# 90 FR 54894: Medicare Program; Contract Year 2027 Policy and Technical Changes to the Medicare Advantage Program, Medicare Prescription Drug Benefit Program, and Medicare Cost Plan Program

> Federal · Regulations · In force

URL: https://www.frixlaw.com/law-library/statutes/FR_PRORULE_2025-21456

## Section

- **Citation:** 90 FR 54894
- **Heading:** Medicare Program; Contract Year 2027 Policy and Technical Changes to the Medicare Advantage Program, Medicare Prescription Drug Benefit Program, and Medicare Cost Plan Program
- **Jurisdiction:** Federal
- **Kind:** Regulations
- **Status:** In force
- **Text as of:** August 14, 2026
- **Source:** Compiled text
- **Location:** Federal Register / Vol. 90 / 90 FR 54894

## Text

icable for all contract year 2027 marketing and communications, beginning October 1, 2026.
B. Summary of the Key Provisions
1. Medicare Part D Redesign
This proposal would implement the changes made to the Part D benefit design and the payment obligations of enrollees, Part D plan sponsors, manufacturers, and CMS by section 11201 of the Inflation Reduction Act of 2022 (IRA) (Pub. L. 117-169).
We are proposing to codify the statutory changes to the phases of the Part D benefit made by the IRA related to the deductible, initial coverage limit, the coverage gap, the annual out-of-pocket threshold, and alternative prescription drug coverage options. In alignment with these changes to the Part

D benefit, we are also proposing to codify technical and conforming changes to our specialty tier regulations. This proposal would codify additional structural and operational statutory changes to the Part D benefit design, including making changes to the types of payments that count as True Out-Of-Pocket costs (TrOOP), establishing a policy for how an enrollee's costs for drugs not subject to the Part D defined standard deductible count towards becoming eligible for manufacturer discounts under the Medicare Part D Manufacturer Discount Program (Manufacturer Discount Program), making updates to the methodology for reinsurance payments from us to Part D sponsors, and implementing the Selected Drug Subsidy, among others.
2. Coverage Gap Discount Program
We propose to codify the sunsetting of the Coverage Gap Discount Program and termination of all Coverage Gap Discount Program agreements as of January 1, 2025, in alignment with subsection (h) of section 1860D-14A of the Social Security Act (the Act), as added by section 11201 of the IRA
Part D sponsors, and implementing the Selected Drug Subsidy, among others.
2. Coverage Gap Discount Program
We propose to codify the sunsetting of the Coverage Gap Discount Program and termination of all Coverage Gap Discount Program agreements as of January 1, 2025, in alignment with subsection (h) of section 1860D-14A of the Social Security Act (the Act), as added by section 11201 of the IRA. Specifically, we propose to revise § 423.2300 by adding paragraph (b) to establish applicability dates for the Coverage Gap Discount Program, revise § 423.2345 by adding paragraph (f) to terminate all Coverage Gap Discount Program agreements, as well as make conforming changes for clarity.
3. Manufacturer Discount Program
We propose regulatory changes to codify the Manufacturer Discount Program, established in section 1860D-14C of the Act, as added by section 11201 of the IRA. Under the Manufacturer Discount Program, which replaces the Coverage Gap Discount Program and began on January 1, 2025, manufacturers that enter into a Manufacturer Discount Program agreement are required to provide discounts on applicable drugs in both the initial and catastrophic coverage phases of the Part D benefit. Specifically, we propose to add new subpart AA to part 423 to codify the Manufacturer Discount Program requirements and make several conforming changes throughout part 423 to reflect the new program.
4. Updates to Star Ratings
We have continued to identify enhancements to the Star Ratings program over time to increase the health and wellbeing of enrollees. In this proposed rule, we are proposing changes to simplify and refocus the areas included in the Star Ratings, including changes to the measure set. We also propose to not move forward with the implementation of the Health Equity Index (also called Excellent Health Outcomes for All) reward at §§ 422.166(f)(3) and 423.186(f)(3) and to continue to include the historical reward factor in the Star Ratings methodology at §§ 422.166(f)(1) and 423.186(f)(1)
lify and refocus the areas included in the Star Ratings, including changes to the measure set. We also propose to not move forward with the implementation of the Health Equity Index (also called Excellent Health Outcomes for All) reward at §§ 422.166(f)(3) and 423.186(f)(3) and to continue to include the historical reward factor in the Star Ratings methodology at §§ 422.166(f)(1) and 423.186(f)(1). We also solicit comments on ways to further simplify and modify the Star Ratings program to further drive improved quality of care and reduce regulatory burden.
5. Request for Information on Dually Eligible Individual Enrollment Growth in C-SNPs and I-SNPs
Chronic condition special needs plans (C-SNPs) and the number of dually eligible individuals enrolled in these plans have grown significantly between 2021 and 2025. Dually eligible enrollment in institutional special needs plans (I-SNPs) has remained more stable. While C-SNPs and I-SNPs can offer benefits specific to chronic disease and institutional level of care, respectively, they do not integrate Medicare and Medicaid benefits and may not be the best approach for meeting the needs of dually eligible individuals. The growth in C-SNP enrollment could be an intentional approach by MA organizations to circumvent Federal and State requirements for dual eligible special needs plans (D-SNPs), such as States determining which D-SNPs will be offered in a State through their State Medicaid agency contract authority and general coordination and integration requirements. This proposed rule includes a request for information (RFI) to share information with interested parties on these trends and solicit feedback on them as well as on potential policy solutions for future consideration.
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abuse in the MA program.
C. Summary of Costs and Benefits
BILLING CODE 4120-01-P EP28NO25.000
BILLING CODE 4120-01-C D. Supplemental Requests for Information
We are requesting comments on several specific areas beyond the various comment opportunities already presented throughout the proposed rule as part of our commitment to reducing regulatory burden while strengthening program integrity. First, we are considering ways to modernize our approach to marketing oversight and agent/broker regulation in the Medicare program while ensuring beneficiaries continue to receive accurate information about plan choices. This includes, but is not limited to, all of the following:
• Modifying the current definition of third-party marketing organization (TPMO) under §§ 422.2260 and 423.2260 to delineate the roles of and requirements applicable to the different kinds of TPMOs.
• Modifying the 5 percent translation requirement found in §§ 422.2267 and 423.2267.
• Removing the requirement for our approval of plan use of the Medicare Card image found in §§ 422.2262(a)(1)(xix) and 423.2262(a)(1)(xviii).
• Eliminating the Outbound Enrollment Verification found in §§ 422.2272(b) and 423.2272(b).
• Modifying testimonial requirements found under §§ 422.2262(b) and 423.2262(b).
• Eliminating mailing statement requirements found under §§ 422.2267(e)(36) and 422.2267(e)(37).
We are also looking specifically at regulatory changes that will assist the agency in taking appropriate action against TPMOs, including agents and brokers who fail to adhere to our requirements. Our goal is to address non-compliance, holding MA plans and Part D sponsors accountable for those TPMOs who provide inaccurate, misleading, and confusing information, or act in a manner contrary to our requirements
DR), or TPMO data—to review and monitor the MA and Part D market, and to assist us in addressing MA organization and PDP sponsor compliance with our requirements. Likewise, the agency is also seeking interested parties feedback regarding how technology can be leveraged, including on the use of artificial intelligence, to enhance the decision support tools used by beneficiaries and their caregivers.
