By Tim Dube, SVP, Policy and Regulatory Insights
It’s been two years since President Biden signed the Inflation Reduction Act (IRA) into law, whose several provisions on drug pricing are intended to reduce overall health care spending by the federal government and lower prescription drug costs for Medicare beneficiaries. In doing so, the choice Congress made was to hamper price competition created by negotiations between PBMs and drug manufacturers in favor of government-administered price setting. One of the most recent developments was the announcement by the Centers for Medicare & Medicaid Services (CMS) on the negotiated prices for the 10 Part D drugs that were selected for the first round of the new drug price negotiation program.
Pharmacy benefit companies support lower prescription drug costs for patients, which is why PBMs work so hard to negotiate with drug companies and deliver lower costs to patients and plan sponsors, including employers, labor unions, and government programs. We continue to work with CMS to share our observations, analyses, and recommendations on drug selection criteria as the program moves forward, reiterating our stance that the key to reducing drug costs is to increase competition among manufacturers.
Now that the first round of negotiations is complete, Medicare Part D plans are actively working to ensure their beneficiaries continue to receive the prescription drugs they need at affordable costs. Amid this work, several articles and reports have speculated on what Part D plans will do with the ten drugs CMS has set prices for – often leading to unfortunate misinformation on the market’s next steps. Some authors assume Part D plans and the PBMs that work for them are going to disadvantage CMS’s negotiated drugs in favor of products with higher rebates. These assertions ignore how the Part D plan market and open enrollment works, how Congress addressed this question in the IRA, and how CMS currently manages formularies. The mission of PBMs is to help patients access the right medication and help them stay on that treatment to get healthy. Formularies that push people away from the most clinically appropriate drug are self-defeating.
As background, Part D is an optional benefit for Medicare beneficiaries. Every year, older adults work with brokers or go to the Medicare Plan Finder online, enter the drugs they are currently taking, and compare plans in their area. The drugs that CMS has selected for 2026 are used by approximately 20% of people with Medicare Part D. So, first of all, if a Part D plan were to make access to these drugs more difficult through utilization management, or at higher cost-sharing, their current enrollees would notice and would consider switching to a competitor’s plan. Medicare beneficiaries have the option to vote with their feet each year, and Part D plans are keenly aware of this.
Second, the IRA statutory language is clear. Congress wrote that Part D plans “shall include each covered Part D drug that is a selected drug.” CMS, in its several rounds of guidance, has actually tightened these requirements and will require Part D plans to cover every dosage form and strength of the drug on their formularies. This is generally broader than the current requirements for other drugs, including those in the protected classes.
Third, while some coverage may require utilization management or tiered cost-sharing, Part D plans are already covering many of the selected drugs widely today. Without such coverage, drugs would not be at the top of total spending list. For several of the ten selected drugs, manufacturers have negotiated with PBMs and Part D plan sponsors for preferred formulary status against competition from other products in the same therapeutic class. This means that today, Part D plans provide access to most of these ten drugs with few barriers, and at lower cost-sharing than their competitors. Some of the other selected drugs are one of only a few options for specific diseases, so Part D plans cover them without much utilization management due to how PBMs construct their formularies under CMS’s rules, like for protected classes. CMS has stated in its guidance to Part D plans that they will be looking for clinical justifications whenever a selected drug is not preferred on a formulary. Because CMS reviews formularies year over year, plans cannot make substantial changes without risking CMS not approving their formulary.
The expectation that Part D plans and PBMs will “tighten the screws” as “payback” for CMS negotiating prices is unfounded and at odds with how the Part D market and open enrollment works, and what plans, CMS, and PBMs routinely do to manage formularies. PBMs will continue to deliver value and savings for Medicare, providing affordable access to prescription drugs for the beneficiaries who need them. We would expect stakeholders to better understand the law and its interpretations without falling further into anti-PBM traps.
This article is part of PCMA’s Eye on the IRA series.
