newsroom/press-releases/cms-provides-new-flexibility-increase-prescription-drug-choices-and-strengthen-negotiation-medicare)

Fact sheet: "Indication-Based Formulary Design Beginning in Contract Year (CY) 2020", August 29, 2018
https://www.cms.gov/newsroom/fact-sheets/indication-based-formulary-design-beginning-contract-year-cy-2020

"Indication-Based Formulary Design Beginning in Contract Year (CY) 2020", August 29, 2018 (https://www.cms.gov/Research-Statistics-Data-and-Systems/Computer-Data-and-Systems/HPMS/Downloads/HPMS-Memos/Weekly/SysHPMS-Memo-2018-Aug-29th.pdf)

"Indication-Based Utilization Management", July 25, 2019 (https://www.cms.gov/Research-Statistics-Data-and-Systems/Computer-Data-and-Systems/HPMS/Downloads/HPMS-Memos/Weekly/SysHPMS-Memo-2018-July-25th.pdf)