Medicare formulary designs are susceptible to legislative endeavors aimed at curtailing rising drug prices and improving patient affordability. Unlike the commercial sector, Medicare does not need an act of Congress in order to implement new regulations; hence, they can be acted upon quickly. With the new 2020 benefit year around the corner, it is likely that Medicare plan sponsors will take advantage of benefit design changes and new regulatory allowances that Centers of Medicare and Medicaid Services (CMS) has implemented over the past 2 years. Examples of regulatory changes in Medicare that can influence formulary offerings include:

  • Bipartisan Budget Act of 2018
    • Accelerated the closing of the donut hole
    • Increased the mandated drug manufacturer discount in the coverage gap from 50% to 70%
    • Removed exclusion status of biosimilars from the Coverage Gap Discount Program
  • Indication-Based Formulary Design
    • Plan sponsors no longer have to cover a drug for every FDA-approved indication
    • Formulary coverage can vary by indication
  • Step therapy for Part B drugs (Medicare Advantage)
    • Step therapy policies can be used for Part B drugs
    • Part D drugs can be used as part of Part B step criteria

The extent to which plan sponsors take advantage of these changes will be interesting. Not only might there be operational challenges, ensuring compliant operation of these changes is also a critical factor. With that said there are some signals that could help forecast Medicare plan sponsor response to recent legislative updates. For example, a recent study of Medicare Advantage plans found that over 50% of plans implemented a step therapy protocol for at least one rheumatoid arthritis drug covered on Part B.1 Additionally, CMS has recently indicated that Part D premiums have declined by 13.5% since 2017 and forecast 2020 to follow suit.2

Based on signals that plan sponsors are leveraging CMS regulatory changes and that premiums are expected to trend similarly to years past, it would be safe to forecast that 2020 Part D formularies are likely to include Part B step therapy programs and indication-based coverage policy for select drugs. Specialty drugs are the most common targets of these programs as they often possess multiple indications and their mode of administration is more likely to fall into Medicare Part B. Biosimilar uptake, however, is more difficult to forecast. Steeper rebates by innovator brand manufacturers could maintain net cost advantages for the plan sponsor, although lower WAC prices of biosimilars may rule in favor of the beneficiary, especially with coinsurance cost sharing in the specialty tier.

Speaking of WAC prices, public perception around drug prices may force the payer’s hand to favor lower WAC drugs. Coupled with downward trending premiums, leaner formularies that favor more restricted brand selection and higher generic utilization can be expected, especially for basic Medicare formularies. Predicting 2020 Medicare formulary designs is by no means an exact science, but with a continued legislative focus on patient affordability and drug pricing, it’s a safe bet that more changes are just around the corner.


  1. Sullivan M, Duddy-Tenbrunsel R, O’Laughlin C. Over half of Medicare Advantage beneficiaries enrolled in plans that require step therapy for new starts of part B RA biologics in 2019. Avalere. Published July 1, 2019. Accessed September 5, 2019.
  2. Trump administration drives down drug costs for seniors [press release]. Published July 30, 2019. Accessed September 5, 2019.