Medical Necessity Exception Criteria for Closed Formulary Benefits and for Dispense as Written (DAW) Exception Reviews
*This policy is managed through the Pharmacy benefit.
Closed formulary benefits normally do not provide coverage for nonformulary (nonpreferred) drugs; however, in certain clinical situations, adequate pharmacotherapy may not be provided by prescribing a formulary drug.
Use of a nonformulary drug may be considered medically necessary in certain circumstances. Coverage of an appropriate nonformulary drug will be approved when the criteria in this policy are met. (See Policy Guidelines)
Use of a brand name drug that has a generic equivalent (dispense as written [DAW]) without requiring the member to pay the difference in cost between the brand and the generic may be considered medically necessary in certain circumstances. Coverage of a brand name drug will be approved when the criteria in this policy are met. (See Policy Guidelines)
Coverage of a nonformulary drug may be considered medically necessary on closed formulary benefits under any of the following three circumstances:
Coverage of a brand name drug that has a generic equivalent (dispense as written [DAW]) without requiring the member to pay the difference in cost between the brand and the generic may be considered medically necessary when the prescriber has documented an adequate trial of the generic equivalent product and:
When an exception to the DAW rule is approved based on medical necessity, the member must still pay the appropriate prescription copay or coinsurance for the brand product, according to the member’s formulary benefit. Other applicable benefit requirements, such as step therapy edits, are not waived by this exception and must be reviewed separately.
FDA MedWatch form is available at: http://www.fda.gov/downloads/Safety/MedWatch/HowToReport/DownloadForms/UCM082725.pdf.
A formulary is a list of drugs approved by the Pharmacy and Therapeutics Committee (P&T) for routine use. A well-designed formulary should provide adequate drug selection to meet the treatment needs of most patients; however, there will always be exceptional cases where a nonformulary drug may be the best therapeutic choice.
A formulary drug (also known as a preferred drug) is a drug that is on the formulary list. Drugs that are not on the list are referred to as nonformulary drugs.
Closed Formulary Benefit
A closed formulary benefit is one that routinely covers only formulary (preferred) drugs. A nonformulary drug may be covered when its use has been determined to be medically necessary after a review of the individual clinical case circumstances.
When the original patent on a brand name drug expires, other manufacturers may produce generic versions. A generic equivalent is a generic that has been approved by the FDA, based on pharmacokinetic studies that demonstrate delivery of similar amounts of the active ingredient(s) to the blood stream of healthy volunteers, with comparable concentration-time profiles. Generic equivalence evaluations are published by the FDA in the Orange Book.
A formulary alternative is a drug that is not generically equivalent to the reference product but is expected to produce similar treatment outcomes in the majority of patients with a certain condition. Formulary alternatives may be either brand name or generic drugs.
Lack of a Formulary Alternative
Occasionally, a drug may not have a suitable formulary alternative. This occurs when a product has recently been approved by the FDA and is pending formulary review, or when the Pharmacy and Therapeutics committee believes the potential risks generally outweigh the demonstrated clinical benefits of the drug. In such cases, it may be appropriate to use the drug in certain individual patients, despite its lack of formulary status.
Dispense as Written (DAW)
DAW refers to member contract provisions requiring that a member pay the difference between the prescription price of a generic drug and the corresponding multisource brand drug when the brand is dispensed. This applies only in situations where the FDA has reviewed evidence documenting that the generic product is bioequivalent to the corresponding brand (i.e., both products deliver approximately the same amount of active drug to the blood stream with similar concentration/time profiles). Such products are assigned an “AB” rating by the FDA, as published in the Orange Book.
Even when FDA has rated a generic drug as AB equivalent, there may be rare cases where an individual does not receive the same benefit from the generic, or experiences side effects or an allergic reaction to the generic. Often, but not always, in such cases an alternative drug may be appropriate,
Product label refers to the FDA approved prescribing information that is available for every legend drug approved for use in the U.S. The label includes indications, contraindications, recommended dosing, warnings, precautions, side effects, drug interactions and information on safety in pregnancy and other special populations. The drug’s pharmacology, pharmacokinetics, and available dosage forms are also provided. The current format also includes a summary of the pivotal clinical trials that were submitted to FDA in support of the New Drug Application.
This prescribing information is included as a package insert with the product and is available on the manufacturer’s Web site.
Medical policies are systematically developed guidelines that serve as a resource for Company staff when determining coverage for specific medical procedures, drugs or devices. Coverage for medical services is subject to the limits and conditions of the member benefit plan. Members and their providers should consult the member benefit booklet or contact a customer service representative to determine whether there are any benefit limitations applicable to this service or supply.
This policy applies only to closed formulary pharmacy benefits and to pharmacy benefits containing the DAW requirement. (See definitions in Description section above.) As used in this policy, “Formulary” refers to the applicable formulary list specified in a member’s contract. The policy does not apply to open benefit designs in which nonformulary drugs are covered, though in some cases at a higher tier.
This policy is managed through the Pharmacy benefit.
New policy, add to Prescription Drug section.
A link to the FDA MedWatch form was added to the Policy Guidelines section.
Replace policy. Criteria for medical necessity of using a multisource brand in lieu of a generic were added. Policy title expanded to include “and for Dispense as Written (DAW) Exception Reviews”.
Minor Update – Clarification was added to the policy that it is managed through the member’s pharmacy benefit; this is now listed in the header and within the coding section.
Replace policy. Policy Guidelines section updated to better clarify when nonformulary drugs may be considered medically necessary for both labeled and nonlabeled indicaitons; information on how to obtain FDA watch site added. Description section updated with definition of label as it applies to prescription drugs. Reference #2 added; #3 renumbered.
Update Related Policies. Change title to 5.01.547.
Disclaimer: This medical policy is a guide in evaluating the medical necessity of a particular service or treatment. The Company adopts policies after careful review of published peer-reviewed scientific literature, national guidelines and local standards of practice. Since medical technology is constantly changing, the Company reserves the right to review and update policies as appropriate. Member contracts differ in their benefits. Always consult the member benefit booklet or contact a member service representative to determine coverage for a specific medical service or supply. CPT codes, descriptions and materials are copyrighted by the American Medical Association (AMA).