HEALTH AND SENIOR SERVICES

OFFICE OF MANAGED CARE

Drug Formularies

Adopted New Rules: N.J.A.C. 8:38-18
Adopted Amendment: N.J.A.C. 8:38-1.2
Proposed: January 18, 2000 at 32 N.J.R. 211(a).
Adopted: November 30, 2000 by Karen L. Suter, Commissioner, Department of Banking and Insurance and Christine Grant, Commissioner, Department of Health and Senior Services.
Filed: November 30, 2000 as R.2001 d. 8, with substantive changes not requiring additional public notice and comment (see N.J.A.C. 1:30-4.8).
Authority: N.J.S.A. 26:2J-43e and 43h.
Effective Date: January 2, 2001.
Operative Date: July 1, 2001.
Expiration Date: January 17, 2002.

Summary of Public Comments and Agency Responses:

The Department received a total of 642 comments from the following:

Oxford Health Plans, AmeriHealth HMO, Inc.

Horizon Healthcare of New Jersey, Inc.

Wyeth-Ayerst Pharmaceuticals

New Jersey Pharmacists Association

Garden State Pharmacy Owners

PCS Health Systems

Pharmaceutical Care Management Association

Physicians Health Services of New Jersey, Inc.

Medical Society of New Jersey

Wesley S. Chodos

David M. MacPeek

Ginger Taylor

Natalie Weising

Virginia Yelen

Kathy Hoyer

Jill Kuser

Joseph Conti

Joseph Hassman

Julian M. Maressa

Richard Mauriello

Mavola Tench

Jeffrey Ranalli

Young D. Kong

Bert Brzyinski

Barry Hoffman

Shastra Solomon

Jesse V. LoMonaco

James T. Gibney

Virginia Mooney

Joseph DiLisi

Glenn R. Stehman

Arlene Marchesani

Howard Cohen

Mariano Battaglia

Carolyn P. Meyer

Stuart J. Maslin

Arthur G. Nahas

Randi M. Kodroff

Mark Leone

Melissa A. Solt

Virender Sethi

David L. Arluck

Eric Comsti

Gary Misko, Jr.

