Research · 9 min read
What a Plan Means by an Approved Use
Two federal drug programs define the phrase in statute, and the definition is wider than a label in one direction and narrower in another. Part of the work is done by three named reference books.
Key takeaways
- A medically accepted indication is a defined federal term, and the definition has two limbs joined by the word or.
- The first limb is a use approved under federal drug law; the second is a use supported by a citation in one of three named drug reference works.
- One sentence of the Medicaid rebate statute removes a drug used for a use that is not a medically accepted indication from the definition of the article the program pays for.
- The Medicare drug benefit reaches the same definition through two cross-references, with a wider compendia route reserved for anticancer regimens.
- A separate provision removes drugs or classes of drugs, or their medical uses, from the benefit, so clearing the definition is not the end of the question.
- A state formulary may exclude a drug for a specific condition only against a stated standard, and there must be a written explanation available to the public.
- Neither provision defines the phrase for an employer plan or an individual policy, so a commercial plan's own criteria document is where its answer lives.
Answer first: the rule attaches to the use, and the use has a legal definition
A prescription in this market is written for a purpose. The purpose is what a payer has rules about, and the rules are rarely about the molecule.
That is stated across a lot of consumer writing as a general observation. In two federal drug programs it is not an observation. It is a defined term with a sentence behind it.
The term is a medically accepted indication. Its definition has two limbs joined by the word or, and the second limb is the surprising one.
The first limb is a use approved under federal drug law. The second is a use that is not on the label at all, but is supported by a citation in one of three named drug reference books.
The definition, in the statute's own words
The Medicaid drug rebate section defines it directly, in two parts joined by the word or. The first part is any use for a covered outpatient drug which is approved under the Federal Food, Drug, and Cosmetic Act. The second is a use of which is supported by one or more citations included or approved for inclusion in any of the compendia described in a named paragraph of the same section.
Read the conjunction. A use qualifies by being approved, or by being cited. It does not have to be both, and the second route needs no approval at all.
That is the mechanism behind a fact readers meet constantly and rarely see explained. A payment decision can turn on a document that is not the label.
It also means the phrase approved use is doing two jobs in ordinary conversation. One of them belongs to a drug regulator. The other belongs to a payment statute, and the two do not have the same edges.
Three commercial reference books are named in federal law
The compendia the definition points at are listed in the same section, inside its drug use review requirements. They are named individually rather than described by type.
The list is American Hospital Formulary Service Drug Information, United States Pharmacopeia-Drug Information or its successor publications, and the DRUGDEX Information System. Peer-reviewed medical literature is listed beside them in that paragraph.
These are published drug references, not government documents. Federal law hands part of a coverage question to them by name.
The Medicare side adds a maintenance duty on top. The Secretary is directed to revise that list as is appropriate for identifying medically accepted indications for drugs, in a manner consistent with the process for revising compendia in the Medicare statute.
One sentence removes a drug from the definition when the use does not qualify
The same section defines the article the program pays for, and then narrows it. The definition of a covered outpatient drug opens by making itself subject to the exceptions in the next paragraph.
That next paragraph carries a closing sentence worth reading slowly. The term also does not include any such drug or product for which a National Drug Code number is not required by the Food and Drug Administration. Nor does it include a drug or biological used for a medical indication which is not a medically accepted indication.
So the use is not a filter applied after the fact. It is inside the definition of the thing being paid for.
The same paragraph also removes a drug supplied as part of, or incident to and in the same setting as, eight listed services. Inpatient hospital services, hospice, dental, physicians' services, outpatient hospital services, nursing facility services, laboratory and x-ray, and renal dialysis are all on that list.
The Medicare drug benefit reaches the same definition through two cross-references
The regulation defining a Part D drug does not spell the test out. It says that, unless excluded under the next paragraph of the definition, the listed categories qualify if used for a medically accepted indication, and points at a section of the Act.
Following that pointer leads to the Medicare prescription drug benefit section. Its definition paragraph splits into two cases.
