Medicare Part D’s New Cost-Smoothing Program: Key Insights and Impacts

Beginning in January 2025, Medicare Part D prescription drug plans, including stand-alone and Medicare Advantage Part D Plans, must provide enrollees with the option to smooth their out-of-pocket (OOP) prescription drug costs (capped at $2,000 in CY2025) evenly throughout the plan year. This program, formally known as the Medicare Prescription Payment Plan or M3P, was established as part of the Inflation Reduction Act of 2022 and has the potential to meaningfully improve patient adherence to Part D prescription medications and thereby improve health outcomes while helping to manage patient monthly expenses during the calendar year. The program may therefore affect pharmaceutical manufacturers, particularly with respect to their patient assistance and affordability programs for Part D enrollees.

Mechanics of the Program

The Centers for Medicare & Medicaid Services (CMS) has released a two-part guidance outlining M3P’s requirements along with consumer-directed public education materials. The key mechanics are as follows:

1. Opt-In Process. Starting October 15, 2024, during Medicare Open Enrollment, all Medicare Part D plans must offer enrollees the option to opt into M3P for the 2025 plan year. Participation is voluntary, but enrollees must actively opt into the program. Part D sponsors must provide enrollees with multiple mechanisms to opt in, including through (i) the plan enrollment process, (ii) a paper option, (iii) a toll-free telephone number, and (iv) a website application that provides confirmation of receipt.
2. Notice to Enrollees Who May Benefit From M3P Before the Plan Year. In advance of an upcoming plan year, Part D sponsors must identify and notify beneficiaries likely to benefit from M3P based on prior year OOP costs. CMS’ public education materials state that patients are most likely to benefit “if you have high drug costs earlier in the calendar year” and provide a link to a “Will this payment option help me?” interactive questionnaire. Part D enrollees who receive Extra Help, a Medicare Savings Program, or a State Pharmaceutical Assistance Program are less likely to benefit from M3P.
3. Notice to Enrollees and Pharmacies During the Plan Year. Plan sponsors must also notify pharmacies during the plan year when an enrollee meets or exceeds the point-of-sale threshold for OOP costs ($600 for CY 2025) and establish procedures for conducting ongoing outreach to enrollees who are likely to benefit from M3P.
4. Monthly Billing. Program participants will pay $0 to the pharmacy at the point of sale for covered Part D drugs. Rather, plan sponsors will pay the pharmacy the OOP cost-sharing amount at the point of sale and will then bill enrollees monthly based on calculations set by CMS. The monthly amount cannot exceed the enumerated maximum monthly cap. In some instances, patients may receive invoices in months when they have not had any prescriptions filled.
5. Termination for Nonpayment. If a participant fails to pay their monthly billed amount, they will be given a grace period of at least two months to pay the overdue balance. There are no interest fees or late-payment penalties for enrollees, but enrollees may be terminated from the program for failure to pay. Sponsors must send an initial notice within 15 calendar days of the payment due date explaining that participation will be terminated if payment is not made. A final notice must be sent if termination occurs, detailing how to pay any outstanding balance and explaining that failure to pay may preclude future participation.
6. No Administrative Remedy. CMS declined to develop separate processes for disputes related to M3P. Instead, Part D sponsors will apply their established Part D appeals and grievance procedures to resolve disputes.

Impact on Manufacturers and Industry Stakeholders

M3P, coupled with the Part D redesign’s annual $2,000 cap on OOP costs, has the potential to bring several changes for pharmaceutical manufacturers and other industry stakeholders. Most significantly, the reduced financial burden on patients may lead to increased fulfillment and adherence rates, particularly for branded products, among Part D enrollees who are not eligible for other forms of assistance such as Extra Help.

In addition, manufacturers should consider how M3P will affect their patient assistance and affordability programs among Part D enrollees, given that enrollees will now face lower OOP costs.

The ultimate effect of these changes, though, will hinge on the number of enrollees who opt into M3P after receiving the necessary information to understand the offering and how to enroll.

CMS intends to launch a national education and outreach effort on M3P’s implementation, including by developing educational resources for enrollees and working with interested parties, such as pharmacies, providers, and patient advocates. However, trade press reports suggest that these educational and outreach efforts may not be enough to help enrollees navigate the complex enrollment and billing processes established by CMS.