Medicare Prescription Drug Benefit Manual Chapter 6: Formulary Rules

Chapter 6 of the Medicare Prescription Drug Benefit Manual is the Centers for Medicare and Medicaid Services (CMS) policy document that tells every Part D plan which prescription drugs it must cover, how it has to build and maintain its formulary, and what rights you have when a drug you need isn’t on the list. It translates the statutory Part D requirements into concrete, enforceable standards that private insurers offering Medicare drug coverage have to follow.

The chapter’s most recent formal revision is version 01.19.16, effective January 15, 2016. CMS has not reissued the chapter text since then, but it regularly updates the underlying policies through annual final rules, program instructions, and Health Plan Management System memoranda.¹ The document itself is organized around three big questions: what is a Part D drug, what is excluded, and what rules govern formularies.²

What Counts as a Part D Drug

Under Title XVIII of the Social Security Act and 42 CFR § 423.100, a Part D drug is one that is used for a medically accepted indication and falls into one of five categories: prescription drugs carrying an “Rx only” label under the Federal Food, Drug, and Cosmetic Act; biological products; insulin; medical supplies associated with insulin injection, such as syringes, needles, alcohol swabs, gauze, and pen-type delivery devices not covered under Part B; and vaccines licensed under section 351 of the Public Health Service Act, along with their administration.²

“Medically accepted indication” means either an FDA-approved use or a use supported by a citation in one of CMS’s recognized compendia: the American Hospital Formulary Service Drug Information or DRUGDEX. The concept refers to the diagnosis, not the specific dose. If a plan later determines through retrospective review that a filled prescription was not for a medically accepted indication, the prescription drug event record is deleted and the financial accumulators are adjusted.²

A drug also has to act therapeutically on the body itself. Products used only on medical equipment, like heparin flushes for catheter lines, do not qualify. Over-the-counter products and “less than effective” drugs identified through the FDA’s Drug Efficacy Study Implementation program are outside the definition entirely.

Drugs Part D Will Not Cover

Section 1927(d)(2) of the Social Security Act bars Part D from covering several categories of drugs even when they otherwise meet the Part D definition:²³

Drugs for anorexia, weight loss, or weight gain, even when prescribed for morbid obesity.
Fertility drugs.
Cosmetic and hair-growth agents.
Cough and cold symptom relief drugs used only for symptom relief.
Prescription vitamins and minerals, except prenatal vitamins and fluoride preparations.
Over-the-counter drugs.
Erectile dysfunction drugs, unless prescribed for a separate FDA-approved use such as pulmonary hypertension.
Drugs whose manufacturer requires associated tests or monitoring to be purchased from the manufacturer or its designee.

Some clarifications matter. Treatments for psoriasis, acne, rosacea, and vitiligo are not treated as cosmetic. Certain vitamin D analogs (calcitriol, doxercalciferol, and paricalcitol) are not caught by the vitamin exclusion. Benzodiazepines and barbiturates are explicitly not excluded. And a drug that fits into an excluded category may still be covered if it is prescribed for a different, FDA-approved indication.²

A separate exclusion cuts out drugs already payable under Medicare Part A or Part B. CMS reads this broadly: if the drug could be paid under Part A or B for that beneficiary, Part D will not cover it, even if the beneficiary hasn’t elected or paid for that coverage. This matters most for hospice enrollees, whose terminal-illness drugs are covered under Part A, and for end-stage renal disease patients, whose dialysis-related drugs are bundled into Part B.

