Editor’s Note: Jeff Baab offers updates on how the IRA’s changes continue to impact Medicare Part D expenditures, pharma manufacturers, payers, and patients. As always, if you have questions about any of the content in this or previous market updates, please reach out to your IntegriChain Consulting Lead or consulting@integrichain.com, and we will be happy to walk you through it.

Table of Contents

• How the IRA Changes Impact Medicare Part D Expenditures
• Part D Redesign’s Effects on Manufacturers
• The Impact of Increased Pharmacy Price Concessions on Payers

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How the IRA Changes Impact Medicare Part D Expenditures

Since the IRA went into effect in August 2022, manufacturers have struggled to understand exactly how the significant Part D benefit redesign and the resulting shift in expenditure between CMS, payers, manufacturers, and patients would impact manufacturer liability, payer coverage decisions, and contract negotiations.

It was clear that payers were picking up a much larger share of expenditures within Part D. In 2022, expenditure in catastrophic coverage was $57 billion or nearly 48% of all medicare Part D expenditures. With payers’ share growing from 15% in catastrophic coverage in 2023 to 20% in 2024 and 60% in 2025, it seemed likely there would be an impact on how they structured formularies (within the constraints of what is required for Part D formularies by CMS) and how they approached contract negotiations with manufacturers.

Part D Benefit Redesign’s Effects on Manufacturers

On the manufacturer side, many were left to navigate the murky waters of how the Coverage Gap program, rechristened as the Manufacturer Discount Program, would operate under the new Part D benefit redesign. Rules governing the True Out of Pocket (TrOOP) accumulator, which determines how a Part D patient progresses through the benefit phases of his or her plan and eventually into catastrophic coverage, changed significantly. Manufacturers’ rebates no longer counted while Low Income Subsidy (LIS) cost sharing did. Many manufacturers met one or both of the “phase in” criteria, which seemingly was intended to grandfather these manufacturers into the higher liability of the Manufacturer Discount Program between 2025 and 2031.

We’ve heard pundits using a variety of metaphors to describe the cascading impact of any policy or regulatory change intended to influence pricing in some way – “it’s like squeezing a balloon” – and it’s for situations just like this. When manufacturers learned about the phase in schedule, they initially took it as a positive (or at least less of a negative) because they would not be exposed to the higher liability rates immediately in 2025. As the first-year post-publication of the IRA unfolded, chatter picked up about who exactly would be picking up the delta between the 10% or 20% manufacturer liability and the 1% owed under the phase in schedule. As subsequent guidance explicitly confirmed that the delta would be passed to the payer, many manufacturers began preparing for the inevitable: additional rebate asks from the payer.

The Impact of Increased Pharmacy Price Concessions on Payers

As with any change in the payer space, there is much more than meets the eye. Payers managed many classes of drugs from a variety of manufacturers, some of whom may be fully eligible for the phase in, some of whom may only be eligible for the phase in for LIS lives, and some of whom may not be eligible for the phase in at all. These differences can have a huge impact on the relative cost of these products from the payer perspective.

It doesn’t end there though. For years, payers have had to pass along a portion of the price concessions they collect each year in the form of Direct and Indirect Remuneration (DIR) to CMS as a means to reduce the net amount CMS reimburses for beneficiaries in catastrophic coverage (CMS does not want to reimburse on a prescription’s list price when they know rebates are reducing the net price). As CMS’ share of spend in catastrophic coverage decreases substantially in 2025, the percentage of pharmacy price concessions retained by payers is expected to increase significantly in 2025, potentially from an estimated average of 62% in 2024 to 83% in 2025.

Tracking these changes between the phase-in implications, manufacturer price concessions, and DIR changes, the impact on a payer’s budget is difficult to understand. There can be times when high WAC/high rebate products result in lower plan cost than low WAC/low rebate products that otherwise have a comparable net price. Additionally, the way the phase in schedule increases eligible manufacturers’ cost share over the next several years will continue to alter payer economics across brands within a market basket.

Payers are already pressuring manufacturers for supplemental rebates to directly offset phase in liabilities and even to pressure manufacturers in classes of drugs that have not always contracted as extensively. Yet many manufacturers are struggling to go toe-to-toe with payers in terms of how the payer economics are changing. Embracing the change and seeking a deep understanding of how payer economics are changing across the market and within one’s specific market basket are great first steps in getting ready for what may be a wild 2026 bid cycle!

For more information on how IntegriChain Advisory Services can help your team navigate the IRA, contact Jeff Baab. 

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