In addition to issues regarding marketing oversight and agent/broker regulation and consistent with the Administration's deregulation priorities, we are seeking comment on current reporting processes and data collections to identify specific areas where requirements can be simplified, consolidated, or eliminated while maintaining program integrity and beneficiary protections in the following areas:
• Network adequacy.
• Medical loss ratio (MLR) reporting.
• Benefit, including supplemental benefit, usage and utilization data reporting.
• Requirements related to the SNP model of care (MOC).
We are interested in ideas for streamlining data collection processes for the areas listed previously, including automated data sharing to reduce manual reporting and ideas related to alignment with existing reporting mechanisms. We are also interested in feedback regarding which data elements are the most burdensome to collect and report, as we seek to balance the level of detail required to maintain proper program oversight while promoting efficiency.
Regarding network adequacy, we seek comments on how to simplify the provider and facility network review process overall, including the submission process, the exception request process, and the timing and frequency of the reviews. An example of a way that we could simplify the exception request process is to create a separate pattern of care exception under § 422.116(f)(1), that could be used where the pattern of care in the area is unique and the organization believes their contracted network is consistent with or better than the Original Medicare pattern of care
ended by section 11201 of the IRA. 2
1 https://www.cms.gov/files/document/2024-advance-notice-pdf.pdf.
2 https://www.cms.gov/files/document/2024-advance-notice-pdf.pdf.
On April 1, 2024, we released the Final CY 2025 Part D Redesign Program Instructions. 3 In these program instructions, we implemented changes to the structure of the Part D benefit for CY 2025 made by section 11201 of the IRA. Section 11201 of the IRA added section 1860D-2(b)(4)(B)(i)(VII) of the Act to reduce the annual out-of-pocket (OOP) threshold to $2,000 for CY 2025 (to be annually increased by the annual percentage increase, as described in section 1860D-2(b)(6) of the Act). The IRA also amended section 1860D-2(b) of the Act to eliminate the coverage gap phase and added subsection (h) to section 1860D-14A of the Act to sunset the Coverage Gap Discount Program. The IRA added section 1860D-14C of the Act to establish the Manufacturer Discount Program.
3 https://www.cms.gov/files/document/final-cy-2025-part-d-redesign-program-instructions.pdf.
On April 7, 2025, we issued the Final CY 2026 Part D Redesign Program Instructions which described changes to the Part D benefit for CY 2026. 4 In these program instructions, we implemented further changes made by the IRA to the Part D benefit that go into effect in CY 2026, including certain changes to the Part D benefit that relate to the Medicare Drug Price Negotiation Program that also was established by the IRA. Beginning January 1, 2026, the maximum fair prices (MFPs) negotiated under the Medicare Drug Price Negotiation Program go into effect. 5 This program, as established in Part E of title XI of the Act, permits the Secretary to negotiate MFPs for certain high expenditure, single source drugs and biological products with participating manufacturers
and 75 percent of the costs of all other covered Part D drugs. The manufacturer, through the Manufacturer Discount Program, typically covers 10 percent of the costs of applicable drugs. In the initial coverage phase, CMS will pay a 10 percent subsidy for selected drugs during a price applicability period. This phase ends when the enrollee has reached the annual OOP threshold of $2,100 for CY 2026.
6 An applicable drug under the Manufacturer Discount Program is a Part D drug approved under a new drug application (NDA) under section 505(c) of the Federal Food, Drug, and Cosmetic Act (FDCA) or, in the case of a biological product, licensed under section 351 of the Public Health Service Act (PHSA), but does not include a selected drug (as defined in section 1192(c) of the Act) dispensed during a price applicability period (as defined in section 1191(b)(2) of the Act) with respect to that drug. Selected drug has the meaning given such term in section 1192(c) of the Act and any applicable regulations and guidance.
• Catastrophic. The enrollee pays no cost sharing for Part D drugs. Part D plan sponsors typically pay 60 percent of the costs of all covered Part D drugs. The manufacturer pays a discount, typically equal to 20 percent, for applicable drugs. Medicare pays a reinsurance subsidy equal to 20 percent of the costs of applicable drugs, and equivalent to 40 percent of the costs of all other covered Part D drugs that are not applicable drugs. In the catastrophic phase, Medicare will provide 40 percent reinsurance for selected drugs during a price applicability period.
As part of the overall restructuring of the Part D benefit, the IRA also made changes to the treatment of Advisory Committee on Immunization Practices (ACIP)-recommended adult vaccines and covered insulin products under Part D
§§ 423.100 and 423.104

changes to the Part D benefit made by the IRA related to the deductible, initial coverage limit, the coverage gap, the annual out-of-pocket (OOP) threshold, and alternative prescription drug coverage options.
a. Deductible (§ 423.104(d)(1))
The IRA Part D benefit redesign does not change how the annual deductible for standard prescription drug coverage is calculated. However, as discussed previously, sections 11401 and 11406 of the IRA provide that, effective for plan years beginning on or after January 1, 2023, the Medicare Part D deductible shall not apply to ACIP-recommended adult vaccines or covered insulin products under Part D. We codified these changes in the CY 2026 final rule. 9 Specifically, the vaccine changes codified at § 423.120(g)(1) and the insulin changes codified at § 423.120(h)(1) state, respectively, that the Part D deductible does not apply with respect to ACIP-recommended adult vaccines and covered insulin products.
9 https://www.federalregister.gov/documents/2025/04/15/2025-06008/medicare-and-medicaid-programs-contract-year-2026-policy-and-technical-changes-to-the-medicare.
In alignment with these changes, we are proposing to revise the regulatory text at § 423.104(d)(1) by adding language to state there, too, that the deductible does not apply to ACIP-recommended adult vaccines or covered insulin products, as defined in § 423.100.
b. Initial Coverage Limit (§§ 423.104(d)(2) and 423.104(d)(3))
Section 11201 of the IRA amended section 1860D-2(b)(3)(A) of the Act to specify that the initial coverage limit only applies for years preceding CY 2025. Prior to this statutory change, once an enrollee met their deductible, they would enter the initial coverage phase, which would extend until the enrollee's gross covered prescription drug costs, as defined in § 423.100, reached the initial coverage limit. At that point the enrollee would enter the coverage gap phase
specify that the initial coverage limit only applies for years preceding CY 2025. Prior to this statutory change, once an enrollee met their deductible, they would enter the initial coverage phase, which would extend until the enrollee's gross covered prescription drug costs, as defined in § 423.100, reached the initial coverage limit. At that point the enrollee would enter the coverage gap phase. The enrollee would remain in the coverage gap phase until the enrollee's incurred costs, as defined in § 423.100, met the OOP threshold, at which point the enrollee would enter the catastrophic phase.
By eliminating the initial coverage limit beginning in CY 2025, the IRA eliminated the coverage gap phase, resulting in a three-phase benefit for Part D prescription drug coverage which includes the deductible phase, the initial coverage phase, and the catastrophic phase. As such, as of CY 2025, there is no longer an initial coverage limit and the initial coverage phase extends to the annual OOP threshold, at which point the catastrophic phase begins. Once an enrollee enters the catastrophic phase, they pay no cost sharing for Part D drugs.