How Formularies Are Built

The largest section of Chapter 6 governs formulary construction. Every plan sponsor must establish a Pharmacy and Therapeutics (P&T) committee, and 42 CFR § 423.120(b)(1) sets the rules for who sits on it. A majority of members must be practicing physicians and pharmacists. At least one physician and one pharmacist must be experts in caring for elderly or disabled patients, and at least one of each must be independent, free of conflicts with the sponsor, the plan, and drug manufacturers. Committee members disclose financial ties, and an objective third party judges whether any disclosed relationship is disqualifying.⁴

All formulary decisions must rest on scientific evidence: peer-reviewed literature, pharmacoeconomic studies, and outcomes research. The committee approves prior authorization criteria, step therapy protocols, and quantity limits, and it must review treatment protocols at least annually. Every decision is documented in writing. Under CMS guidance from 2007, committees should make a reasonable effort to review a new chemical entity within 90 days and issue a decision within 180 days of market release.⁵

Two-Drug Minimum and the Six Protected Classes

Plan sponsors must include at least two chemically distinct drugs in each therapeutic category and class of Part D drugs.² Categories and classes are organized under the United States Pharmacopeia Medicare Model Guidelines, a classification system developed at CMS’s request.⁶

On top of that minimum, CMS has since 2006 required Part D plans to cover “all or substantially all” drugs in six protected classes where restrictions could cause major or life-threatening harm:⁷

Anticonvulsants
Antidepressants
Antineoplastics
Antipsychotics
Antiretrovirals
Immunosuppressants used to prevent transplant rejection

The Medicare Improvements for Patients and Providers Act of 2008 set the two-part test for protected class designation, and section 3307 of the Affordable Care Act codified it. A 2019 final rule allowed prior authorization and step therapy for five of the six classes, but only for beneficiaries starting new therapy. Antiretrovirals cannot be subject to prior authorization or step therapy at all.⁷

Tools Plans Can Use to Restrict Access

Chapter 6 authorizes three main utilization management tools. Prior authorization requires plan approval before a drug is dispensed. Step therapy requires you to try a less expensive or first-line drug before the plan will cover a costlier alternative. Quantity limits cap how much of a drug can be dispensed in a given period for safety or cost reasons.⁸ Certain utilization management edits have to be submitted to CMS for approval before they take effect.

CMS also builds in guardrails for sensitive situations. For acute care home infusion drugs, sponsors are directed not to delay access and to handle any prior authorization on an expedited basis so hospital discharge isn’t held up. For hospice patients, whose terminal-illness drugs are generally covered under Part A, CMS strongly encourages plans to limit beneficiary-level prior authorization to only four categories: analgesics, antiemetics, laxatives, and anxiolytics. For vaccines, absent claims data showing prior immunization, payment should follow ACIP recommendations.²

Mid-Year Formulary Changes

Plans can change their formularies during the plan year, but the type of change dictates the rules. Expansions — adding a drug, moving one to a lower tier, or lifting a restriction — can happen at any time without CMS approval or advance notice.⁹

Maintenance changes are negative ones tied to specific circumstances such as a new generic equivalent, an FDA safety warning, or a drug’s withdrawal from the market. These require 60 days’ advance notice to CMS, prescribers, pharmacies, and affected enrollees. CMS generally treats them as approved if it does not respond within 30 days of submission.⁹

Non-maintenance changes, like raising cost sharing on preferred drugs or swapping in a therapeutic alternative, need explicit CMS approval and cannot be communicated to beneficiaries until CMS signs off. To prevent bait-and-switch tactics, CMS policy generally exempts enrollees already taking an affected drug from a non-maintenance change for the rest of the plan year. Plans cannot change therapeutic categories and classes mid-year except to reflect new therapeutic uses or newly approved Part D drugs. If the FDA or the manufacturer pulls a drug from the market, the plan can remove it without notice or approval.

Transition Supply When You’re New to a Plan

One of the chapter’s most useful provisions for beneficiaries is the transition supply requirement in 42 CFR § 423.120(b)(3). Every Part D plan has to maintain a transition process covering new enrollees after the annual election period, newly eligible Medicare beneficiaries, people who switch plans mid-year, and current enrollees affected by formulary changes.¹⁰

During your first 90 days in a new plan, the sponsor must provide a one-time temporary supply of at least a month’s worth of medication, even if the drug is not on the formulary or is subject to prior authorization or step therapy. If a prescription is written for less than a month, multiple fills must be allowed to get to a month’s supply. This applies uniformly across retail, mail-order, home infusion, and long-term care pharmacies. In long-term care facilities, drugs may be dispensed in increments of 14 days or less.