Edward J. Strow

Edward Wrobleski

Warren Wolfe

Richard Molion

David F. Porter

Neil Levin

R. Badilow

Bonnie Stoll

Iradj Sharim

John Osler

Evan A. Stamos

Albert Francesconi

Irwin Roseff

V. Paul Kate

Karen Giquinto

Steven A. Samuel

L. Augi

Muhammed Ayub

Howard Shivers

William J. Mullin

James W. Vick

Kathleen H. Agey

Desiree Clisura

Gerald Weisfogel

Michael P. Basista

Catherine Carey

Gerard Genna

James J. Holton

Iradj Sharim

Leonard V. Ridilla

Vivane Ackad

Robert C. Bransfield

Sudha Garla

Geraldo Garcia

Robert M. Silverbrook

Cindy Longo

Joseph Salese

Libero Saraceno

Kenneth Y. Chern

Adina Alexescu

Nora Tsivgas

Meryle Fulton

George Logothetis

Sharyn M. Tykot

Byung Sik Choi

James N. Logothetis

Terri McKenzie

Steven J. Daniels

Alysia Schultz

Sevasti Tslvgas

Marnie Lynn Johnson

Tom Tsivgas

Paul J. Alessi

Joseph A. Rodriguez

Oscar T. Ortiz

Edward Infantolino

Teresa Penotta

Jin S. Park

Francis Gialanella

Salvatore Mannine

Paul VanHouten

Marie Vasta

Lee Ann VanHouten

Paul J. Alessi

David A. Forstein

William M. Iannacone

Mary St. John

Charles Keith

Jocelyn Bautista

Donna Backner

Grace Ceragno

R.J. Daley

Michele Higgins

Rao S. Gourkanti, MD

Joseph Berger

Paulino D. DeoCampo

Alicia Dermer

Jeffrey Meyerowitz

David N. Goldberg

Antonio Morgado

Deborah McCarthy

Nadine Rosenthal

Onito Y. Sanchez

Natalie Tsigones

Murray Klein

Carmine Vaccaro

A. Applegate

Adrienne M. Kauffman

Mathew Basara

Mary Ann Sciamanna

Stephen M. Levine

Bernard Adler

Alex T. Makris

Lonnie Hanauer

Virender Sethi

Pranay J. Vaidya

Patrick Tempera

Kelly Walter

Nicholas Juele

D. Masons

Joseph Rizzo

Christine Cille

Jason Silberman

Morteza Shahamat, MD

Catalino L. DeLaCruz, MD

Charles Richwine

Lori Tierno Richwine

Dorothy Amico

Patricia M. April

S. Mohsin Raza, MD

Jagdish Chugh, MD

Herbert Stein

Rachel Shapin

Kenneth Goldstein

Patricia Mello, MD

Bharat Singh

Michael Uhrim

Michael S. Rothberg

James P. Smith

Vy Walta

Kenneth Liss

Joseph Hickey

Larry Cohen

Bevon D. Miele

Anna DeDona

Joan Choper

Pauline Pebutt

Azeem Khawaja

Lisa Judson

Mohammad Khalid, MD

Michael Aiellos

David J. Silberman

Carolina U. Remorca

Jeffrey A. Smith

Vernon C. Buckly

Manuel T. Amendo

David Schiff

Frances Gaona

James Garramone

Steven Horvitz

Rosalee Fullo

Guy Buonicontro

Leonard Savino, MD

David G. MacKinnon, MD

John Capitanelli, MD

Nancy E. Janik, MD

Julian Auerbach

Matthew Robbis

Judee Carlesimo

Nancy Tripodi

Art J. McDermet

Stephen Monaghan

Lori Knight

Michael Knight

Edmund J. Decker

Adele Meyer

Kenneth Belitsis

J. Bekdemir

Jennifer Nin

Zenda Caphil

Susan Van Hassale

Harvey Hirsch

Helen Raczkowski

Harold Garwin

Denyce N. Shrieks

Joy Miller

Simon Vichnevetsky, MD

Jacob Ody

Ronald Lehman

Jacki Lee

Victor Iturbides

Tracy Baroni

John Mastrogiacomi

Scott Adler

James D'Amico

Martin Finn

Kelly Laurysh

Kathleen S. Johnson

Ali R. Moosvi

Gina Cheli

Sameer Patel, MD

David E. Cohen, MD

Alan D. Waroonker

Mary White

Jane Elmiger

M. Piszcz-Connelly

Rashmi Dayal, MD

Oliver Felibrico, MD

Kathy Leonelli

Richard McDonnell

Melissa Wagner

Doris E. Pellecchia

Robert S. Patitucci

Parminderjeet Sandu

Dolores Griffen

Jerrold Friedman

Paul R. Axelrod

Susanne Zimmerman

Lance Steerman, MD

Sean McGee

Allen Shalit

Frank L. Wilczynski, MD

Heather Robberson

Anthony J. Casella, MD

Inthumathy Surendran

Jay A. Vida

Elizabeth Northam

Ira Haimowitz

William F. Mills

Deb Solazzo

Karen LeValley

Jennifer Sullivan

Leslie Cauvin

Dawn Stein

Kim Anderson

Patricia Kernan

Arlene Papovich

Katherine Howard

Pam Ecret

Lucille Buglisi

John L. Vidal

John G. Cavalli, MD

Nicholas Romanoff

James Lampariello

Kirk O'Connell

J.S. Leitman, MD

Janet Adams

Joseph Remes

John R. Amrien

Robert Shanik

Helen Mate

Ira Haimowitz

James Crudele, MD

Anna Yuzefovich

Jeffrey H. Millstein

Roz Jones

Michelle Bardgett

Sarwat Azhar

Heather Hughes

Athos Simotas

Nimish Patel

Louis Schwarcz

Vinnae Hopson

Alexander Rodi, DO

Lisa Romero

Roland A. Lascari

Lionel Foz, MD

Patricia Collins

Meredith Schade

Albert Wermuth

Jacqualine S. Wheiler

Darren Raj

Anthony Losardo, MD

Kimberly Lavender

Thomas G. St. John

Warren Maresca, MD

S.K. Mate, MD

Jacqueline Wells

Mary Kay Auldyle

Ronald Intelisano

Herbert Rosengarten

Irving P. Ratner

Tara Levine, MD

Ameet Parikh

Herbert S. Rosenthal, MD

C. Alexander Moskwa

Jacqueline Bourne

Francis C. Meeteer

Kimberly McAdam

Gregory Sullivan, MD

Gerald Hershman, MD

Richard Levandowski

Arlene Burke

Elizabeth Apel

Peter Yonclas

Eddie Rosa, MD

Christine Laino

Catherine Meli, MD

Susan McGee

Lisa Block

Noel Mivera

Myron A. Lipkowitz, MD

Jacquelyn Adams

Patti Mastrogiacomo

Parish Patel

Steven Roberts, MD

Jonathan R. Anolik, MD

Richard Ebert, MD

Annette Mastrogiacomo

Nagy Guirguis

Patricia D. Molinaro

Mark L. Alfieri

Carmen E. Ramos

Noelia Cortes

Helen Atienza

Thomas Reutter, MD

Jill Kirby

Abbas Shehadeh, MD

David W. Galetto

Gary S. Packin, MD

Melissa Escobar

Richard Ebert

Leon Haywood

Chaitali Dev

Bob Fusco

Joseph Bogdan

Loretta Maier

Maria A. Kleiber

Robert L. Venuti

John J. Napoleon, DO

Jodi D. Kaufman, MD

Kenneth Lipkowitz, MD

Beth Cascoli

Kristen Atienza

Jacqueline Zuckerbrod

Joyce Mangini

Charles Peeples, MD

Patti Bump

John Ohreno, MD

James P. Watkin

Marc Michelson, DO

Ijaz Vehra, MD

Nilesh Rana

Agnes Luzveldo

Arthur & Nancy Bancroft

K. Puri, MD

Michael N. Jolley, MD

Terri Irizarry

Stanley A. Markunas

Frank Pelly

Michele McCartney

John W. Jayne

David Brown, MD

Mary Lehaf

Mary Mullaney

Minaxi Parikh

Nancy Peters

David S. Bodmer, MD

Peter Minck, MD

Jerald Hershman, MD

Alan E. Schultz

William C. Ledgerwood

Michael Bravoco

James Orlando

Michael F. Lurakis

Eric C. Gokcen

Phyllis Imhof

Joseph Ranieri

Tommy Zappulla

Joshua M. Crasner

Linda Morrissey

Donald J. Dvorin, MD

Robert N. Davison

Caesar Atienza

Anna Pogribnitchenko

Donna Rugenas

Colin Campbell

Jeffrey H. Millstein, MD

Karen Chiarulli

Jeffrey Salizzoni

Ginger Bauer

Mohamed Meleis

Susan Flanzman, MD

Gerard T. Eichman

John J. DiBiase

Myrtle Wodellton

Stuart Diamond

Gabor Kovacs, MD

Mario Maiese

John Gartland

H. Michael Juna

Michael Hurley

Louis Fusili, MD

Jack Flanagan

Sharon Angelo, MD

Marge Rubin

Claudio Lopez

Darshi Sunderman

Selim U. Sheikh, MD

Larry I. Rubin

Joann Eufemia

Rita Delcastillo

Maria Guth

Joseph Gargis

Patrick Donoho

Michael Guma

Jeffrey Stave

Antionette Fausta

Julie Santamaria

Eric Schwartz

Jennifer Ehlen

Anthony Sahar

Barry P. Rubino

Beverly Beihll

David Haacker, MD

Anthony Stippoli, MD

Beth Balinski

Robert M. Klein

Anthony Lucatorre

