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Market Access 101: Formulary and Medical Exceptions

By Carolyn Zele

Beginning with the basics, our Market Access 101 blog series has addressed how manufacturers can improve formulary placement for pharmacy benefit drugs, secure coverage and assess the need for contracting for medical benefit therapies.

In this final post, we’ll explore what it means to request a formulary exception or medical exception for a non-covered therapy. As we’ve said previously, payers and PBMs often place a mandatory six-month block on new therapies, to allow for review by the P&T committee as final coverage is determined.

While circumventing these initial coverage blocks is a critical consideration during a drug’s launch period, it’s important for manufacturers to understand how the exception process functions for a drug throughout its lifecycle. In some cases, manufacturers might find that market access improves when they succeed in persuading payers/PBMs to cover their drug. In other cases, the bulk of a manufacturer’s patients may access their drug exclusively via exceptions—which may be perfectly fine.

What is a formulary exception?

Recent MMIT data reveals that approximately 75% of all formularies are still considered open. In theory, this means that any drug that is not listed on a payer or PBM’s formulary can still be prescribed—if, of course, providers are willing to take on the administrative burden of requesting an exception.

It’s important to remember that a payer’s formulary is essentially an advertisement of coverage. There are some drugs that a payer will cover, but which are not listed publicly on the formulary. For example, a payer may recognize that it needs to provide patients with access to an expensive gene therapy. If the payer advertises that fact by placing it on the formulary, patients in need of that therapy may switch plans to obtain coverage—and then the payer is obligated to pay for an expensive treatment for several new patients.

Most payers and PBMs also publish a formulary exclusion list, which specifies drugs that they will not cover. Changes and additions to these lists are common, and patients are often asked to switch medications mid-treatment. However, even the existence of a drug on a formulary exclusion list does not mean that the payer/PBM will not cover it if it’s judged to be medically necessary.

For drugs on the pharmacy benefit, formulary exceptions are usually driven at the point of sale by the pharmacist. If a drug is explicitly excluded from the formulary, the pharmacist will be alerted during claims processing that the drug is not covered.

More often than not, if the drug is not listed on the formulary and isn’t explicitly excluded, it may simply be processed at the point of sale without error. The payer may have decided not to advertise coverage but may still cover the drug. In this case, there is usually a tier placement default for non-formulary drugs, generally at the highest patient co-pay tier.

When are pharmacists likely to request an exception?

If the pharmacy claims system rejects the claim, the pharmacist can choose to make a call to the processing hub that manages claims assistance to request a one-time exception. For the most part, these exceptions are typically granted. Each hub will likely have a variety of thresholds that trigger a review, such as a cost threshold or multiple-prescriptions threshold. In these instances, the exception request may be routed to the on-staff medical director for review and approval or denial.

Most manufacturers of non-formulary drugs view their goal as either to contract with the payer for coverage or to rely on pharmacies to request exceptions. Pharmacists are incentivized in a variety of ways, most notably by an abundance of inventory in the pharmacy or a lack of alternatives in inventory. Many times, it is easier to make the exception call than to call the doctor for a different prescription.

For example, if a pharmacist is handed a prescription for a non-formulary drug and happens to have that drug in stock, they are more likely to go to the trouble of requesting an exception, as they want to sell their existing inventory. Conversely, if a pharmacist is handed a prescription for a non-formulary drug and they have a generic or reference drug available instead, they are more likely to call the doctor to request a different prescription.

Patient preference can also be a motivating factor. If a patient explicitly asks the pharmacist to call and get an exception, the pharmacist is likely to do so; of course, most patients aren’t aware that they have this option. Often, the pharmacist will hand the prescription back to the patient and tell them to call or visit their doctor again for an alternative prescription.

What is the sweet spot for non-formulary drugs?

Although the formulary exception is technically a one-off, if a patient needs a refill of the drug within 120 days, that refill—along with all subsequent refills—are also likely to be covered. Once the exception is processed and the prescription is in the patient’s claims history, most claims processing hubs will bypass the exclusion edit. The patient will be able to access the drug indefinitely.

