Medicare’s Part D benefit is significantly impacted by the Inflation Reduction Act (IRA). The current Coverage Gap Discount Program (CGDP) will end on December 31, 2024, and be replaced by the Medicare Part D Manufacturer Discount Program. On November 17, 2023, CMS issued its final guidance on the Discount Program in which it responded to public comments and provided updated guidance for the Discount Program for 2025 and 2026.
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Any manufacturer wishing to have its drugs covered under Part after January 1, 2025, must execute a Discount Program agreement with CMS by March 1, 2024. Applicable drugs are covered Part D drugs approved under a new drug application (NDA) or biologics license application (BLA) that are on a Part D plan formulary or for which benefits are available under a Part D plan, including through an exception or appeal, but do not include drugs selected under the Medicare Drug Price Negotiation Program for a Maximum Fair Price (MFP) applicability year.
The Final Guidance clarifies that, although both applicable drugs and selected drugs must be covered under a Discount Program agreement, selected drugs are excluded from the definition of an applicable drug, so they are not subject to applicable discounts during an MFP applicability year. Non-applicable drugs (e.g., generics) will be coverable under Part D regardless of the manufacturer’s participation in the Discount Program. CMS expects to provide additional guidance on payments, direct and indirect remuneration (DIR), and calculating subsidies for selected drugs in the coming months.
The Final Guidance further explains that, beginning on 2025, the Part D benefit will consist of a 3-phase benefit. The deductible, during which the enrollee is responsible for all of their gross covered prescription drug costs. Next is the coverage phase, during which the enrollee pays a 25% coinsurance, participating manufacturers cover 10% of the negotiated price through the Discount Program and Part D plans (PDPs) cover the remainder, typically 65%. This phase extends up to the out-of-pocket (OOP) maximum. Finally, there is the catastrophic coverage phase, during which the enrollee pays 0%, participating manufacturers typically provide a 20% discount and PDPs typically cover 60% of the costs for all covered Part D drugs. Medicare pays the remaining 20% reinsurance subsidy for applicable drugs. This reinsurance subsidy increases to 40% for selected drugs and non-applicable drugs, where no manufacturer discounts apply.
Additionally, CMS published the Discount Program agreement without the opportunity for public comments. It shares many of the same requirements of the CGDP: manufacturers must provide and maintain updated information on their labeler codes and NDCs; they must provide the applicable discount by making payments within 38 days after receiving the invoice; and they must comply with the program’s legal, regulatory, administrative and technical requirements.
Manufacturers must sign the agreement by March 1, 2024, to participate in the 2025 plan year. The initial term is valid for 12 months and the agreement will automatically renew each January 1 thereafter. For calendar year 2026 and subsequent years, an agreement will become effective on the first day of a calendar quarter that is at least 60 days after a manufacturer has signed the agreement. An initial term that does not start on January 1 will end on December 31st of the following year and then follow the yearly renewal cycles thereafter.
Furthermore, the manufacturer discounts apply regardless of whether the enrollee is entitled to low-income subsidies (LIS) that pays their deductible, has an enhanced benefit plan with a reduced or no deductible, or uses a drug that is not subject to the deductible (e.g., covered insulin product or vaccine). The value of the applicable discounts applies before the application of any available supplemental benefits that Part D plans offer, and before any coverage or financial assistance under another plan (e.g., state pharmaceutical assistance programs). After 2024, the PDP sponsors will pay the enrollees’ 5% coinsurance during the catastrophic phase. Once participating manufacturers start making discounts available, those discounts will not count towards the enrollee’s incurred costs. Finally, claims that straddle more than one phase will be apportioned to those respective phases and the discount applicable for those phases will apply.