As a result of these changes, we are proposing to revise § 423.104(d)(2) and (d)(3) to reflect the elimination of the initial coverage limit beginning in CY 2025. Specifically, we are proposing to revise the section heading at § 423.104(d)(2) by removing “the initial coverage limit” and replacing it with “prescription drug plans” to accurately reflect the new benefit structure in which there is no initial coverage limit beginning in CY 2025 and to ensure consistency with the statutory changes made by the IRA. This proposed heading language change is intended to accurately encompass the regulations included in the paragraphs that are subordinate to § 423.104(d)(2), which include regulations related to tiered copayments and the specialty tier
y for increasing the initial coverage limit was in effect from 2007 to 2024. We are also proposing to add a new paragraph at § 423.104(d)(3)(iii) to state that, for 2025 and each subsequent year, there is no initial coverage limit.
Finally, we are proposing two conforming changes at § 423.128(e), which refers to the explanation of benefits that a Part D sponsor must furnish directly to enrollees. First, we propose to revise § 423.128(e)(3)(ii) which states that Part D sponsors are required to include information on the cumulative, year-to-date total amount of benefits provided in relation to the initial coverage limit for the current year in the explanation of benefits provided to enrollees. In alignment with section 1860D-4(a)(4)(B)(i) of the Act, as amended by section 11201 of the IRA, we are proposing to revise § 423.128(e)(3)(ii) by adding language to specify that the requirement to include information about the initial coverage limit was only in effect for years preceding 2025. Second, we propose to revise § 423.128(e)(7) which states that the explanation of benefits must be provided no later than the end of the month following any month when prescription drug benefits are provided under this part, including the covered Part D spending between the initial coverage limit described in § 423.104(d)(3) and the out-of-pocket threshold described in § 423.104(d)(5)(iii). In alignment with the elimination of the initial coverage limit and coverage gap phase beginning in CY 2025, we are proposing to add language to specify that the covered Part D spending between the initial coverage limit and the out-of-pocket threshold requirement is only applicable for years preceding 2025.
Rather than striking the regulations that apply through CY 2024, we are proposing to maintain these regulations, with the described revisions, for historical purposes and for any reconciliation activities related to benefit years prior to 2025.
c
e covered Part D spending between the initial coverage limit and the out-of-pocket threshold requirement is only applicable for years preceding 2025.
Rather than striking the regulations that apply through CY 2024, we are proposing to maintain these regulations, with the described revisions, for historical purposes and for any reconciliation activities related to benefit years prior to 2025.
c. Coverage Gap (§§ 423.100 and 423.104(d)(4))
Section 11201 of the IRA eliminated the coverage gap phase of the Part D benefit by amending section 1860D-2(b) of the Act to eliminate the initial coverage limit beginning in CY 2025.
To align with these changes to the Part D benefit, we propose to revise § 423.104(d)(4) by adding language to reflect that the coverage gap phase was eliminated. The proposed revision would state that the methodology for determining cost sharing in the coverage gap that is described in this section applies only for years preceding 2025. This proposed change aligns with our proposed revision to the definition of “coverage gap” in § 423.100 to specify that the coverage gap means the period in prescription drug coverage that occurs between the initial coverage limit and the OOP threshold during the years 2006 through 2024.
We are also proposing to revise § 423.104(d)(4)(iii), which describes the generic gap coinsurance percentage, by adding an end date to paragraph (C) of this section to state that the 25 percent generic gap coinsurance percentage only applied for years 2020 through 2024
ons with the statutory change made by the BBA, which was implemented in 2019. This revision does not change how the applicable gap percentage was calculated in the past, as these amounts were properly determined consistent with the statutory requirement. We additionally propose to add a new paragraph at § 423.104(d)(4)(v) to specify that, for 2025 and each subsequent year, there is no coverage gap.
Finally, we are proposing conforming changes to §§ 422.2267(e)(5)(ii)(B)(1) and 423.2267(e)(5)(ii)(A)(2) which state that information on prescription drug expenses, including information on the deductible, the initial coverage phase, coverage gap, and catastrophic coverage, is required to be included in the Summary of Benefits provided to prospective enrollees. Due to the elimination of the coverage gap in CY 2025, we are proposing to revise §§ 422.2267(e)(5)(ii)(B)(1) and 423.2267(e)(5)(ii)(A)(2) by adding language to specify that the requirement to include information about the coverage gap was only in effect for years preceding 2025.
Even though the coverage gap phase was eliminated in CY 2025, we are proposing to maintain these regulations, with the described revisions, for historical purposes and for any reconciliation activities related to benefit years prior to 2025.
d. Annual Out-of-Pocket Threshold (§ 423.104(d)(5))
Section 11201 of the IRA amended section 1860D-2(b)(4)(B)(i) of the Act to limit the annual OOP threshold for CY 2025 and each subsequent year. As amended, section 1860D-2(b)(4)(B)(i)(VII) of the Act specifies that the annual OOP threshold is $2,000 for CY 2025. For subsequent years, section 1860D-2(b)(4)(B)(i)(VIII) of the Act specifies that the annual OOP threshold will be increased by the annual percentage increase described in section 1860D-2(b)(6). Accordingly, as specified in the CY 2026 Rate Announcement, the annual OOP threshold for CY 2026 was determined to be $2,100
)(VII) of the Act specifies that the annual OOP threshold is $2,000 for CY 2025. For subsequent years, section 1860D-2(b)(4)(B)(i)(VIII) of the Act specifies that the annual OOP threshold will be increased by the annual percentage increase described in section 1860D-2(b)(6). Accordingly, as specified in the CY 2026 Rate Announcement, the annual OOP threshold for CY 2026 was determined to be $2,100. 10 This amount was calculated, consistent with section 1860D-2(b)(4)(B) of the Act, by multiplying the CY 2025 OOP threshold amount of $2,000 by the 2026 annual percentage increase and rounding to the nearest multiple of $50. Once an enrollee's incurred costs, as defined at § 423.100, exceed the annual OOP threshold, an enrollee will enter the catastrophic phase where there is no cost sharing for Part D drugs.
10 https://www.cms.gov/files/document/2026-announcement.pdf.
As a result of these changes, we are proposing to revise § 423.104(d)(5) to state the specific years for which certain aspects of this section apply and describe the new methodology for determining the annual OOP threshold, consistent with section 1860D-2(b)(4)(B)(i) of the Act.
We are proposing to revise § 423.104(d)(5)(i) to specify that, once an enrollee's incurred costs, as defined at § 423.100, exceed the annual OOP threshold described in paragraph (d)(5)(iii) of this section, they would have $0 cost sharing for 2024 and each subsequent year and, for each year preceding 2024, the cost-sharing structure currently outlined at paragraphs (d)(5)(i)(A) and (d)(5)(i)(B) of this section would apply. We also propose to revise § 423.104(d)(5)(i)(A)(2) to specify that the methodology described in this section for determining an enrollee's copayment amount applies through 2023. These proposed changes reflect the elimination of enrollee cost sharing for Part D drugs in the catastrophic phase beginning in CY 2024, consistent with section 1860D-2(b)(4)(A)(i) of the Act, as amended by section 11201 of the IRA
ropose to revise § 423.104(d)(5)(i)(A)(2) to specify that the methodology described in this section for determining an enrollee's copayment amount applies through 2023. These proposed changes reflect the elimination of enrollee cost sharing for Part D drugs in the catastrophic phase beginning in CY 2024, consistent with section 1860D-2(b)(4)(A)(i) of the Act, as amended by section 11201 of the IRA.
