2025 marks a watershed moment in the history of Medicare Part D. Driven by statutory shifts from theInflation Reduction Act, the Part D Redesign rewrites many of the rules that commercial teams, payers, manufacturers, and provider partners once relied on. If you're not aggressively re-engineering your commercial readiness now, you’ll be playing catch-up next year. In this post, I walk you through what’s changed, how it affects adherence, contracting dynamics, formulary design, and what to put on your 2025 scorecard.
What changed on January 1, 2025
On January 1, 2025, the new Part D benefit structure, mandated by the Inflation Reduction Act, took effect in full. Key changes include:
- The elimination of the traditional coverage gap (“donut hole”) phase, replaced by a revamped Manufacturer Discount Program (MDP).
- A hard cap on out-of-pocket (OOP) costs at $2,000 for covered Part D drugs.
- A redefined benefit structure with three phases: deductible → initial coverage → catastrophic (no more “gap”).
- Changes to how TrOOP (true out-of-pocket) is calculated discounts from the MDP do not count toward TrOOP.
- A shift of reinsurance methodology and reduced government reinsurance burden: for brand drugs, government reinsurance drops to ~20%; for non‐applicable drugs, to ~40%.
- New bidding and subsidy dynamics: the direct subsidy to plans (NAMBA, DS) is larger, because more plan liability is shifted “up front” instead of being reconciled in reinsurance.
- The Medicare Prescription Payment Plan (M3P) is made available, letting beneficiaries “smooth” their drug cost sharing over time rather than paying everything at the pharmacy.
- The regulatory definition of “creditable coverage” is updated so that discounts under MDP are excluded from the actuarial value calculation.
These changes are foundational. Everything downstream—adherence incentives, contracting math, formulary strategy—must be rethought in their light.
Adherence Implications
With the new structure, adherence becomes even more delicate and critical:
- Lower predictable OOP ceiling: The $2,000 cap gives patients better protection, but many will hit portions of the deductible or coinsurance earlier under the new model. So patient behavior at the front end matters more.
- Higher exposure earlier to list price: Because more drugs are in coinsurance rather than fixed copays, patients may see larger swings in costs (especially for brand drugs).
- Smoothing via M3P could reduce abandonment: The option to smooth payments over time (rather than paying all cost sharing at POS) may reduce the immediate burden and improve adherence among cash-flow constrained patients.
- Incentive to switch to lower cost alternatives: As adherence programs and copay support play out, manufacturers will want to tailor support to reduce drop-off risk—especially for those who might balk at higher coinsurance.
- Discontinuity risk at benefit transitions: Patients moving from deductible to initial coverage or then to the catastrophic threshold could face abrupt changes in cost burden unless communications are carefully engineered.
Commercial teams should anticipate that adherence drop off will be more sensitive to small cost shifts in 2025 than in prior years.
Contracting Math Has Changed
One of the most disruptive shifts is in the contracting and financial flows among payers, PBMs, and manufacturers under Inflation Reduction Act–driven Part D redesign.
A. The shift in risk and discount burden
In the old environment, much of the liability beyond catastrophic was borne by government reinsurance, and manufacturers contributed via the Coverage Gap Discount Program (CGDP). Now:
- Manufacturers pay mandatory discounts via MDP (replacing CGDP).
- Plans (or PBMs) carry more exposure because the federal government’s reinsurance share is lower.
- For “applicable” drugs, the split is now: beneficiary 25%, sponsor typically 65%, manufacturer typically 10% in the initial coverage phase, once the MDP is fully phased in.
- In the catastrophic phase, for applicable drugs, manufacturer discount is ~20%, plan pays ~60%, government ~20%.
- For non‐applicable drugs, plan liability is higher, and reinsurance is ~40%.
B. Phase-in dynamics
The MDP is phased in over 2025–2028 (initial coverage) and 2025–2030 (catastrophic) for certain manufacturers. During the transition, plan sponsors must cover portions that manufacturers would otherwise have contributed.
This complicates forecasts: your expected discount obligations vary year to year depending on the phase-in schedule for each manufacturer.
C. Changes in rebate allocation and benefit design
Because government reinsurance is lower, fewer rebate dollars are funneled to the government, meaning plans/PBMs retain more rebate value. This places a greater premium on strategic rebate negotiation and contracting.
D. New baseline math for bids
Plan bids must account not only for drug cost trends, utilization, and administrative loads, but also:
- The full or phased MDP liability per manufacturer
- The reduced reinsurance burden
- The smoothing risk in M3P (i.e., bad debt considerations)
- Risk adjustment under the new RxHCC model for 2025
- Worst-case scenario spread in utilization shifts
In short, your contracting models from 2023/24 won’t simply port. The equation is materially different in 2025.
Manufacturer Discount Program (MDP) Playbook
The MDP is at the heart of the new landscape. Here’s how you should think about it:
A. Understand which products are “applicable”
Not all drugs fall under the MDP. Your commercial team must segment whether your product is in scope (i.e., subject to MDP) or not, because that determines your discount liability and how your economics shift.
B. Phase-in curves and timing
Because the MDP is phased in, your discount obligations escalate over time. You should map out your obligation schedule 2025–2028 (initial) and 2025–2030 (catastrophic), and stress test your portfolio under those evolving obligations.
C. Mitigate via contracting, rebates, and formulary strategy
To manage your share of discount burden:
- Negotiate favorable rebate and supplemental contracts to offset your MDP liability
- Work with payers/PBMs to secure preferred formulary positioning, so as to preserve volume
- Consider whether to offer tier rebates or value‐based contracts that align with payer risk
- In certain cases, restrict access to products that maximize your discount burden unless favorable terms are agreed
D. Forecast discount leakage and profit erosion
Model the net present value (NPV) of your MDP obligations per product, subtracting the benefit of any supplemental agreements, and estimating volume shifts or loss of share due to formulary moves or patient switching.
E. Align with adherence and support programs
Your patient assistance, copay support, and adherence programs must reflect the new cost sensitivity of patients. Use these to preserve uptake and minimize discontinuation—even in the face of higher out-of-pocket exposure.
In short: the MDP is no longer a back-end calculation—it’s central to your commercial playbook in 2025.