The sponsor has three business days after the first transition fill to send you written notice, and it must make reasonable efforts to notify your prescriber. Your cost sharing during the transition is regulated: for a non-formulary drug, you pay the amount that would apply if the drug were approved through a formulary exception; for a formulary drug subject to utilization management, you pay what you would pay once those requirements are met. Low-income subsidy enrollees cannot be charged more than the statutory maximum copayment.

Asking for an Exception and Filing an Appeal

When you need a drug that isn’t on the formulary or that sits on a high cost-sharing tier, you, your prescriber, or a representative can request an exception. A formulary exception seeks coverage for a non-formulary drug or a waiver of a utilization management rule. A tiering exception asks the plan to charge you the cost-sharing amount of a preferred tier for a non-preferred drug.¹¹

Either type requires a supporting statement from your prescriber. For a tiering exception, the statement has to show that the preferred alternatives would be less effective or cause adverse effects. For a formulary exception, it has to show that all covered Part D alternatives would be less effective or harmful, or that the existing dose or step therapy restriction is medically inappropriate.

Plans have to decide expedited requests within 24 hours and standard requests within 72 hours. The clock does not start until the plan receives the prescriber’s supporting statement. Requests for payment involving exceptions have to be resolved within 14 calendar days. A denial notice must include instructions for filing a redetermination, which is the first level of appeal.¹²

What the Chapter Doesn’t Yet Reflect

Because Chapter 6 hasn’t been reissued since 2016, several important changes now sit in later rules rather than in the manual itself. The Inflation Reduction Act of 2022 redesigned the Part D benefit starting in 2025: the coverage gap is gone, and out-of-pocket costs are capped at $2,000 per year, rising to $2,100 for 2026.¹³¹⁴ Part D sponsors must include drugs selected for Medicare price negotiation on their formularies, though they can remove them through an immediate substitution with a generic or interchangeable biological product.

The CY 2026 final rule, published in April 2025, codified the insulin cost-sharing cap at the lesser of $35, 25% of the maximum fair price under the Medicare Drug Price Negotiation Program, or 25% of the negotiated price for a one-month supply, and eliminated cost sharing for ACIP-recommended adult vaccines.¹⁵ The same rule did not finalize proposals to cover anti-obesity medications under Part D or to require an annual health equity analysis of utilization management policies, so those areas remain unchanged.

For anyone reading Chapter 6 today, the safest approach is to treat the 2016 text as the baseline and check the current final rule and program instructions for anything cost-related. The formulary architecture — what counts as a Part D drug, what is excluded, the P&T committee, the two-drug minimum, the six protected classes, transition supply, and exceptions — still comes from Chapter 6.

1
CMS.gov. Prescription Drug Benefit Manual
2
CMS.gov. Part D Benefits Manual Chapter 6
3
Medicare Interactive. Drugs Excluded From Part D Coverage
4
Legal Information Institute. 42 CFR 423.120
5
National Health Law Program. CMS Final Guidance Medicare Part D Formulary Plan Review
6
USP. USP Medicare Model Guidelines
7
CMS.gov. Medicare Advantage and Part D Drug Pricing Final Rule CMS-4180-F
8
Medicare.gov. Plan Rules
9
CMS.gov. Memo Formulary Change Guidance
10
eCFR. 42 CFR 423.120
11
CMS.gov. Exceptions
12
CMS.gov. Coverage Determinations
13
KFF. Changes to Medicare Part D in 2024 and 2025 Under the Inflation Reduction Act
14
CMS.gov. Final CY 2026 Part D Redesign Program Instructions
15
CMS.gov. Contract Year 2026 Policy and Technical Changes Final Rule