We propose to revise § 423.104(d)(5)(iii)(F) to add an end date to state that this paragraph describes how the annual OOP threshold was determined for years 2021 through 2024. We also propose to add new § 423.104(d)(5)(iii)(G) to establish that for 2025, the annual OOP threshold was set at $2,000, consistent with section 1860D-2(b)(4)(B)(i)(VII) of the Act. Additionally, we are proposing to add new § 423.104(d)(5)(iii)(H) to specify the methodology for determining the annual OOP threshold for 2026 and each subsequent year. Consistent with section 1860D-2(b)(4)(B)(i)(VIII) of the Act, we propose that the annual OOP threshold for 2026 and each subsequent year would be the amount specified in this paragraph for the previous year, increased by the annual percentage increase specified in paragraph (d)(5)(iv) of this section, and rounded to the nearest $50.
e. Alternative Prescription Drug Coverage (§ 423.104(e)(5)) and Enhanced Alternative Coverage (§ 423.104(f)(1))
Part D sponsors must provide their enrollees with qualified prescription drug coverage which, as defined at § 423.100, means coverage that consists of either: (1) standard prescription drug coverage or (2) alternative prescription drug coverage. Standard prescription drug coverage, as defined at § 423.100, means coverage of Part D drugs that meets the requirements of § 423.104(d) and includes two distinct types of coverage: (1) defined standard coverage and (2) actuarially equivalent (AE) standard coverage
23.100, means coverage that consists of either: (1) standard prescription drug coverage or (2) alternative prescription drug coverage. Standard prescription drug coverage, as defined at § 423.100, means coverage of Part D drugs that meets the requirements of § 423.104(d) and includes two distinct types of coverage: (1) defined standard coverage and (2) actuarially equivalent (AE) standard coverage.
Prior to the implementation of the IRA, defined standard coverage consisted of coverage of covered Part D drugs subject to an annual deductible, 25 percent coinsurance for costs above the annual deductible but at or below an initial coverage limit, coinsurance that was equal to the costs of non-applicable and applicable drugs during the coverage gap multiplied by the gap coinsurance percentages, and catastrophic coverage with nominal cost sharing for the remainder of the coverage year once an enrollee's incurred costs, as defined in § 423.100, exceeded the annual OOP threshold. After the implementation of the IRA, defined standard coverage, as discussed in more detail in the introduction of this section of the proposed rule, now consists of an annual deductible, an initial coverage phase where the enrollee pays 25 percent coinsurance for covered Part D drugs until they reach the annual OOP threshold ($2,100 for CY 2026), and the catastrophic phase where the enrollee pays no cost sharing for Part D drugs. AE standard coverage, as defined at § 423.100, provides for cost sharing as described in

§ 423.104(d)(2)(i)(B) or cost sharing as described in § 423.104(d)(5)(ii), or both. In other words, under an AE plan, Part D sponsors modify certain benefit parameters, such as cost-sharing structures, while maintaining the same actuarial value. The changes the IRA made to the defined standard benefit are discussed in detail in the preceding sections of this proposed rule
aring as described in

§ 423.104(d)(2)(i)(B) or cost sharing as described in § 423.104(d)(5)(ii), or both. In other words, under an AE plan, Part D sponsors modify certain benefit parameters, such as cost-sharing structures, while maintaining the same actuarial value. The changes the IRA made to the defined standard benefit are discussed in detail in the preceding sections of this proposed rule.
The IRA also, through section 11201 which amended section 1860D-2(c) of the Act, made changes to the requirements for alternative prescription drug coverage. Alternative prescription drug coverage, as defined in § 423.100, means coverage of Part D drugs, other than standard prescription drug coverage, that meets the requirements of § 423.104(e). Alternative prescription drug coverage includes two types of coverage: (1) basic alternative coverage and (2) enhanced alternative coverage. Both basic alternative and enhanced alternative coverage must provide access to negotiated prices, coverage of Part D drugs, and meet the requirements described in § 423.104(e).
Basic alternative coverage is alternative coverage that is actuarially equivalent to defined standard coverage, as determined through the processes and methods established under § 423.265(d)(2). Prior to the implementation of the IRA, Part D sponsors offering basic alternative coverage could, within the parameters for alternative prescription drug coverage as described in § 423.104(e), combine certain features to maintain an actuarial value of coverage equal to defined standard prescription drug coverage, such as: (1) reducing the deductible, (2) making changes in cost sharing in an actuarially equivalent manner to the 25 percent cost sharing above the deductible and below the initial coverage limit under defined standard coverage and in an actuarially equivalent manner to the gap coverage coinsurance during the coverage gap, or (3) modifying the initial coverage limit
e gap phase.
• Reduction (or elimination) of cost sharing in the catastrophic phase.
As noted in the Final CY 2025 Part D Redesign Program Instructions, section 1860D-2(a)(2)(A)(i) of the Act does not include a reduction in the annual OOP threshold in its list of permissible supplemental benefits, and we have never interpreted such provision to allow for a reduction in the annual OOP threshold. Because the IRA established a defined annual OOP threshold of $2,000 for CY 2025, and an amount equal to the previous year's OOP threshold increased by the annual percentage increase for 2026 and subsequent years, and did not modify the list of permissible supplemental benefits in section 1860D-2(a)(2)(A)(i) of the Act to include a reduction in the annual OOP threshold, Part D sponsors may not lower the annual OOP threshold below the specified amount. Additionally, the IRA eliminated cost sharing in the catastrophic phase beginning in CY 2024 and eliminated the coverage gap phase and replaced the Coverage Gap Discount Program with the Manufacturer Discount Program beginning in CY 2025. Thus, only the following supplemental benefits remain as possible enhancement features: coverage of drugs that are specifically excluded from the definition of a Part D drug, and/or:
• Reduction (or elimination) of the defined standard deductible.
• Reduction of cost sharing in the initial coverage phase.
Given these changes to alternative prescription drug coverage, we propose to revise § 423.104(e)(5) to align our requirements for alternative prescription drug coverage with the changes made by the IRA. We are also proposing to revise § 423.104(f)(1) to align our requirements for enhanced alternative drug coverage with the changes made by the IRA.
We first propose to revise § 423.104(e)(5) to establish a distinction between the requirements for alternative prescription drug coverage that are applicable for years preceding 2025 and requirements for 2025 and each subsequent year
made by the IRA. We are also proposing to revise § 423.104(f)(1) to align our requirements for enhanced alternative drug coverage with the changes made by the IRA.