Where a covered drug is used in an anticancer chemotherapeutic regimen, the term takes its meaning from a Medicare provision with a wider compendia route, subject to a conflict-of-interest condition. For any other covered drug, the term takes its meaning from the Medicaid rebate section quoted above.
Two documents and two cross-references separate a reader from the sentence that decides. That is ordinary drafting, and it is also why the definition is quoted so rarely.
A separate provision can remove whole uses, and it sits on top of all of this
Qualifying as a medically accepted indication is one test. Surviving the exclusion list is another, and they are written in different places.
The Medicare drug benefit section carries its own exclusion. A covered drug does not include drugs or classes of drugs, or their medical uses, which may be excluded from coverage or otherwise restricted under a named subsection of the Medicaid rebate statute. The section then names its own carve-outs from that borrowing, for smoking cessation agents, for barbiturates used in treating epilepsy, cancer or a chronic mental health disorder, and for benzodiazepines.
Note the three words in the middle of that sentence: or their medical uses. The exclusion machinery is written about uses too.
What is on that list, and what a state may do with it, belongs to two articles already published here. The point for this one is structural. A use can clear the definition and still land on an exclusion.
Where the compendia surface again, in a state formulary rule
The rebate statute sets conditions on a state that operates a formulary. One of them is written around exactly the distinction above.
A covered outpatient drug may be excluded with respect to the treatment of a specific disease or condition for an identified population only against a stated test. The test is applied on the basis of the drug's labeling. Where the prescribed use is not approved under federal drug law but is a medically accepted indication, it is applied on the basis of information from the appropriate compendia.
The standard itself is that the excluded drug does not have a significant, clinically meaningful therapeutic advantage in terms of safety, effectiveness, or clinical outcome for that population over other drugs included in the formulary.
The provision then adds something a reader can act on. There must be a written explanation, available to the public, of the basis for the exclusion.
Where this definition stops
Both provisions quoted here are program statutes and neither one reaches beyond its own program. The rebate section governs Medicaid. The benefit section governs the Medicare prescription drug benefit.
Nothing in either of them defines a medically accepted indication for an employer plan, for a policy bought in the individual market, or for a cash-pay program with no claim in it. A commercial plan writes its own criteria.
That is a real limit and it cuts both ways. The compendia route is not a general consumer right, and a plan outside these programs is not obliged to recognize it.
It is still worth knowing, for one reason. When a set of plan criteria uses the phrase medically accepted indication, or names one of those three reference books, the drafter borrowed the machinery described above, and the borrowed text can be read.
What to ask, and where the answer lives
Ask which use a request was submitted under, in writing, and ask for it in the words the plan uses rather than in the words a program used with you.
Ask whether the criteria for that drug are published, and get the document rather than a summary of it. A criterion is a sentence you can hold beside a definition.
Where a use is not on the label, ask what the plan accepts as support for it. That question has a named answer in two federal programs, and a plan outside them will either have its own answer or none.
Keep the denial letter. A denial names the criterion that was applied, and the criterion is the only place the plan has to say what it meant by the word approved.
Sources
- 42 U.S.C. 1396r-8 — Payment for covered outpatient drugsThe definition at subsection (k)(6), quoted in the body: a medically accepted indication means any use for a covered outpatient drug which is approved under the Federal Food, Drug, and Cosmetic Act, or the use of which is supported by one or more citations included or approved for inclusion in any of the compendia described in subsection (g)(1)(B)(i). The compendia themselves, named at (g)(1)(B)(i) as American Hospital Formulary Service Drug Information, United States Pharmacopeia-Drug Information or its successor publications, and the DRUGDEX Information System, with peer-reviewed medical literature at (g)(1)(B)(ii). The definition of a covered outpatient drug at (k)(2), which opens by making itself subject to the exceptions in paragraph (3). The limiting definition at (k)(3), including its list of eight services and its closing sentence that the term also does not include a drug or biological used for a medical indication which is not a medically accepted indication. And the state formulary condition at (d)(4)(C), including the labeling-or-compendia basis, the significant, clinically meaningful therapeutic advantage standard, and the requirement of a written explanation available to the public. Verified against a same-run control on the same host, which returned the database's document-not-found page carrying none of the quoted text.