Anthony Ventimiglia

Patricia Schmidt

Linda Falletta

David S. Kountz

Herman Cohen, DO

Richard N. Wells, DO

Michelle Liggio, DO

Suzanne Weiss

Michelle Vidal

Daniel Xenachis

Kathy Rosenblatt

Bernard Greenspan

James Matera

Robert Schwartz, DO

Michael A. Palmer

Richard S.Weiss

Saad Antoun

Fazal R. Panezai

Janet Stroudson

V.K. Ashok, MD

Harvey E. Smires, MD

Suzanne P Murphy

Stanley L. Bagan

Hila Egyud

Eric N. Kruger

Denise Lynch

Rosemarie Deming

Dhinoj Parikh

Jose Lopez

Peter M. Destefano

Michael Voyack, DO

Christopher Kolasa

Lisa M. Zimmerman, MD

Andrew Cogan

Christi Iaconelli

Doina Cherciu, MD

Pouline Liao, MD

Alfred Lipp

Glenn Kolansky, MD

Patti Ann Johnson

Marie Schrieks

Mira Kheny

Thomas K. Bills

Anju Budhwani, MD

Chris Shaw

Louis Egyud

Basel Bataarseh

MaryAnne Bush

Joseph DiTuro

Jeffrey R. Koretky, MD

Christopher Boni

Joanne Love

Frances Fittanto

Sudha Garla

Rich Gollelby

Kenneth W. Faistl, MD

Jennifer L. Clinton

Andre J. Pagliano, MD

Vincent Galdieri

Michael Ciencewicki

Michael Rogers

Yolanda Pena

Francis E. Wanat, MD

Stuart J. Maslin

John McWhorter

Jon W. Ark, MD

David Lamb, MD

Richard G. Schmidt, MD

William Gomez, MD

Daniel J. Fletcher, MD

Susan Ahl, MD

Anne-Marie Roberts, MD

James Konizos

Keith Reinsdort, MD

Martha Cella

Carrie Ann Wheiler

Jennifer Koenyette

Linda Crane

Elie Younes

Nancy McLaughlin

Andrew S. Lubas

Madeline Wilson

Richard E. Fleming, Jr., MD

Linda Beers

Neerja Misra

Alecia Peller

Lubna Ahmed

Christoph Sahar

Davis S. Eingorm

John P. Smith, MD

W. Thomas Gutowski, MD

Robert M. Dalsey

Marianne Traina

Sharon Ryan

Robert T. Bock

Lester Levine

Thomas J. Capotosta

Andrew Covit

Gerald Weisfogel

Kenneth Chern

Ronald Soucier

S. Jay Mirmanesh, MD

Michael Simon

Edward J. Ford

Tim Meyer

Andrew Kulessa

Radha Vinnakota

Enuka Dsai

Michele O'Connell

Stephen J. Angeli

Lourdes Dominquez

Bakul Patel, MD

Kathleen Wooten, MD

Edward Barbarito

Maresh Rana, MD

Donna Wishney

John A. LaRatta, DO

Angeloa Maynihan

Giovanno Campanile, MD

Anthony Emmanuel

Michael E. Dalsey, DO

Alice Schwartz

Laurie McVey

Kevin J. Kunkle, MD

Harold McKenna

Joann Saviano

Lisa Lichtman, DO

Fiore J. Copare

Ann Gionti

Lee Bach

Hisha El-Kadi

Marian Amaiato

Cynthia A. Whitehead

Mitchell Clarin

Surrndra Bogaria

Peter Duch

Morey Klein

Scott Druckman, MD

Andrea DeAngelis

Karen Laug

Delia C. Melton

Steven R. Gecha

David M. Smith, MD

Sadanand Palekar

Jeffrey J. Miller, DO

Elias Lehal

Anthony B. Musarra

Kevin Murphy

Robert N. Dunn, MD

Mary Christine Dougherty

Jeffrey S. Abrams, MD

Richard B. Meltzer

Trina Kapoor

Domenic Mariano, DO

Sujatha Ramamurthy, MD

Alan Klein

Ayman Abdulmagid

Lynn J. Letko, MD

Leslie Wilson

Oladele Ajao, MD

Martha Anderson

Suseela Botlagudur

Roberta Wells

Ching-Jen Wang

Jennifer Wheiler

Adam Deutsch

Renata Kulessa

Marie Puco

Alvin Fried

Ramanasri Kudipudi

Anthony J. Catanese

S. Michael Mirmanesh, MD

Steven M. Lowry

J. Robert Williams

Nehal Mehta, MD

Felix Kral

Joseph Scalia

Alex T. Makris, M.D.

Gregg I. Lubinsky

10 form letters with illegible signatures

COMMENT: At least 600 commenters commended the Departments for their proposed rules. Some commenters stated that HMOs should be prohibited from restricting the use of certain drugs to control costs because this practice is not in the best interest of patients. Some commenters stated that formulary decisions should be based on scientific and medical information and include thoughtful consideration of the appropriate care for all patients, and that only a patient's health care provider should determine the appropriate medication to prescribe based on his or her knowledge of the patient and the patient's condition.

Some commenters stated that HMOs should not be allowed arbitrarily to exclude any specific drug for economic reasons. Some commenters stated that patients should not be penalized if their doctor believes that an innovative, although more expensive, medication is the best course of therapy. At least one commenter stated that if patients, physicians, pharmacies and others need to pay greater attention to drug prices, the issue would be best addressed through education and incentives, not by substituting the HMO's decision for that of the physician. Some commenters stated the HMO drug formularies overlook the "human element" in patient care (that is, the likelihood that patients will continue to take drugs they are familiar with, and resist an unfamiliar drug).

RESPONSE: The Departments note that the proposed new rules prohibit the use of closed formularies, which prevent the member from obtaining coverage of medications not included in the formulary. Rather, the Departments are requiring that when a formulary is imposed, benefits must be provided for nonformulary drugs, although the HMO is permitted to establish lower benefit levels for the formulary drugs. By establishing these standards for formulary use, the Departments believe that health care providers will have sufficient flexibility in selecting pharmaceutical treatment options for their patients. With respect to cost, the Departments note that proposed N.J.A.C. 8:38-18.1(d) provides that drugs can only be excluded from a formulary based on considerations of safety, effectiveness and clinical outcome. Cost should only become a factor where drugs are equivalent in terms of safety, effectiveness and clinical outcome. This is the same standard used to exclude drugs from Medicaid formularies (see 42 U.S.C. 1396r-8).

COMMENT: One commenter stated that the physician must retain ultimate decisionmaking authority for prescriptions. The commenter also stated that each formulary management system may provide a different methodology for requesting a nonformulary drug product, but make provisions for medically necessary products to be prescribed. The commenter further stated that the proposed rules’ requirement that HMOs provide written clinical denials to providers and consumers based on concern for therapeutic outcomes for consumers may be unfounded because data indicates the incidence of therapeutic interchange is low as a percentage of prescriptions written and dispensed. The commenter cited a study commissioned by the VA Department of Medical Assistance Services, which suggested that such interchange represents only three percent of total prescriptions. The commenter further cited testimony presented by the U.S. Food and Drug Administration on the 1997 and 1998 "MedWatch" program (which reports adverse medical events), which indicated that of the approximately 16,000 "MedWatch" reports in 1998, 0.38 percent related to therapeutic interchange, and of those the largest number were related to side effects.