We first propose to revise § 423.104(e)(5) to establish a distinction between the requirements for alternative prescription drug coverage that are applicable for years preceding 2025 and requirements for 2025 and each subsequent year. Specifically, we are proposing to add language that, for years preceding 2025, alternative prescription drug coverage is required to provide coverage that is designed to provide payment for costs incurred for covered Part D drugs that is equal to the initial coverage limit. We also propose to add language stating that, for 2025 and each subsequent year, this coverage must be equal to the annual OOP threshold, consistent with section 1860D-2(c)(1)(C) of the Act. Similarly, we propose to revise § 423.104(e)(5)(i) to specify that when calculating the required payment amount for costs incurred for covered Part D drugs, the amount the initial coverage limit exceeds the deductible should be used for years preceding 2025, and the amount the annual OOP threshold exceeds the deductible should be used for 2025 and each subsequent year. We propose maintaining § 423.104(e)(5)(ii) without change; therefore, the amount calculated in § 423.104(e)(5)(i) would be multiplied by 100 percent minus the coinsurance percentage specified in paragraph (d)(2)(i) of this section to determine the required payment amount.
Finally, we propose to revise § 423.104(f)(1) to specify that an increase in the initial coverage limit could be considered a supplemental benefit only for years preceding 2025. This change reflects the elimination of the initial coverage limit beginning in CY 2025. All other requirements for enhanced alternative coverage that are described in § 423.104(f) remain applicable under the redesigned Part D benefit. Therefore, we are not proposing any additional changes to this section.
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which drugs are eligible, based on relative high cost, for inclusion on the specialty tier as well as adjusting this threshold to maintain approximately one percent of Part D drugs as specialty-tier eligible. In the CY 2022 final rule, we also codified, at § 423.104(d)(2)(iv)(D)(1) through (3), the maximum allowable cost sharing for drugs on the specialty tier between 25 and 33 percent coinsurance. By codifying this rule, we aimed to prevent discriminatory formulary structures and protect Part D enrollees with certain disease states that are treated only by specialty-tier eligible drugs. This “25/33 percent” maximum allowable cost sharing means that we approve cost sharing for the specialty tier of no more than 25 percent coinsurance after the standard deductible and before the initial coverage limit (ICL), or up to 33 percent coinsurance for plans with decreased or no deductible under alternative prescription drug coverage designs and before the ICL.
The implementation of the IRA has made it necessary for us to make changes to our current specialty-tier regulations related to adjusting the specialty-tier cost threshold and determining the maximum allowable cost sharing to align with the redesigned Part D benefit. In this rule, we propose to codify technical and conforming changes to our specialty-tier regulations at § 423.104.
a. Technical Correction to the Specialty-Tier Cost Threshold Determination (§ 423.104(d)(2)(iv)(A)(4))
We are proposing a technical correction in § 423.104(d)(2)(iv)(A)(4), which describes how the specialty-tier cost threshold is determined for the plan year. The current regulation text incorrectly refers to paragraph (d)(2)(iii) for the cost threshold determination, but it should refer to the top one percent methodology for determining the specialty-tier cost threshold at paragraph (d)(2)(iv)(A)(3). We therefore propose to correct this inadvertent technical error in this proposed rule.
b
specialty-tier cost threshold is determined for the plan year. The current regulation text incorrectly refers to paragraph (d)(2)(iii) for the cost threshold determination, but it should refer to the top one percent methodology for determining the specialty-tier cost threshold at paragraph (d)(2)(iv)(A)(3). We therefore propose to correct this inadvertent technical error in this proposed rule.
b. Limit on Specialty-Tier Cost Threshold Adjustment (§ 423.104(d)(2)(iv)(B))
We annually calculate a minimum dollar-per-month threshold amount to determine which drugs are eligible, based on relative high cost, for inclusion on the specialty tier. This cost threshold is adjusted to maintain approximately 1 percent of Part D drugs as specialty-tier eligible. In the CY 2022 final rule, we codified at § 423.104(d)(2)(iv)(B) our methodology to increase the specialty-tier cost threshold as follows:
( 1 ) CMS increases the specialty-tier cost threshold for a plan year only if the amount determined in paragraph (d)(2)(iv)(A)( 3 ) of this section for a plan year is at least 10 percent above the specialty tier cost threshold for the prior plan year.
( 2 ) If an increase is made in accordance with this paragraph (d)(2)(iv)(B), CMS rounds the amount determined in paragraph (d)(2)(iv)(A)( 3 ) of this section to the nearest $10, and the resulting dollar amount is the specialty-tier cost threshold for the plan year.
Our current regulation only contemplates increasing the specialty-tier cost threshold and does not consider decreasing the threshold when market conditions might warrant such a change. Given the many changes made to the Part D benefit by the IRA, we believe that it may be necessary in future years to decrease the specialty-tier cost threshold due to reductions in Part D drug costs. In general, shifting market dynamics, such as increased utilization of lower cost generic drugs, could potentially lead to reductions in Part D drug costs
aph (B)(2), we are proposing to replace “increase” with “modification.”
c. Specialty Tier Maximum Allowable Cost Sharing (§ 423.104(d)(2)(iv)(D))
Each year, we set the maximum allowable cost sharing for the specialty tier based on the plan's deductible, in accordance with § 423.104(d)(2)(iv)(D). The intent of this policy is to ensure a plan's value is reflective of the defined standard benefit. The regulation limits a plan with the full defined standard deductible to a 25 percent coinsurance on its specialty tier but allows a plan that fully eliminates the deductible up to a 33 percent coinsurance on its specialty tier. Based on the pre-IRA benefit design, we determined that the 33 percent maximum coinsurance was mathematically equivalent to the effective coinsurance for a beneficiary who would have paid the defined standard deductible for any given year plus the 25 percent coinsurance in the initial coverage phase until their drug costs reached the initial coverage limit. In other words, prior to CY 2025, beneficiary OOP costs divided by total drug costs equaled a 33 percent effective

coinsurance for the beneficiary regardless of the plan deductible, represented by the following equation:
EP28NO25.001
To operationalize the concept of maximum allowable cost sharing for the specialty tier based on the plan's deductible, CMS, in the CY 2022 final rule, codified the following calculation at § 423.104(d)(2)(iv)(D)(3) to determine the deductible range that corresponded to each specialty-tier coinsurance percentage point from 25 percent through 33 percent. Thus, under the pre-IRA Part D benefit design, we used this equation for the calculation:
EP28NO25.002
Consistent with the first equation, the numerator here represents beneficiary OOP costs while the denominator represents total drug costs, resulting in an effective coinsurance of 33 percent, to align with the defined standard benefit
rance percentage point from 25 percent through 33 percent. Thus, under the pre-IRA Part D benefit design, we used this equation for the calculation:
EP28NO25.002
Consistent with the first equation, the numerator here represents beneficiary OOP costs while the denominator represents total drug costs, resulting in an effective coinsurance of 33 percent, to align with the defined standard benefit. This equation was then solved for the deductible, and each specialty-tier coinsurance percentage point was inserted, to calculate the maximum allowable deductible value corresponding to that coinsurance percentage.
However, in CY 2025, the ICL was eliminated and, as a result, the methodology codified at § 423.104(d)(2)(iv)(D)(3) was no longer valid. Therefore, in the Final CY 2025 Part D Redesign Program Instructions, 12 we established a new methodology to determine the specialty-tier coinsurance/deductible ranges to represent the effective coinsurance for a beneficiary under the redesigned Part D benefit. In the Final CY 2026 Part D Redesign Program Instructions, 13 we continued to use the methodology outlined in the Final CY 2025 Part D Redesign Program Instructions.
