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Medicare Part D Re-Design

by Yvonne Tso, Senior VP, PharmD, MBA

The prescription drug program, or Part D, as we know it will have a different look and feel in 2025. Enactment of the Inflation Reduction Act (IRA) of 2022 is driving the makeover of Part D from its inception in 2006. The transformational changes in 2025 are highlighted below.

  1. Part D will have three (3) phases instead of four (4) – Deductible, Initial Coverage Phase and Catastrophic Phase.

  2. Beneficiary cost sharing will be capped at $2,000 for prescription drugs, which means copay or cost sharing will be zero after paying $2,000 out of pocket for Part D drugs. This is similar to the Maximum Out Of Pocket or MOOP structure for Part B.[1] Some beneficiaries can enter catastrophic phase on day 1 of the contract year with a high cost drug.[2]

  3. The current Coverage Gap Discount Program (CGDP) pursuant to the Affordable Care Act 2010[3] will sunset on December 31, 2024. CGDP will be replaced with a new Manufacturer Discount Program (MDP) in 2025. Drugs offered by manufacturers not having a fully executed discount program agreement in effect are not Part D eligible. All Part D beneficiaries will be eligible for the MDP whether or not they have low-income subsidy (LIS). Discounts do not count toward the beneficiary’s incurred costs

  4. With elimination of the Coverage Gap and implementation of MDP, pharmaceutical manufacturers will pay 10% of the allowed cost of the drugs that is a brand or applicable drug in the initial coverage phase and 20% of the allowed cost of the applicable drug in the catastrophic phase when a beneficiary reaches the MOOP. This program will apply to all large pharmaceutical manufacturers initially and will be phased in for small manufacturers. This increase will have the biggest impact on drugs that cost thousands of dollars per fill such as specialty drugs in which costs for some manufacturers could increase fourfold (or higher) over levels in 2024.[4] If manufacturers resort to raising the list prices for their drugs, they are subject to the IRA provision of inflation-based penalty payments if prices increase faster than inflation.

  5. Federal reinsurance will decrease to 20% of allowed cost for applicable drugs and 40% for non-applicable drugs (e.g., generics) in the catastrophic phase. Drug plan liability for applicable drugs will increase to 60% in 2025.[5] 

  6. Part D enrollees will have the option of paying out-of-pocket costs in monthly installments over the plan year rather than face high out-of-pocket costs in any given month. Their Part D premium increase will be limited to 6% from the prior year.

Drug plans have long depended on rebates from drug manufacturers to defray Part D premium increases. With help from pharmacy benefit managers (PBM), drug plans have used formulary design such as inclusions and tier placements to enhance their rebate intake. CMS will implement negotiated pricing based on maximum fair price (MFP) in 2026 on ten (10) selected drugs. Rebates from the selected drugs may change. Additional drugs will be selected for negotiation every year after 2025.[6]

A compound drug as a whole not approved by the FDA under a New Drug Application or Biological License Application does not meet the definition of an applicable drug and will not be Part D eligible. Non-applicable drugs (i.e., generic drugs) will be coverable under Part D whether or not the manufacturer participates in the MDP.

CMS will continue to provide monthly prospective Discount Program payments to drug plans. The prospective payments will be based on the projections in the plan’s bid and current enrollment. CMS will estimate the per member per month cost of the manufacturer discounts for each plan based on a percentage of the cost assumptions submitted with plan bids.

These forthcoming changes should be communicated to all stakeholders at the plan that offers prescription drug benefits; in particular, the finance department that will work with the actuary to prepare the bids (submission in June), the product design team, the sales force and the compliance department overseeing implementation of the changes. It is not too early to begin planning.

Integritas has supported plan sponsors to navigate regulatory changes and helped with their implementation over the course of the Medicare Advantage and Prescription Drug program. We have the technical expertise and compliance specialists to help plan sponsors meet operational challenges. Please contact us at 415.596.5277.


[1] After meeting the MOOP, beneficiaries does not pay anything for Part B benefits.

[2] This will depend on the benefit design with respect to deductibles and cost sharing in Initial Coverage Limit.

[3] Over several years, the “donut hole” or coverage gap for Part D has been closing since 2011.

[5] The Inflation Reduction Act of 2022: One Year Anniversary Highlights from ASPE Drug Pricing Reports, August 16, 2023

[6] In 2026, CMS will select 15 drugs for price negotiation that are covered under Part D or Part B and 20 drugs in 2027.

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