One provider commenter stated that most of his managed care patients get whatever medication they need most of the time (including a lot of new, expensive medications) without his significant input, other than writing a prescription.

RESPONSE: Under the proposed new rules, providers do retain the ability to prescribe the medication they believe is most appropriate. Moreover, proposed N.J.A.C. 8:38-18.2(c) and (d) set forth a uniform procedure and criteria that HMOs must satisfy for nonformulary drugs to be covered as if they were formularly drugs. The Departments believe that the requirement that HMOs advise providers and covered persons of the basis for excluding a particular drug from the formulary provides important information and should be retained.

COMMENT: At least one commenter was concerned with the impact of these proposed rules on the ability of health benefit plans and HMOs to provide prescription benefits to New Jersey consumers because they will not be able to design benefits that take into consideration therapeutic efficacy and consumer costs. The commenter stated that he or she does not believe the proposed rules sufficiently increase the benefits to consumers, and fears that consumers may be required to pay higher premiums and increase their cost-sharing.

RESPONSE: The Departments understand and share the commenter's concerns with respect to cost-sharing. However, the Departments believe that HMOs will be able to take into consideration therapeutic efficacy when designing drug coverage, and that the proposal provides sufficient consumer protection to warrant the possible added costs that may result from the rules. The proposed rules set no minimum levels of copayment, deductible or coinsurance, but only prohibit use of a closed formulary. HMOs are free to develop innovative plan designs to control costs, and indeed the Departments are aware that HMOs (and other carriers) already have developed more varied prescription drug plan designs.

COMMENT: One commenter stated that members of a health benefits plan issued by an HMO should receive the same reimbursement for formulary medications whether prescribed by a participating or non-participating physician. The commenter indicated that patients obtaining prescriptions from non-participating physicians are being penalized for using an out-of-network provider.

RESPONSE: Traditional HMO products (closed panel products), by nature of their design, do not provide coverage for services, or benefits, for any treatment rendered by a non-participating health care provider, except for emergency and urgent care. Thus, it is appropriate that no benefits be provided for prescription drugs when the prescription is made by a non-participating provider.

COMMENT: One commenter stated that rising healthcare costs are partly due to the drug industry's zealous marketing of its drugs to physicians and the general public. The commenter stated that new and expensive drugs are marketed to the public, who request or demand them from their physicians whether they have any greater benefit than older, less expensive drugs.

RESPONSE: The Departments are unable to respond to this comment because the actions of the pharmaceutical industry are outside the regulatory jurisdiction of the Departments and beyond the scope of these proposed rules.

COMMENT: The Departments received a few comments on proposed N.J.A.C. 8:38-18.1(a) requiring a formulary provided by an HMO to be developed by a pharmacy and therapeutics (P&T) committee, which shall consist of at least two-thirds licensed and actively practicing physicians and pharmacists and at least one pharmacist. One commenter indicated its strong support of this proposed provision. One commenter stated that the makeup of the committee should be changed to include at least two-thirds licensed and actively practicing physicians and at least one pharmacist, while another commenter stated that the committee should include a mandatory minimum of two pharmacists because their expertise and training regarding the appropriate use of medications is far superior to other health care professionals.

One commenter stated that the committee should include mental health professionals such as psychiatrists. Another stated that the physicians on the committee should be representatives of medical specialties because they have knowledge regarding variations of medications for different disease states that general practitioners may not have. The commenter further stated that it may be appropriate to conduct specialty P&T meetings so that these issues are properly addressed.

Another commenter stated that the proposed requirement will unnecessarily limit or preclude involvement on the committee by HMO employees and academicians, and suggested deleting entirely the actively practicing physicians requirement, or reducing the membership to one-third actively practicing physicians.

RESPONSE: The Departments do not find persuasive the statement that compliance with the P&T membership requirements will be difficult because the same P&T membership requirements are already imposed on insurers under the selective contracting arrangements rules at N.J.A.C. 11:4-37, and have not proven to be an impediment to compliance.

With regard to the inclusion of medical specialists, the Departments do not believe it is appropriate to mandate that representatives of every medical specialty be members of the P&T committee. Such a requirement would vastly increase the size of the committee and make it unworkable. Nothing prevents an HMO from adding specialists to its P&T committee, or designing the operating procedures of the committee to obtain consultation services from specialists.

The "two-thirds actively practicing physicians and pharmacists" requirement is necessary to ensure that the committee is independent and is not controlled by employees of the HMO. The Departments do not think it is necessary to require the P&T committee to include more than one pharmacist because it is the physicians who prescribe the medications, not pharmacists, and because the requirement has not proven problematic for purposes of formularies used by insurers offering selective contracting arrangements.

COMMENT: Several comments were received on proposed N.J.A.C. 8:38-18.1(c), which requires that a formulary "include more than one medication used to treat each covered disease state where more than one medication is available." One commenter stated open access to physician-prescribed pharmaceuticals should be a core component of any health care delivery system, and suggested changing the proposed language to read "A formulary shall include more than one medication from each therapeutic drug category/class used to treat each covered disease state where more than one medication is available."

Another commenter stated that prescription drug benefit plans typically include and list drugs relevant to a benefit (that is, drugs used to restore or maintain normal functioning that are obtained on an outpatient basis), and diseases covered are then inferred from the list. Accordingly, the commenter suggested the proposed language be changed to read "A formulary shall include more than one prescription medication intended for use to treat and restore or maintain normal functioning of a patient where more than one prescription medication may be available."

A third commenter stated that the formulary should include at least one drug from each category to treat a covered disease, and that a disease can be treated by a variety of drugs. The commenter suggested amending the proposed language to reflect this; otherwise, the standards for treating a particular disease state are unintentionally lowered.

One commenter stated that the proposed rule should require formularies to include only one medication for each covered disease state. Such a requirement permits the HMO to require the member to use the less costly, yet medically appropriate, medication unless medical necessity requires a nonformulary medication in a specific instance pursuant to proposed N.J.A.C. 8:38-18.2(c). The commenter further stated that "choice to the member for the sake of choice" is not a sufficient reason to require more than one medication to cover each disease state. A related comment indicated that requiring a formulary to include more than one drug for each covered disease state where more than one is available is not compatible with the Departments' goal of reasonably priced drug use. The commenter offered, as an example, that the proposed requirement for drug classes like the new COXII inhibitors, where two very similar, very expensive products are available, would essentially eliminate any price negotiation advantages if both drugs must be on the formulary. The result would be higher-priced drugs for which consumers will bear the cost. The commenter suggested deleting the requirement, and leaving the case-by-case judgment to the health care professionals involved in developing the formulary.