12 https://www.cms.gov/files/document/final-cy-2025-part-d-redesign-program-instructions.pdf.
13 https://www.cms.gov/files/document/final-cy-2026-part-d-redesign-program-instruction.pdf.
In accordance with the Final CY 2025 Part D Redesign Program Instructions, we are now proposing to codify this methodology for determining the specialty-tier coinsurance/deductible ranges to represent the effective coinsurance for a beneficiary under the Part D benefit. To ensure that a plan's value is reflective of the defined standard benefit, we are proposing to codify a methodology similar to the methodology used to calculate the cost-sharing requirements in § 423.104(d)(2)(iv)(D). For Part D plans with the full deductible provided under the defined standard benefit, the coinsurance is 25 percent, consistent with the defined standard benefit
the Part D benefit for purposes of calculating specialty-tier cost-sharing percentages:
EP28NO25.003
As with the previous methodology, the equation is solved for the deductible, and each maximum allowable specialty tier coinsurance value is inserted, to determine the maximum allowable deductible value corresponding to that coinsurance. For example, the results for CY 2026 are shown in Table 1.
EP28NO25.004
Consistent with the approach taken for both CY 2025 and CY 2026 as detailed in the Final CY 2025 Part D Redesign Program Instructions, we are proposing to codify this methodology for determining specialty-tier coinsurance/deductible ranges. Thus, we propose to revise § 423.104(d)(2)(iv)(D)(3)(i) to describe how the maximum coinsurance percentage was determined for years preceding 2025. We also propose to add new § 423.104 (d)(2)(iv)(D)(3)(ii) to describe the methodology for calculating the maximum coinsurance percentage for 2025 and each subsequent year.
4. Changes in True Out-of-Pocket (TrOOP) Costs (§§ 423.100 and 423.464)
A beneficiary's progression through the Part D benefit phases is determined by the total amount of costs incurred by the beneficiary for covered Part D drugs in the plan year. This amount is also referred to as the beneficiary's accumulated TrOOP spending. Incurred costs are defined at section 1860D-2(b)(4)(C) of the Act and the statutory definition has been revised several times since the beginning of the Part D program. Between 2005 and 2010, TrOOP expenditures represented costs actually paid by the beneficiary, another person on behalf of the beneficiary, or a qualified State Pharmaceutical Assistance Program (SPAP)
's accumulated TrOOP spending. Incurred costs are defined at section 1860D-2(b)(4)(C) of the Act and the statutory definition has been revised several times since the beginning of the Part D program. Between 2005 and 2010, TrOOP expenditures represented costs actually paid by the beneficiary, another person on behalf of the beneficiary, or a qualified State Pharmaceutical Assistance Program (SPAP). The Act also expressly excluded certain costs from the definition of TrOOP, including costs “reimbursed through insurance or otherwise, a group health plan, or other third-party payment arrangement.”
In January 2005, we published the final rule titled, “Medicare Program; Medicare Prescription Drug Benefit” (70 FR 4194), in which we initially codified the rules applicable to incurred costs at § 423.100 (hereinafter referred to as the January 2005 Medicare Final Rule). In that rule, we established that the terms “insurance or otherwise” are separate terms with separate definitions. The term “insurance” refers to a health plan that provides or pays the cost of covered Part D drugs, including, but not limited to health insurance coverage, an MA plan, and a PACE organization. The term “or otherwise” refers to government-funded health programs, and accordingly, we defined the term “government-funded health programs” to mean any program established, maintained, or funded—in whole or in part—by the Federal government, the governments of States or political subdivisions of States, or any agency or instrumentality of these governments which uses public funds in whole or in part to provide to, or pay on behalf of, an individual the cost of Part D drugs at § 423.100.
Enacted into law on March 23, 2010, section 3314 of the Patient Protection and Affordable Care Act (PPACA) (Pub. L
n part—by the Federal government, the governments of States or political subdivisions of States, or any agency or instrumentality of these governments which uses public funds in whole or in part to provide to, or pay on behalf of, an individual the cost of Part D drugs at § 423.100.
Enacted into law on March 23, 2010, section 3314 of the Patient Protection and Affordable Care Act (PPACA) (Pub. L. 111-148) added section 1860D-2(b)(4)(C)(iii) of the Act to specify that costs borne or paid for by the Indian Health Service (IHS), an Indian tribe or tribal organization, or an urban Indian organization, and costs borne or paid for by an AIDS Drug Assistance Program (ADAP) count as incurred costs and accumulate towards TrOOP. In the final rule titled, “Medicare Program; Changes to the Medicare Advantage and the Medicare Prescription Drug Benefit Programs for Contract Year 2012 and Other Changes,” which appeared in the April 15, 2011 Federal Register (76 FR 21432), we revised the definition of incurred cost at § 423.100 to reflect the amendments to section 1860D-2(b)(4)(C)(iii) of the Act made by the PPACA. Specifically, we revised the regulation to include payments by the IHS, an Indian tribe or tribal organization, or an urban Indian organization (referred to as I/T/U pharmacy in § 423.100) or under an ADAP in the definition of incurred costs at § 423.100. We also amended § 423.464(f)(2) to state that expenditures made by IHS, an Indian tribe or tribal organization, or an urban Indian organization or under an ADAP are not required to be excluded when determining whether a Part D enrollee has satisfied the out-of-pocket threshold.
Section 11201 of the IRA further amended section 1860D-2(b)(4)(C) of the Act to update the definition of incurred costs
e of total supplemental benefits provided to beneficiaries over the course of the year, including negative values in TrOOP would inappropriately disregard any beneficiary cost sharing in excess of the defined standard cost sharing amount when calculating TrOOP. This would particularly disadvantage certain beneficiaries who have patterns of utilization that disproportionately include this situation. For example, if a beneficiary in an enhanced alternative plan has higher cost sharing than the defined standard benefit for a maintenance medication, including the negative values in TrOOP could significantly disadvantage that beneficiary as these negative values would continually offset part of the payments the beneficiary actually paid OOP. This would create some circumstances where certain beneficiaries have a net negative value for their supplemental benefits when they reach the $2,100 OOP threshold, which means they would have to pay more than $2,100 OOP to reach the catastrophic phase for CY 2026.
Additionally, we noted that section 1860D-2(b)(4)(C)(iii)(II) of the Act states that reimbursements through “certain other third party payment arrangements” are to be included in the calculation of TrOOP. We did not identify any third party payment arrangements in addition to those described in the preceding paragraphs that could be included in the calculation of TrOOP. For instance, primary payer amounts paid on Medicare as secondary payer (MSP) claims are a category of third party payments that we considered for TrOOP eligibility. We determined that these payments should remain excluded from TrOOP due to the requirements at section 1862(b) of the Act, which was not amended by the IRA. As such, for 2025, we did not count as incurred costs any other third party payments not considered TrOOP-eligible prior to 2025
yment Plan participant's TrOOP-eligible costs that are paid by their Part D plan under the Medicare Prescription Payment Plan shall be treated as incurred costs.
In the Final CY 2026 Part D Redesign Program Instructions, we stated that certain policies described in the Final CY 2025 Part D Redesign Program Instructions, including the policy with respect to incurred costs, also applied in CY 2026.
