What Is the Inflation Reduction Act (IRA)?

The Inflation Reduction Act (IRA) of 2022 aims to improve the accessibility and affordability of prescription drugs for Medicare beneficiaries.

The Inflation Reduction Act adjusts the Part D benefit design, reforms drug price negotiations between the Centers for Medicare and Medicaid Services (CMS), and establishes a program that allows Part D beneficiaries to pay prescription drug costs in monthly installments, among other provisions. Summaries of the most significant provisions are below. The law created some of the most significant changes to Medicare in recent history.

Part D Changes from the Inflation Reduction Act

Beginning in 2025, the standard Part D benefit is adjusted to eliminate the coverage gap (or “donut hole”) phase and out-of-pocket (OOP) prescription drug costs for Part D beneficiaries are capped at $2,000. For manufacturers, the Coverage Gap Discount Program (CGDP) will be replaced with the Manufacturer Discount Program, through which manufacturers will provide discounts in initial coverage and catastrophic phases. For beneficiaries, plan sponsors, manufacturers, and CMS, liabilities in each phase of the standard Part D benefit are adjusted, with plan sponsor liabilities increasing in the catastrophic phase.

IRA Drug Price Negotiation Program (DPNP)

The IRA granted CMS the ability to negotiate directly with manufacturers for the prices of select high-cost, single-source, Part B, and Part D drugs. In late 2023, CMS published its list of the 10 select Part D drugs, kicking off the price negotiation process. Approximately 1 year later, the negotiated prices for those 10 drugs were announced by CMS and will be in effect starting in January 2026. In future years, CMS will select additional drugs for negotiation—up to 15 Part D drugs in 2025, 15 Parts B and D drugs in 2025, and 20 drugs in the following years—in an effort to lower drug costs for Medicare beneficiaries.

Medicare Prescription Payment Plan (M3P)

Beginning in 2025, Medicare Part D beneficiaries will be able to spread out (or “smooth”) their annual out-of-pocket costs into monthly payments. Part D enrollees can opt in to the M3P during the Medicare open enrollment period or during the year by contacting their plan. Once enrolled, patients will receive a monthly bill, and payments are due to the Part D plan, regardless of prescriptions received that month.

How Will the IRA Impact My Strategy?

For more information on about the Inflation Reduction Act and how it may impact patients, providers, manufacturers, and other stakeholders, connect with Magnolia Market Access on payer pricing strategy & value propositions.