Another commenter requested that the Department clarify the term "disease state." The commenter assumed the term includes any medical condition, rather than only where a particular "disease" is present, and suggested replacing it with "therapeutic category" or a similar term

RESPONSE: The Departments believe that requiring more than one drug for each covered disease state is a reasonable accommodation between the competing interests of choice and cost. The Departments do not believe it is necessary to replace the term "disease state" because it is commonly used throughout the industry to describe all medical conditions.

COMMENT: Several commenters made statements on proposed N.J.A.C. 8:38-18.1(d), which states that "a medication may be excluded from a formulary only if, based on the compendia listed in N.J.A.C. 8:38-18.2(c)1, it does not have a significant clinically meaningful therapeutic advantage in terms of safety, effectiveness or clinical outcome of treatment for the specific condition for which the medication is intended over other medications included in the formulary, and there is a written explanation of the basis for the exclusion that is available to providers and covered persons upon request."

One commenter indicated its strong support for the proposed rule provision.

Another commenter stated that the language in the proposed provision, based on the compendia listed in N.J.A.C. 8:38-18.2(c), is technically incorrect because the sentence is "conflicting based on the definitions provided."

One commenter suggested amending the proposed rule language to say that "A medication may not be excluded from a formulary if . . . there is a therapeutic advantage. . . . For any drug excluded from the formulary, there must be a written explanation . . ."

Another commenter stated that the proposed requirement that drugs can only be excluded if they provide "no advantage" over other drugs would be difficult to prove and lead to much debate and possible legal challenges. The commenter stated that if the drug companies are so interested in mandating legal measures to approve use of their drugs that they should also be amenable to certain restrictions on their own behavior. The commenter suggested that the drug companies consider the following:

(1) Not pricing a drug at more than ten times the manufacturing cost. According to the commenter, drug companies spend considerably more on marketing than they do on research; and

(2) Limiting future price increases for the drug to 80 percent of the rate of inflation rather than at two or three times the inflation rate. The commenter also stated that some drug companies increase the prices twice a year by five to 10 percent on 30-year-old medications.

One commenter stated that the proposed rules already provide a mechanism for an HMO to cover nonformulary drugs at N.J.A.C. 8:38-18.2(c) if a provider believes a formulary drug is medically "ineffective" or is "reasonably" expected to cause an adverse or harmful reaction. According to the commenter, while there may be a significant meaningful advantage in theory of one particular medication over another, the advantage may be irrelevant in practice. There is no impetus for a provider to utilize a less costly alternative if the provider is not required to justify the use of a more costly alternative by virtue of its inclusion on the formulary. The commenter stated that this is particularly relevant in the field of psychotropic medications where there are many medications varying in price, but which may have no significant clinically meaningful advantage. The commenter is additionally unclear as to the meaning of the term "significant" in stating that one medication may have a "significant clinically meaningful advantage" over another, and further questions who makes such a determination and the basis for making it. In a related comment, the commenter stated that the proposed provision eliminates consideration of the financial impact in the decision to include a medication in a formulary. The commenter stated that cost should not be the sole determining factor, but it should also not be excluded from the process, and to prohibit cost considerations will undermine efforts to control expenses of prescription benefit plans. The commenter suggested amending the proposed provision to include consideration of cost as a factor regarding whether to include a particular medication in a formulary.

RESPONSE: The Departments are unclear as to the meaning of the comment that the proposed rule language is technically incorrect because the sentence is "conflicting based on the definitions provisions."

While the Departments appreciate the comments concerning the pricing of drugs by pharmaceutical companies, the Departments do not have any regulatory authority in this area.

The Departments note that the standard for excluding a drug from a formulary set forth in these rules already applies to insurers with approved selective contracting arrangements pursuant to N.J.A.C. 11:4-37, and the standard has proven workable. Further, regarding the comments that it would be difficult to prove whether a particular medication has "no advantage" over other medications, the Departments note that "no advantage" is not the standard set forth in the rules, thus for regulatory purposes proving "no advantage," is not a requirement. With respect to the question about the meaning of and basis for determining "significant clinically meaningful advantage" the Departments have indicated within the rule itself that such determinations should be made using the compendia listed at N.J.A.C. 8:38-18.2(c)1 taking into consideration the safety, effectiveness or clinical outcome expected for the treatment for which the medications are used. Moreover, the Departments believe that cost is an appropriate basis to exclude a drug from a formulary only where there are two or more drugs that are equivalent in terms of safety, effectiveness and clinical outcome.

Finally, the Departments do not believe it is necessary to revise the proposed language at N.J.A.C. 8:38-18.1(d) as suggested by one of the commenters, and note that the Office of Administrative Law (OAL) prefers that rules drafted pursuant to the Administrative Procedure Act (N.J.S.A. 52:14B-1 et seq.) express obligations in the affirmative rather than the negative.

COMMENT: The Departments received several comments on the various subsections contained within proposed N.J.A.C. 8:38-18.2 regarding nonformulary medications. Several commenters offered opinions on proposed N.J.A.C. 8:38-18.2(a), which states that every health benefits plan issued by an HMO providing benefits for formulary medications shall also provide benefits for nonformulary medications. The subsection further states that increased benefits may apply to formulary medications so long as the difference between the total benefit value of formulary versus nonformulary medication coverage does not exceed 30 percent.

One commenter indicated its strong support for the Departments' proposal of this provision.

Several commenters expressed concern about the 30 percent differential. One commenter questioned how the 30 percent differential figure was derived. The commenter stated that some formulary drugs could be more expensive because they are placed on the formulary so that the HMO can move market share, and the 30 percent figure may be inappropriate if it was derived from evaluating existing formularies. The commenter further stated that HMOs should not contract with manufacturer owned Pharmacy Benefit Managers (PBMs) or PBMs that have financial relationships with manufacturers for their formulary services because such arrangements lead to the propensity for preferences of certain manufacturer's products over others. The commenter added that the P&T Committee must be a neutral entity.

