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capsules and pills
22 March 20248 minute read

Medicare drug price negotiation: Saving money for Medicare, but what about patients?

Analysis of formulary placement and cost sharing for selected drugs in Medicare Advantage and Prescription Drug Plans

As directed by the Inflation Reduction Act (IRA), the Centers for Medicare and Medicaid Services (CMS) will set prices for certain drugs in Medicare Parts B and D through the Medicare Drug Price Negotiation Program (MDNP).[1] The negotiated prices for the first ten drugs selected is scheduled to go into effect in 2026.

In this alert, we evaluate the pre-IRA formulary position and cost sharing in the two types of Medicare drug plans for the ten selected drugs and offer considerations for how patient cost may be affected by the MDNP in 2026.

About our analysis

Our formulary analysis suggests that for seven of the ten selected drugs, Medicare beneficiaries will not likely see a significant change in their cost as a result of the MDNP. This is because Medicare Part D plans are already placing those medicines in a favorable position on the drug formulary with a co-pay, which does not vary by price. For the remaining three specialty drugs, the beneficiaries who take those drugs will likely have total cost sharing similar to a non-selected drug after the MDNP is in effect.

We considered Medicare drug only plans (PDPs) and integrated medical and drug Medicare Advantage (MA-PDs) separately. MA-PD plans tend to have more generous coverage, including extra benefits such as dental care. MA-PD plans have been growing rapidly in enrollment relative to PDPs and are expected to continue to increase in enrollment. In 2024, nearly six in ten enrollees are in a MA-PD plan, compared to less than three in ten when Medicare Part D was enacted in 2006. The IRA may accelerate this trend.[2]

The dominant formulary position is the same in MA-PD and PDP for all ten drugs with little differences across the plans. We see more use of co-insurance relative to co-pay in the PDPs compared to the MA-PDs and higher co-insurance rates in MA-PDs and similar rates of prior authorizations for the ten selected drugs.

Analysis: The selected non-specialty drugs are already in preferred position on formulary, particularly in MA-PD plans with very little prior authorization

To view our formulary analysis table, click here.

As reflected in the table, seven of the ten selected drugs (that are not specialty medicines) are typically in a preferred formulary position with a co-pay of $45–$46.[3] In MA-PD, all seven of the selected non-specialty drugs have a preferred placement tier-3 co-pay formulary more than 80 percent of the time, and five of the seven are in third tier with a $45–$46 co-pay on 95 percent or more of the formularies.

More PDPs require co-insurance for the seven non-specialty drugs relative to MA-PD. For five of the seven non-specialty drugs, the PDP formularies have the drug on a tier 3 with a co-pay of $45–$46 more than 60 percent of the time, while the remaining two selected drugs are placed on tier-3 co-pay formulary position roughly half the time.

The plans that use co-insurance for the seven non-specialty drugs most commonly use a 25-percent coinsurance rate. There is almost no use of step edits or prior authorization in these seven drugs in PDP or MA-PD.

The price for those seven non-specialty drugs varies significantly.[4] However, the co-pays across all the drugs are nearly the same, at roughly $45–$46. This indicates that the co-pay is not directly connected to the list price, but rather is a fixed amount for preferred placement in both plan types.

Analysis: The selected specialty drugs have coinsurance, but total out of pocket cost will be similar with negotiation

The remaining three of the ten selected drugs are specialty medicines.[5] This means that they are permitted to be treated differently in the Part D formulary, typically by being placed on a specialty tier. The coinsurance rates for those three drugs averaged 31 percent in MA-PD formularies, and 26–27 percent in the PDP formularies. There was very little variation across the different plan formularies in the rates of coinsurance within MA-PDs and PDPs. Those three drugs required prior authorization for approval in nearly 100 percent of formularies.

Patients taking specialty drugs with coinsurance will likely feel a greater impact from the $2,000 out-of-pocket cap than from the MDNP price for selected drugs.[6] While the MDNP may decrease the price of the drug, a patient taking a specialty drug, for example, could still be paying 31 percent of the negotiated price. Even if the monthly coinsurance is less, they would still be responsible for paying this out-of-pocket amount until they hit the statutory cap. Most people taking specialty drugs will hit the cap.

