Part D Redesign, MFPs, Plan Changes Will Impact Contracting Strategies

While changes to the Medicare Part D benefit resulting from the Inflation Reduction Act (IRA) are already underway, Part D plans and manufacturers still face a good deal of uncertainty as to how the Medicare landscape is going to shake out. Changes to Medicare Part D plans in 2025 will almost certainly impact a large swath of beneficiaries, as well as manufacturers’ contracting strategies for 2026, said industry experts at a recent webinar hosted by Avalere. However, following the outcome of the U.S. election, the future of the IRA may be a bit murky.

“We are at an interesting moment for Part D,” observed Ethan Hall, associate principal on the client solutions team for Avalere, during an Oct. 30 webinar that he moderated.

The full implementation of the Medicare Part D benefit redesign in 2025 “probably brings some of the most significant change to the Part D benefit” since the program’s start on Jan. 1, 2006, asserted Kylie Stengel, associate principal on Avalere’s policy team. Among those changes are a $2,000 out-of-pocket cap for beneficiaries, the elimination of the coverage gap and a restructuring of stakeholder financial responsibilities, leading to greater plan costs.

All of the changes “led to a substantial increase in plan bids for 2025. Based on numbers from CMS, average Part D plan bids did increase by 179% from 2024 to 2025,…a pretty astounding number,” she pointed out.

In addition, the number of Part D plans will change next year, with standalone Prescription Drug Plans declining by 26%, from 709 plans this year to 524, making it the lowest number of PDPs since the start of Part D, said Stengel. Consolidation among enhanced PDPs will mean a 33% decrease in the number of those plans, and the amount of low-income subsidy (LIS) benchmark PDPs will drop 5% next year following a 34% decline this year. The Medicare Advantage Prescription Drug side will also see a 7% decrease in non-Special Needs Plan MA-PDs but an 8% SNP increase.

“In total, we estimate based on CMS data that over 9 million enrollees across PDPs and MA-PDs will be impacted by plans either exiting the market or consolidating into other plan options for 2025,” she observed. “There are also half a million LIS enrollees who are currently in plans that will no longer qualify as LIS benchmark plans or that will exit the market in 2025 as well.

“So all this means a lot of potential disruption for enrollees moving to different plans with different benefits and formularies in 2025, which could definitely shake up contracting strategies between plans and manufacturers and could change where contracting becomes the most important focus for 2026,” Stengel said.

Drugmakers Should Watch SNPs

She also specifically singled out the importance of SNPs, which represent more than 20% of MA-PD enrollment and have membership growth faster than MA overall. “The membership also skews heavily towards low-income subsidy enrollees, and…that new Manufacturer Discount Program will apply to these LIS enrollees in 2025, so it's going to become even more important for manufacturers to understand how these plans will impact their discount liability, but also the dynamics these plans have when it comes to contracting for this increasingly large patient population.”

SNPs, she maintained, are just one example of how plans are changing their strategies in response to “differing incentive structures under the IRA. And given that this is the first full year of Part D redesign implementation, there's likely more changes to come in 2026. And we'll likely see several years here of even more changes across plan types as plans better understand their financial risks and competitor behavior.”

Ultimately, she said, “there will be a lot of enrollee disruption and movement between different types of plans and more so than we've seen in previous years. So moving forward, it's definitely really important for manufacturers to understand where and how the market is changing through their contracting strategies for 2026 and beyond.”

Coinsurance Use Is Increasing

The average number of drugs on 2025 formularies is slightly increasing due to various reasons, “such as a different mix of drugs on the market or new products coming to market,” Stengel explained. But the biggest benefit design change concerns coinsurance: The average percentage of drugs on MA-PD coinsurance tiers will rise from 30% this year to 50% in 2025, and for PDPs, it will increase from 69% to 76%. The use of prior authorization for brand drugs will rise by two percentage points for PDPs and three percentage points for PDPs.

“It's important to note though that all those findings are across really all drugs,” Stengel explained. “We've seen in previous analyses that when you look across all drugs, this can kind of mask what's happening at a more granular level. So if you look at more specific therapeutic areas or products, there are often more extreme or even different trends that could be found. So, it's definitely more important now to even look more closely at what is happening at the therapeutic area level as manufacturers prepare for the 2026 contracting cycle where Maximum Fair Prices [MFPs] for negotiated products will now be in the mix too.”

Those MFPs are likely to introduce a new dynamic to formularies in 2026, maintained Michael Ciarametaro, managing director on Avalere’s policy team. Part D plans value rebate dollars more than list price discounts, he explained, so companies with drugs in competition with Medicare negotiated drugs “can offer a rebate that is less than the MFP discount but has more value to the plan. And so you end up in a position where competitors may be able to secure more favorable coverage through rebates,” relegating the negotiated drugs to a nonpreferred formulary tier.

This means that manufacturers of both negotiated drugs and their competitors “really need to think critically for this cycle [about] how they're going to address both their access and bid strategy to take on some of these challenges.”

Expect ‘Several Years of Market Chaos’

When the Part D benefit launched, it was a “very, very different world” than what the health care landscape is today, pointed out Neil Lund, senior advisor on Avalere’s market access and reimbursement team. Generic drugs were about 75% of the drugs dispensed, and most spending was on small molecule drugs, with little spending in the coverage gap and catastrophic phase. But now, more than 90% of the dispensed agents are generics, and costly specialty drugs are 1% of the fills but half of the spending.

The IRA helped address many of the differences and their implications for Part D, helping to keep the program viable, he said. But those changes also “increased complexity and will generate behavioral changes for all the constituents. Members, plans, manufacturers, pharmacies and even CMS face new challenges. And there's no gradient, and that's one of the things that makes this particularly challenging: Everything hits at once.

“So when we step back and look at what happened in 2006, which was a new beginning, we're in a new beginning [now]. So I expect that we're going to see several years of market chaos as everyone learns how to deal with what we're facing,” he contended.

Moving forward, a couple of changes to the negotiation process for 2027 MFPs should impact manufacturer contracting strategies, said Ciarametaro. The first is the Manufacturer Discount Program replacing the Coverage Gap Discount Program as of Jan. 1, 2025. The second is that when determining MFPs, CMS will include competitors that have already negotiated their own MFPs, resulting in MFPs that are much lower, “essentially a snowball effect,” he said.

In addition, it’s important to note that “if you look at which drugs we're anticipating to be negotiated going forward, there are some key therapeutic differences [from drugs already negotiated], but there are some really highly competitive classes with a lot of different drugs that aren't being negotiated.

“So you have two things really in play here,” he continued. “One, you have the MFPs coming down with time. Two, you have a whole host, an expanding pool, of competitors that are going to be exposed to the impacts of negotiation via kind of plan negotiation. The bottom line for manufacturers across the board is that the cost of doing business in the Part D program is going to increase. And you need to really be planning from a life cycle management standpoint but also from your bid and access strategy.”

However, all of this has been called into question following former Republican president Donald Trump's recent re-election, as well as the Republicans' takeover of the Senate. During an ATI Advisory webinar, speakers noted that under a Republican administration, there’s a possibility of revisiting the IRA. Anna Kaltenboeck, ATI’s prescription drug reimbursement practice leader, suggested this could be “really problematic” for manufacturers. “It is one thing to change policy one time and then on a stable and predictable basis implement that policy, which allows pharmaceutical manufacturers to build those assumptions into their modeling and then plan accordingly. It is an entirely different thing to change course,…and I think that’s where I would have the biggest concerns about further innovation of the industry and payer responses to that.”