In this proposed rule, we propose to codify at § 423.100 the policies we established in the Final CY 2025 Part D Redesign Program Instructions for CY 2025 and applied via the Final CY 2026 Part D Redesign Program Instructions for CY 2026 with respect to the definition of incurred costs for 2025 and subsequent years, without modification. These policies are currently in effect for CY 2026. Specifically, we propose to add a new subparagraph (3) to the definition of incurred costs at § 423.100 defining incurred costs for 2025 and subsequent years to include costs that are reimbursed through insurance, a group health plan, or certain other third party payment arrangements, but not including the coverage provided by a PDP or an MA-PD plan that is basic prescription drug coverage or any payments by a manufacturer under the Manufacturer Discount Program under section 1860D-14C of the Act. We also propose to amend § 423.464(f)(2)(i)(C) to remove the exclusion of expenditures for covered Part D drugs made by insurance or otherwise, a group health plan, or other third party payment arrangements, including expenditures by plans offering other prescription drug coverage and replace it with an exclusion limited to expenditures for covered Part D drugs made by

government-funded health programs or the coverage provided by a PDP or an MA-PD plan that is basic prescription drug coverage or any payments by a manufacturer under the Manufacturer Discount Program.
5
party payment arrangements, including expenditures by plans offering other prescription drug coverage and replace it with an exclusion limited to expenditures for covered Part D drugs made by

government-funded health programs or the coverage provided by a PDP or an MA-PD plan that is basic prescription drug coverage or any payments by a manufacturer under the Manufacturer Discount Program.
5. Policy for Drugs Not Subject to Defined Standard Deductible (§ 423.104)
Under sections 1860D-2(b) and (c) of the Act, as amended by section 11201 of the IRA, the coverage gap phase was eliminated in CY 2025. Beginning in CY 2025, a beneficiary leaves the initial coverage phase and enters the catastrophic phase once they incur enough TrOOP-eligible costs to meet the annual OOP threshold. Accordingly, under section 1860D-14A(h) of the Act, as added by section 11201 of the IRA, the Coverage Gap Discount Program sunset effective January 1, 2025. Section 11201 of the IRA added section 1860D-14C of the Act, which created the Manufacturer Discount Program beginning January 1, 2025. Under section 1860D-14C(b)(1)(A) of the Act, manufacturers that enter into a Manufacturer Discount Program agreement will provide discounts on applicable drugs, typically amounting to 10 percent of the negotiated price for enrollees in the initial coverage phase and 20 percent of the negotiated price for enrollees in the catastrophic phase, in CY 2025 and subsequent years.
Manufacturer discounts are available under the Manufacturer Discount Program once a beneficiary becomes an “applicable beneficiary.” Section 1860D-14C(g)(1) of the Act defines an applicable beneficiary as an individual who, on the date of dispensing a covered Part D drug, is enrolled in a PDP or MA-PD plan, is not enrolled in a qualified retiree prescription drug plan, and has incurred TrOOP-eligible costs that exceed the defined standard deductible specified in section 1860D-2(b)(1) of the Act
omes an “applicable beneficiary.” Section 1860D-14C(g)(1) of the Act defines an applicable beneficiary as an individual who, on the date of dispensing a covered Part D drug, is enrolled in a PDP or MA-PD plan, is not enrolled in a qualified retiree prescription drug plan, and has incurred TrOOP-eligible costs that exceed the defined standard deductible specified in section 1860D-2(b)(1) of the Act. TrOOP-eligible costs for drugs not subject to the defined standard deductible, specifically covered insulin products, as well as TrOOP-eligible costs for drugs not subject to a non-defined standard plan deductible or drugs subject to a reduced deductible under non-defined standard plans, all count towards a beneficiary's satisfaction of the defined standard deductible.
In the Final CY 2025 Part D Redesign Program Instructions, we established a policy for drugs not subject to the defined standard deductible to address situations where a beneficiary has not satisfied their plan deductible but has incurred sufficient TrOOP-eligible costs to satisfy the defined standard deductible. The policy also addresses situations where a beneficiary incurs sufficient costs to satisfy the plan deductible but has not incurred TrOOP-eligible costs cumulatively across all drugs at or above the defined standard deductible amount. The component of the definition of an applicable beneficiary at section 1860D-14C(g)(1)(C) of the Act creates the possibility for a beneficiary to encounter these situations; therefore, this policy was necessary to ensure that such situations are treated similarly by all Part D plan sponsors.
We established that in CY 2025, if a beneficiary has not satisfied their plan deductible but has incurred sufficient TrOOP-eligible costs to satisfy the defined standard deductible, they will be both an applicable beneficiary under the Manufacturer Discount Program, as we propose to define at § 423.100, and be deemed to have satisfied their plan deductible
similarly by all Part D plan sponsors.
We established that in CY 2025, if a beneficiary has not satisfied their plan deductible but has incurred sufficient TrOOP-eligible costs to satisfy the defined standard deductible, they will be both an applicable beneficiary under the Manufacturer Discount Program, as we propose to define at § 423.100, and be deemed to have satisfied their plan deductible.
Furthermore, we established that, if a plan offers a non-defined standard plan deductible—whether that be a lower deductible than the defined standard deductible or a deductible that applies for a subset of covered Part D drugs—and a beneficiary incurs sufficient costs to satisfy the plan deductible but has not incurred TrOOP-eligible costs cumulatively across all drugs at or above the defined standard deductible amount, discounts under the Manufacturer Discount Program are not available. As such, the plan is responsible for covering the portion of costs that would be covered by the manufacturer discount if the beneficiary were an applicable beneficiary until the beneficiary's TrOOP exceeds the defined standard deductible and they become an applicable beneficiary. The same guidance applies when a beneficiary under any Part D plan is dispensed a covered insulin product or ACIP-recommended vaccine before they have incurred TrOOP-eligible costs at or above the defined standard deductible amount.
For example, an enhanced alternative plan has a tiered formulary, does not charge a deductible for tier 1 drugs, and charges 20 percent coinsurance for drugs in that tier. A beneficiary's first fill of the year is for a $200 tier 1 drug, meaning they pay $40 out of pocket. The beneficiary has not incurred sufficient TrOOP-eligible costs to satisfy the defined standard deductible of $615 (and has $415 in remaining TrOOP-eligible costs before they satisfy the deductible) and does not meet the definition of an applicable beneficiary under the Manufacturer Discount Program
eneficiary's first fill of the year is for a $200 tier 1 drug, meaning they pay $40 out of pocket. The beneficiary has not incurred sufficient TrOOP-eligible costs to satisfy the defined standard deductible of $615 (and has $415 in remaining TrOOP-eligible costs before they satisfy the deductible) and does not meet the definition of an applicable beneficiary under the Manufacturer Discount Program. Therefore, the plan must cover the 10 percent of costs that would be covered by the manufacturer discount if the beneficiary were an applicable beneficiary.