One commenter stated that the 30 percent fixed percentage will be more difficult for HMOs to achieve as costs for medication rise, and that there should be some formula for the Departments of Health and Senior Services and Banking and Insurance to increase this differential based upon the current trend in costs. Another commenter stated that the 30 percent limitation will unnecessarily restrict the marketplace from designing benefit plans that may more successfully enable the HMO to provide pharmaceutical coverage at an affordable cost, and that great flexibility needs to be provided to HMOs in their development of benefit plans so they may maintain drug coverage affordability.

Several commenters stated that copayment differentials are more appropriate than percentage differentials. One commenter stated that when it is demonstrated that a nonformulary drug is necessary, it is provided by the HMO at the same copayment as the formulary product unless the patient simply prefers a nonformulary drug. The commenter stated that the 1999 Novartis Pharmacy Benefit Report indicates that the average formulary brand copayment was $9.65, and the average nonformulary brand copayment was $13.77, a difference of 29 percent. The 29 percent figure was not great enough to influence consumers to use the less expensive formulary drug. Another commenter stated that many prescription benefit plans offer a tiered copayment system, and that the copayments are typically in whole dollar amounts (for example, $1.00 for generics, $5.00 for formulary products and $10.00 for nonformulary products). Changing the copayments to percentages will create additional burdens on pharmacies, consumers and health plans because the calculation will have to be applied to all available drug products to ensure compliance with the 30 percent differential. Further, experience has shown that use of a percentage deductible does not provide a significant benefit to offset the administrative burdens and consumer confusion it creates. The commenter added that the proposed provision will impact recently-enacted SB1533 (P.L. 1999, c. 395), which prohibits health plans from charging different copayments for products obtained from community and mail order pharmacies and also prohibits quantity limitations. A third commenter reiterated that a copayment differential is more appropriate than a percentage differential in an HMO environment, and added that the Department could indicate that the copayment differential cannot exceed $50.00.

RESPONSE: While the Departments appreciate the commenter's concern regarding contractual arrangements between HMOs and manufacturer owner PBMs or PBMs that have financial relationships with manufacturers, that issue is beyond the scope of this proposal.

The 30 percent differential figure was used in these proposed rules because it is consistent with the differential utilized in the selective contracting arrangement rules relating to drug formularies at N.J.A.C. 11:4-37. The Departments do not believe it would be appropriate to increase the 30 percent differential. The 30 percent differential has not hindered either benefit plan design or flexibility in the medical or dental benefits marketplace where it has been used for many years.

Regarding copayment versus percentage differentials, the Department believes that the commenters have misinterpreted the proposed rule. The proposed rule is neither advocating a percentage differential nor a copayment differential. There is no requirement that HMOs utilize either copayments, deductibles or coinsurance in the provision of prescription drug coverage. Moreover, the required Actuarial Justification of Benefit differentials form does not measure the value of the difference in copayments, but rather the difference in the aggregate value of the formulary drug benefits versus nonformulary drug benefits regardless of the deductible, coinsurance or copayment.

The Departments do not understand the comment that the 30 percent differential limitation will have an impact with P.L. 1999, c. 395 (also known as SB1533 from the 1998-99 legislative session). The prohibition in P.L. 1999, c. 395 against establishing different copayments (and days' supply) for the same drug based on whether the drug is dispensed through a retail pharmacy or a mail order pharmacy is distinct from the limitation on benefits differentials for drugs based on whether they are or are not in the formulary. The two sets of restrictions may interrelate, but there is no conflict between them. HMOs will be able to design health benefits plans that satisfy both requirements.

COMMENT: The Departments received several comments on proposed N.J.A.C. 8:38-18.2 related to the determination of medical necessity for nonformulary drugs. One commenter stated that by requiring coverage of nonformulary drugs when medical necessity is determined (as set forth at N.J.A.C. 8:38-18.2), it appears that the Departments' intent is to disallow closed formularies. According to the commenter, the Department of Banking and Insurance had informed the commenter that closed formularies would be permitted. The commenter added that it supports the opportunity to offer closed formularies in the marketplace at a savings of $2.00 to $3.00 per member per month (pmpm) over the more costly tiered or open formulary products. The commenter also said that an HMO should not be prevented from offering a closed formulary product if an employer group wants to purchase one.

RESPONSE: The commenter is correct in noting that the proposed rule prohibits closed formularies, as do the rules at N.J.A.C. 11:4-37 dealing with drug formularies used by insurers that offer selective contracting arrangements.

COMMENT: The Departments received several comments on proposed N.J.A.C. 8:38-18.2(b), which contains the requirement that HMOs establish an approval process for coverage of nonformulary medications where the health care provider has determined that medical necessity exists. One commenter indicated its strong support for the Departments' proposal of this subsection. Another commenter stated that medical necessity determinations should involve the health benefits plan, and should be made pursuant to standard plan review policies. Another commenter stated that the prior authorization process loses its significance in an open formulary product design where members have access to all drugs whether or not they are on the formulary, albeit at varying copayment amounts. To require HMOs to provide a prior approval process for all higher tiered drugs so they may potentially be covered at a lower tier copayment amount would add administrative expense and undoubtedly increase the cost of providing benefits to employers. The commenter added that there should always be a prior approval process in place for closed formulary products that will permit patients to obtain coverage for nonformulary drugs when medically necessary.

One commenter suggested amending the proposed language at N.J.A.C. 8:38-18.2(b) to state that nonformulary drugs should be covered where the health care provider certifies "that the prescribed medication is necessary to treat the condition for which it is prescribed, that other available alternative formulary medications are not clinically viable and cannot be utilized in the treatment of the patient and the particular drug class is covered by the terms of the benefit plan."

RESPONSE: The Departments believe that an approval process is necessary to ensure that covered persons who are allergic to, or do not respond to, a formulary drug are not penalized with a lower benefit when a nonformulary drug is necessary through no fault or choice of the covered person. The Departments are uncertain about the meaning of the comment that the HMO should be the entity determining whether it is medically necessary for the member to use a nonformulary drug, or that standard plan review policies should apply. The HMO will determine whether medical necessity has been demonstrated, but the standards for determining medical necessity are set in the regulation and the HMO will be deemed to have approved the nonformulary drug as medically necessary absent an affirmative rejection within a specified period of time.

The Departments additionally do not believe the language change for the provider certification suggested by the commenter would be appropriate because providers would not have knowledge of the terms of their patients' health benefits plans.