Click here for a chart illustrating a representative drug.

Formulary placement for negotiated drugs

CMS has indicated that a drug with a negotiated price should be covered on formulary. Seven of the ten selected drugs were already on formulary in 90 percent or more of the formularies analyzed, two have roughly 60-percent coverage on all formularies, and one was on half of the formularies in 2023.

However, two of the drugs with 60 percent coverage are insulins, subject to a $35 co-pay limit in the IRA if they are covered on the formulary. Thus, the beneficiary will not see a difference in their cost sharing whether their insulin has a negotiated price or not.

Considerations for federal savings and patient savings

The Congressional Budget Office estimated that the MDNP would lower the drug prices paid by Medicare and would reduce the budget deficit by $25 billion in 2031, at the expense of fewer new drugs coming to market. There are multiple other provisions in the IRA that would affect the price of drugs and expected return from clinical development, such as Medicare Part D benefit redesign and the manufacturer inflation rebate.

Together with the new MDNP, these policies may have a significant impact on the price of drugs available in other markets, such as Medicaid and commercial plans. Moreover, this policy is expected to reduce clinical development in new and existing medicines, particularly small molecules and secondary indications.

Key takeaways

Our analysis indicates that, while the MDNP may save money for the federal government, the cost sharing for patients is unlikely to be very different from today for the first non-specialty drugs selected in Part D, in particular for people enrolled in the fastest growing Medicare Part D plan type, the integrated MA-PD. Moreover, cost sharing for specialty drugs with and without an MDNP will be similar due to the out-of-pocket cap. This is provided that plans do not meaningfully change their formulary management practices for drugs with MDNP. There may be other changes to formularies, such as increasing use of prior authorization or step edits to manage utilization in the presence of the out-of-pocket cap, which remains to be seen and should be followed.

DLA Piper’s advanced analytics team supports clients with formulary analysis as well as other data sources, both public and proprietary. Contact your DLA Piper lawyer, Policy Advisor Kirsten Axelsen, or Managing Director of Responsible Artificial Intelligence Sam Tyner-Monroe for more information.


Total Plan and Formulary counts are based on the population of non- Medicare Advantage Special Needs Plans (SNPs), non-regional, and coverage level 1 plans drawing the data from the CMS quarterly formulary files. We evaluated 324 formularies from 4,721 Medicare Part D Plans (MD-PD and PDP) in Q3 2023. The Q4 data was available but had 25 fewer formularies and 118 fewer plans relative to the prior three quarters, so we elected to analyze the Q3 data on the assumption that the Q4 file had missing information. All National Drug Codes for the ten drugs were selected.

This population excludes records from SNPs, regional contracts (where the contract ID began with R) were filtered out, and non-30-day supply costs. The distribution of each type of access was based on the number of unique plans with that type of formulary (eg, third-tier co-pay). A unique plan had a distinct contract type, brand, cost type, and tier level.

[1] The prices will be announced September 1, 2024, and will be in effect the 2026 plan year.
[2] In addition to setting prices, the IRA also requires health plans to take on more of the risk for higher cost beneficiaries. The MA-PD will be more able to manage the additional risk across their medical and prescription drug spending as a result of other changes in the IRA where the PDP drug plan has only the drug benefit to manage. Avalere August 24, 2023 analysis provides an explanation of the risk shifting.
[3] Their cost is less than $950 equivalent to 30 days of use, CMS establishes the specialty threshold which grows over time.
[4] Ranging from $730–$1,200 in Medicare on cost per claim in 2021 Medicare Part D event data.
[5] Meaning their monthly cost exceeds $950 for 30 days or equivalent to 30 days of use, CMS establishes the specialty threshold which grows over time.
[6] The cap will be adjusted annually after 2025 at the projected rate of growth in Part D costs per enrollee.