This access trick poses a conundrum for manufacturers. If a manufacturer’s non-formulary drug is in the sweet spot—meaning that it’s an inexpensive drug dispensed from retail pharmacies rather than specialty pharmacies—it may be preferable for manufacturers to maintain the status quo rather than attempting to get on a plan’s formulary.

Let me explain. If a manufacturer of a drug in the sweet spot negotiates with a payer to gain formulary placement, the payer may well agree to cover that drug, but only with utilization management restrictions. Physicians might need to submit a prior authorization, subject to review by the plan’s medical director, before the prescription is allowed. Worse yet, the drug might be saddled with step therapy restrictions, which specify that patients must first step through a competitor’s drug before beginning treatment.

Both scenarios are typically much worse for manufacturer’s bottom line than the drug remaining unlisted or on an exclusion list. Essentially, if a drug has the potential to be in the sweet spot, the manufacturer is likely better off choosing to send its sales reps to educate physicians about the drug’s benefits and availability to their patients, regardless of formulary placement.

What is the process for a medical exception?

For drugs on the medical benefit, the exception process is typically initiated only for newly launched drugs with a coverage block. Medical benefit exceptions are always procedure-related, as the physician is essentially asking for an exception to be reimbursed for performing a procedure in a certain manner, using certain therapies.

The medical benefit exception process is not automated, as payers do not write policies or requirements for drugs they don’t cover. The physician must write and submit a letter of medical necessity to the plan’s medical director, which can be a hassle. Many manufacturers of medical benefit drugs have created prescribed templates for the medical necessity letter to ease this administrative burden. After filling in the patient’s details, the physician can send off the letter with reasonable certainty that it will be accepted by the payer.

While this process is more involved than a simple phone call, it can still be completed within 24 hours, especially if the patient in question is a Medicare beneficiary. If the payer covers an alternative therapy that is already listed within its medical policies, it is unlikely to approve the exception.

However, if there is no alternative therapy—or if the uncovered procedure can be clinically proven to be the right procedure for the patient—payers are more likely to grant the exception. Physicians are also more incentivized to fight for an exception when they recognize that their patient really needs this particular therapy.

Essentially, the two key factors that determine the likelihood of being granted a medical exception are the drug’s competitive landscape and the patient’s severity of disease. If a patient is very sick and the selected drug is more efficacious or less toxic than other available drugs, the non-covered drug is more likely to be approved.

As with formulary exceptions, the patient’s preference, clinical history, and willingness to agitate on their own behalf can play a pivotal role. Doctors are far more likely to request an exception if their patient is educated about the process and insists on fighting for the treatment in question. If the patient has been successfully treated on the non-covered drug in the past, or if they are resistant to the offered alternative, the request is also more likely to be approved.

If a payer initially denies the medical exception request, the physician can appeal. The appeals process is more likely to be successful for Medicare patients, as Medicare and Medicare Advantage plans are preoccupied with their Star ratings—which are based largely on member satisfaction. A patient who complains to CMS can negatively impact a plan’s ratings, which can have disastrous cumulative effects for the plan in question.

As with all things market access, knowing how payers and PBMs will respond to any drug in the marketplace requires in-depth data analysis. How will insurers evaluate a drug’s efficacy, price point, and comparative value? How will they choose to govern and manage a given therapy? What policies, requirements, and restrictions are associated with a drug? Will the drug be listed, unlisted, or excluded from formulary? What percentage of exception requests will be granted, and for what reasons? Is contracting beneficial for the manufacturer, or might it backfire given the therapeutic area, coverage restrictions, or competitive landscape?

By developing a sound, data-driven commercialization strategy, manufacturers can answer these questions in advance to secure patient access, generate healthy revenue, and grow their market share.

Need pre-launch insight into how payers might evaluate or manage your therapy? Learn more about MMIT’s P&T Perspectives solution and Strategic Launch Report.

For a view into payer and prescriber behavior, learn how combined coverage and claims data in MMIT’s Patient Access Analytics can help you overcome access barriers.

© 2024 MMIT
Carolyn Zele

Carolyn Zele

As a solution consultant for MMIT, Carolyn Zele helps pharmaceutical manufacturers simplify market access and prepare for launch success. Prior to MMIT, Carolyn spent numerous years in the payer/PBM space managing formulary teams and technology across both regulated and non-regulated lines of business.

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