COMMENT: The Departments received several comments on proposed N.J.A.C. 8:38-18.2(c), which sets forth the criteria for determining medical necessity. One commenter indicated its strong support for the Department's proposal of this subsection. Another commenter stated that the proposed definition of "medical necessity" essentially decimates the use of a three-tier or any other restricted or patient-incented formulary system that is compatible with the Department's goal of reasonably priced drug coverage.

One commenter stated that the proposed language at N.J.A.C. 8:38-18.2(c)1 indicating that a nonformulary medication is considered to be medically necessary if it is recommended by "a clinical study or review article," is overly broad and opens the door to unlimited drug access. Another commenter stated that one reference to a medication in a medical journal is not a recognized standard for accepting new clinical information, and there is a potential for ambiguity in understanding what medication is being recommended and what journals would be included. Another commenter added that one recommendation in a single peer review article could require coverage of experimental drugs where support for their use is not compelling. The commenter also stated that this proposed provision conflicts with the proposed provision that a formulary can consist only of FDA-approved drugs. The commenter suggested that only FDA-approved drugs be allowed, or at least that a provision be added to protect an HMO against litigation if an experimental drug is determined to be medically necessary where the carrier otherwise had not included it in its formulary.

Another commenter commented on proposed N.J.A.C. 8:38-18.2(c)2, which states that a nonformulary medication shall be considered medically necessary if the prescribing health care provider states that all formulary medications used to treat a disease state have been ineffective or that all such medications have caused or are reasonably expected to cause adverse or harmful reactions in the covered person. The commenter suggested amending the proposed language to state that the "prescribing health care provider reasonably believes that all formulary medications used to treat a disease state would be ineffective or not in the best interests of the patient . . . [.]" Another commenter stated that the term "ineffective" is too open-ended, and will allow physicians to certify that any drug is medically necessary. The commenter also stated that all medications are at best only partially effective. The commenter added that a requirement should be included that a provider must use a standard MedWatch Form to communicate the reason for the use of a nonformulary medication because it would help the HMO to understand the rationale, increase the speed of processing approval and provide important safety information to the FDA.

RESPONSE: The Departments believe that the standards set forth at proposed N.J.A.C. 8:38-18.2(c)1 are appropriate. The Departments note that this is the same standard contained in the off-label drug use statute (N.J.S.A. 26:2J-4.5a), and therefore cannot understand the commenter's claim that the standard is overbroad, ambiguous and not commonly accepted.

The Departments do not believe that a conflict exists between proposed N.J.A.C. 8:38-13.2(c)1 and the Department's proposal that only FDA-approved drugs be allowed as formulary drugs. The proposed rule restricts formulary drugs to only FDA-approved drugs.

Regarding the suggestion that providers use a MedWatch Form, the Departments note that the rules leave the specific reporting form and process to the HMO. The Departments are not inclined to dictate the process for each HMO, but to permit each one to establish the appropriate process and forms to use.

COMMENT: One commenter stated that the New Jersey Department of Human Services, Division of Mental Health Services (DMHS), should be included on the distribution list required by proposed N.J.A.C. 8:38-18.3 for the dissemination of formularies and formulary updates adopted for use by HMOs. In turn, DMHS will share that information with psychiatrists employed at mental health clinics funded by the State.

The commenter also stated the HMOs should be required to describe the communication process between the HMO providers and behavioral health providers within the HMO's behavioral health contract regarding the formulary. This clarification that behavioral health service providers are "HMO network providers" would be critical to assuring continuity of care between the physical and the behavioral health service components.

RESPONSE: DMHS may obtain by contract copies of the formularies used by the HMOs with whom it transacts business. Further, the Departments see no reason for the proposed rules to require that HMOs communicate differently with their behavioral health providers than with other providers.

COMMENT: The Departments received several comments on proposed N.J.A.C. 8:38-18.2(d), which requires that an HMO respond to a prescribing health care provider's request for approval of a nonformulary medication within one business day, or the request is deemed approved. The proposed provision also requires initial denials to be provided to the provider and the covered person in writing within five business days, and shall include the clinical reason for the denial. The denials may be appealed pursuant to N.J.S.A. 26:2S-11. One commenter indicated its strong support for the Department's proposal of this subsection. A few commenters indicated that the one-business-day response requirement is administratively burdensome, and creates compliance difficulties, given the number of subscribers of some HMOs. A few commenters commented that the requirement is not limited to situations where it is medically necessary to begin taking a medication immediately or to circumstances where an emergency exists. One commenter suggested a 72-hour response deadline where the circumstances do not involve emergency or urgent care.

A few commenters stated that the 24-hour response requirement should be clarified to state that the HMO shall respond to the request for approval within one business day of the HMO's receiving all requested information to make a decision. Another commenter stated that processing a request for reconsideration of approval to use a nonformulary medication first requires that the necessary information from the prescribing physician be provided, necessitating additional time for the physician to submit this type of information. Accordingly, the commenter suggested amending the proposed language by requiring the HMO to respond to the approval request within two business days, and further requiring that the HMO first receive all necessary information to determine nonformulary medication coverage before issuing its response or its written initial denial. The commenter further suggested adding "or the benefit condition relating to the coverage under the plan for the denial" to the clinical reason being provided for the initial denial.

A few commenters stated that the written notice within five business days requirement is unnecessarily burdensome, costly to administer and inconsistent with other time frames for coverage decisions (for example, New Jersey's Prompt Pay Law).

One commenter suggested deleting both the 24-hour and five-day requirements or expanding the time frames to match those required for other benefits under the contract except in the case of medical necessity or emergency, in which cases the time frames should be made more realistic.

Regarding "deemed approval" if an HMO fails to respond within 24 hours to a request for approval to use a nonformulary drug, one commenter stated that the proposed provision could become a problem on the pharmacy side if there is no mechanism in place for an override. The commenter stated that the pharmacy cannot "adjudicate" the claim electronically without the HMO's approval, and the pharmacy's reimbursement could be jeopardized if this is not structured properly. The commenter stated that the rule's current language may not achieve the desired effect of patients receiving medications faster. Additionally, the pharmacy may be audited at a later date and penalized for filling prescriptions without proper authorization from the insurer.