- 42 U.S.C. 1395w-102 — Prescription drug benefitsThe Medicare half of the chain. Subsection (e)(1), which brings any use of a covered part D drug for a medically accepted indication inside the term. Subsection (e)(4)(A), which gives the term two meanings: for a drug used in an anticancer chemotherapeutic regimen it takes the Medicare definition with an additional compendium included, subject to the conflict-of-interest condition at (e)(4)(B); for any other covered drug it takes the meaning given in the Medicaid rebate statute. Subsection (e)(4)(C), which directs the Secretary to revise the list of compendia as is appropriate for identifying medically accepted indications for drugs. And subsection (e)(2)(A), quoted for the words drugs or classes of drugs, or their medical uses, together with its named carve-outs for smoking cessation agents, for barbiturates used in the treatment of epilepsy, cancer or a chronic mental health disorder, and for benzodiazepines. Verified against a same-run control on the same host, which returned the database's document-not-found page.
- 42 CFR 423.100 — DefinitionsThe regulation's definition of a Part D drug, which is the step that sends a reader from the Medicare regulation to the statute. It provides that, unless excluded under the second paragraph of the definition, the listed categories qualify if used for a medically accepted indication as defined in the named section of the Act, and lists those categories, beginning with a drug that may be dispensed only upon a prescription and that is described in stated paragraphs of the Act. Verified against a same-run control at the same path depth on the same host, which returned the host's not-found page carrying none of the quoted text.
Frequently asked questions
Does a plan pay for the drug, or for the reason it was prescribed?
In the two federal drug programs described here, the reason is inside the definition. The Medicaid rebate statute defines a covered outpatient drug and then states that the term does not include a drug or biological used for a medical indication which is not a medically accepted indication. That is not a rule applied to a payable drug afterwards. It is part of what makes the drug payable at all, which is why the same molecule can produce two different answers.
Can a plan pay for a use that is not on the label?
In those two programs the definition expressly allows it. A medically accepted indication means a use approved under federal drug law, or a use supported by one or more citations included or approved for inclusion in named compendia. The second limb needs no approval. Outside those programs the question is a matter of the plan's own criteria, and nothing quoted here answers it for an employer plan or an individual policy.
What are the compendia?
They are published drug reference works, named individually in the Medicaid rebate statute: American Hospital Formulary Service Drug Information, United States Pharmacopeia-Drug Information or its successor publications, and the DRUGDEX Information System. Peer-reviewed medical literature is listed alongside them in the same paragraph. The Medicare statute directs the Secretary to revise the list as is appropriate for identifying medically accepted indications for drugs.
Does any of this apply to my employer's plan?
Not on its own terms. The two sections quoted here govern Medicaid drug rebates and the Medicare prescription drug benefit. An employer plan writes its own coverage criteria and is not bound by these definitions. The reason to know them anyway is that plan documents borrow the vocabulary, and a criterion that uses the phrase medically accepted indication is pointing at text you can go and read.
The drug is approved. Why was my request denied?
Approval of a product and coverage of a use are two separate questions, and the second one has more than one gate. A use has to qualify under the applicable definition, and it also has to survive whatever exclusion applies to the category. The Medicare drug benefit section removes drugs or classes of drugs, or their medical uses, which may be excluded or restricted under a named subsection of the Medicaid statute. The denial letter names which gate was closed.
Where do I read the actual rule my plan applied?
Start with the criteria document for that drug, which many plans publish, and then the denial letter, which has to name a reason. Those two together tell you whether the plan judged a criterion unmet or treated the whole use as outside the benefit. Those are different problems with different routes, and the coverage guides here cover reading a drug list, a denial and an appeal in detail.