RESPONSE: The Departments agree that the one business day response time to requests for approval of a nonformulary medication could be somewhat burdensome. Accordingly, the Departments have expanded the response time to five business days, which is consistent with the timeframe for HMO internal appeals pursuant to N.J.A.C. 8:38-8.5. Moreover, the covered person would still be able to obtain the nonformulary drug (albeit at a higher copay) during the appeal process. The Departments have additionally revised the provision to clarify that HMOs are required to "approve or deny" a request within five business days rather than merely to "respond" within that timeframe.

The Departments do not believe it is necessary to state that the time period runs from the date of receipt of the information, or that the information has to be complete within the rules. Clearly, an HMO (or its subcontractor) cannot act upon something it has not received. However, if the information is deficient, it is incumbent upon the HMO to notify the prescribing physician of that fact within the timeframe specified.

COMMENT: The Department received a few comments on proposed N.J.A.C. 8:38-18.2(e), which requires HMOs to file by June 30 with the Department of Health and Senior Services (DHSS) a report summarizing all of the formulary appeals and their resolutions for the previous year on forms prescribed by DHSS. One commenter stated that the requirement is unnecessarily burdensome and will add to HMOs' administrative costs. Another commenter suggested amending the proposed requirement to indicate that on or before June 30 of each year, DHSS "may initiate an audit of an HMO regarding any formulary appeals, if deemed necessary." Another commenter questioned whether DHSS would provide a form for submitting the annual summary of formulary appeals and resolutions.

RESPONSE: The Departments believe that regular reporting of such appeals is necessary for DHSS to monitor the efficacy of the appeals process. However, in order for compliance with the requirement to be less burdensome for HMOs, the Departments are permitting the report to be included as part of the HMO's annual report filed pursuant to N.J.A.C. 26:2J-9. This change is reflected at N.J.A.C. 8:38-18.2(e).

COMMENT: The Department received several comments on proposed N.J.A.C. 8:38-18.3 regarding distribution of the formulary. One commenter indicated its strong support of the Department's proposed section. Another commenter stated that proposed requirements at subsections (a) and (b) for HMOs to publish and distribute their formulary or list of nonformularies to network providers at least quarterly, and to make available to contractholders upon request the current formulary or list of nonformulary medications, are unnecessarily burdensome and costly to administer, especially given proposed subsection (c) requiring the contract and evidence of coverage form to include the formulary information, approval procedures and appeal process. Another commenter stated that some HMOs currently make their formularies available to network providers upon request, and that the paperwork required to comply with the proposed requirement will overwhelm most providers. A few commenters suggested that the proposed language at subsection (a) be changed to state that the formularies should be "made available" to providers. One commenter additionally stated that the formularies should be "made available" within a "reasonable time."

RESPONSE: The Departments believe that network providers must be sent information on the contents of the formulary on a regular basis so that they will know when to utilize the formulary appeals process. The Departments note that the rules provide HMOs with certain options -- to transmit the current formulary or a list of nonformularies electronically rather than in paper form; to distribute the current formulary or list of nonformularies annually with quarterly updates rather than quarterly distribution of the entire current formulary or list of nonformularies; and to distribute lists of nonformulary rather than formulary drugs. The Departments are now additionally revising N.J.A.C. 8:38-18.3 to clarify that posting the current formulary or a list of nonformularies on the internet will satisfy the publication and distribution requirements of this provision. The Departments also note that the requirement set forth at N.J.A.C. 8:38-18.3 is substantially similar to the requirements imposed on insurers for selective contracting arrangements at N.J.A.C. 11:4-37.3(c)7.

COMMENT: Two commenters stated that the proposal is silent regarding an effective date. One commenter suggested that the proposal become effective no less than 120 days after adoption.

RESPONSE: The Departments are revising the proposed rules to indicate that all noncomplying forms shall be deemed withdrawn effective July 1, 2001. This change will have the effect of delaying the rules' operative date for approximately six months.

COMMENT: One commenter questioned whether the terms "medication" and "drug" used throughout the proposal are interchangeable. The commenter stated that adding a definition of "medication" that includes non-prescription drugs prescribed by a provider would expand the definition of "drug" (that is, prescription medications). A broader definition could result in an HMO being required to distribute to members and providers, if requested, a voluminous list of nonformulary medications.

RESPONSE: The Departments note that the rules are meant to cover only prescription medications as indicated by the definition of "formulary."

Summary of Agency Initiated Change:

At N.J.A.C. 8:38-18.3(a), a duplication of text is corrected.

A Federal standards analysis is not required because these new rules and amendment are not subject to any Federal standards or requirements.

Full text of the adoption follows (additions to proposal indicated in boldface with asterisks *thus*; deletions from proposal indicated in brackets with asterisks *[thus]*:

8:38-18.2 Nonformulary medications

(a) - (c) (No change from proposal.)

(d) The approval process for nonformulary medications shall provide that the HMO *[respond]* *approve or deny the request by communicating such approval or denial* to the prescribing health care provider by telephone or other telecommunication device within *[one]* *five* business day*s* of a request for prior authorization. Failure to *[respond]* *approve or deny the request* within *[one]* *five* business day*s* shall be deemed an approval of the request. Initial denials shall also be provided to the prescribing health care provider and covered person in writing within five business days of receipt of the request for approval of a nonformulary medication, and shall include the clinical reason for the denial. Such denials are appealable to the Independent Health Care Appeals Program in the Department of Health and Senior Services pursuant to N.J.S.A. 26:2S-11.

(e) *[On or before June 30 of each year, the]* *The* HMO shall file with the Department of Health and Senior Services *and the Department of Banking and Insurance* a report summarizing all formulary appeals and their resolutions for the preceding year on forms prescribed by the Department of Health and Senior Services. *Such report shall be included as a separate page with the HMO's annual report filed pursuant to N.J.S.A. 26:2J-9.*

8:38-18.3 Distribution of formulary

(a) The HMO shall publish and distribute, at least quarterly, either its current formulary or a list of nonformularies to all network providers in electronic or paper form. Such list shall clearly indicate whether the medications included are formulary or nonformulary. Alternatively, the HMO may annually distribute new formularies or a list of nonformularies, and quarterly updates, to all network providers. *[Such list shall set forth whether the medications included are formulary or nonformulary. Alternatively the HMO may annually distribute new formularies or a list of nonformularies, and quarterly updates, to all network providers.]* . *Publication of a current formulary or list of nonformularies on the internet shall satisfy the requirements of this subsection.*

(b) – (c) (No change from proposal.)

inoregs/bbdrgfrm

Go Back