In the Final CY 2026 Part D Redesign Program Instructions, we stated that certain policies described in the Final CY 2025 Part D Redesign Program Instructions, including the policy with respect to drugs not subject to the defined standard deductible, also applied in CY 2026. We also established that the policy for drugs not subject to the defined standard deductible also applies to selected drugs for CY 2026. Specifically, we stated that if a plan offers a non-defined standard plan deductible—whether that be a lower deductible than the defined standard deductible or a deductible that applies for a subset of covered Part D drugs—and a beneficiary incurs sufficient costs to satisfy the plan deductible but has not incurred TrOOP-eligible costs cumulatively across all drugs at or above the defined standard deductible amount, the selected drug subsidy is not available for selected drugs during a price applicability period. As such, for a selected drug during a price applicability period, the plan is responsible for covering the portion of costs that would be covered by the selected drug subsidy if the beneficiary were an applicable beneficiary until the beneficiary's TrOOP exceeds the defined standard deductible and they become an applicable beneficiary.
In this proposed rule, we propose to codify the policy for drugs not subject to the defined standard deductible that are in effect for 2025 and 2026 without modification
t D Payment Policies (Advance Notice) and finalized in the Announcement of Medicare Advantage (MA) Capitation Rates and Part C and Part D Payment Policies (Rate Announcement). In this proposed rule, we propose to codify these methodologies in regulation. We also propose making certain technical changes to current regulations related to indexing certain benefit parameters for low-income individuals. Although we are proposing to codify the calculation methodology for the API and CPI in this rule, we will continue to publish the annual percentage increases in drug expenditures and CPI and updated Part D benefit parameters for each CY through the Advance Notice and Rate Announcement. The projections and calculations used in the methodologies described at proposed §§ 423.104 and 423.782 are made using generally accepted actuarial principles and practices. In applying generally accepted actuarial principles and practices, actuarial judgment and discretion may be used, including taking into account information such as changes in legislation (such as changes in Medicare benefits), Medicare payment policy, trends over several years of data, and external variables (such as public health emergencies); selecting among different approaches (such as weighting for utilization and using average or median values); and in selecting data or data samples.
Calculation of the Annual Percentage Increase in Drug Expenditures
Section 1860D-2(b)(6) of the Act defines the API for each year as the annual percentage increase in average per capita aggregate expenditures for Part D drugs in the United States for Part D eligible individuals, for the 12-month period ending in July of the previous year using such methods as the Secretary shall specify
mples.
Calculation of the Annual Percentage Increase in Drug Expenditures
Section 1860D-2(b)(6) of the Act defines the API for each year as the annual percentage increase in average per capita aggregate expenditures for Part D drugs in the United States for Part D eligible individuals, for the 12-month period ending in July of the previous year using such methods as the Secretary shall specify. We calculate the aggregate expenditures for Part D drugs using the GCPDC instead of an alternative cost measure such as actual net drug costs, because gross drug costs reflect the prices available to beneficiaries and are the basis for calculating beneficiary cost sharing and for beneficiary progression through the Part D drug benefit. The GCPDC is reported to CMS on PDE records; consequently, PDE records are the data source used for this calculation. For contract years 2006 and 2007, the API calculations were based on National Health Expenditure (NHE) prescription drug per capita estimates due to insufficient Part D program data availability; however, we transitioned to using PDE records for CY 2008 and future years.
The API calculation, where API represents the annual percentage increase for Part D expenditures for a given year, is comprised of two factors we refer to as: (1) an annual percentage trend (APT), and (2) a multiplicative update (MU) factor for prior-year revisions.
Mathematically, the formula is expressed as follows:
API = ( APT ) * ( MU ) For a given payment year, the APT is the ratio of total per capita Part D drug expenditures in the 12-month period (August through July) prior to the given payment year (numerator) to the total per capita Part D drug expenditures two years prior to the given payment year (denominator).
For example, the APT for CY 2027 is equal to:
EP28NO25.005
The MU factor is used to incorporate updated data for prior years into the calculation
he ratio of total per capita Part D drug expenditures in the 12-month period (August through July) prior to the given payment year (numerator) to the total per capita Part D drug expenditures two years prior to the given payment year (denominator).
For example, the APT for CY 2027 is equal to:
EP28NO25.005
The MU factor is used to incorporate updated data for prior years into the calculation. We update data for prior years for two reasons: First, at the time the CMS Office of the Actuary calculates the API, actual, reasonably complete PDE data is typically only available for dates of service during the first 5 months of the measurement period (August-December). For the remainder of the measurement period (typically 7 months (January-July)), the costs must be estimated using historical data and actuarial experience. For example, for payment year 2027, the average per capita cost for August 2024-July 2025 (2 years prior) is calculated from submitted PDE data, while the average for August 2025-July 2026 (the year prior) is based on actual data from August 2025-December 2025 and projections for January-July 2026. Second, PDE data may be resubmitted to make corrections or retroactive claim adjustments 14 for activities such as coordination of benefits or changes in eligibility status for Part D or the Low-Income Subsidy program. Historically, we have used a retrospective period, typically 5 years, to update calculations to account for the impact of resubmissions that occur as part of Part D operations such as the annual Part D payment reconciliation under § 423.343 or a reopening of a reconciliation under § 423.346. We have found few to no resubmissions occur beyond a typical retrospective 5-year window.
14 Medicare Prescription Drug Benefit Manual, Pub. 100-18, Chapter 14: Coordination of Benefits
calculations to account for the impact of resubmissions that occur as part of Part D operations such as the annual Part D payment reconciliation under § 423.343 or a reopening of a reconciliation under § 423.346. We have found few to no resubmissions occur beyond a typical retrospective 5-year window.
14 Medicare Prescription Drug Benefit Manual, Pub. 100-18, Chapter 14: Coordination of Benefits.
The MU factor for a given year is the ratio of the product of the APTs for all prior recorded years (since the first calculation in 2007), with the most recent 5 years revised and updated with the currently available data (numerator) to the product of APTs in prior recorded years as published in the previous year's Rate Announcement (denominator). As discussed in the preceding paragraphs, the MU factor has a 5-year retrospective window; however, we have historically included data since 2007 for informational purposes, as this historical data is the same in the numerator and the denominator and has no effect. To convert ratios to percentages, it is necessary to add 1.0 to each factor prior to entering them into the formula.
For example, the MU factor for CY 2027 is equal to:
EP28NO25.006
In this example, APT is the annual percentage trend, denoted with a subscript for the year of the data. The numerator is updated from CY 2020 through CY 2025, using the most recent data available when it is calculated in 2026, and the denominator uses data published in the CY 2026 Rate Announcement (published in April 2025).
Historically, the statutory parameters updated by the API have included the defined standard benefit deductible, initial coverage limit, annual OOP threshold, and the parameters for the LIS and RDS benefits. The IRA eliminated the coverage gap phase and beneficiary cost sharing above the annual OOP threshold; it also set the annual OOP threshold at $2,000 for CY 2025. Given these changes, for CY 2025, only the defined standard deductible and LIS benefit parameters were updated using the API
nefit deductible, initial coverage limit, annual OOP threshold, and the parameters for the LIS and RDS benefits. The IRA eliminated the coverage gap phase and beneficiary cost sharing above the annual OOP threshold; it also set the annual OOP threshold at $2,000 for CY 2025. Given these changes, for CY 2025, only the defined standard deductible and LIS benefit parameters were updated using the API. For CY 2025 and subsequent years, no updates to the parameters for the initial coverage limit, maximum or minimum beneficiary cost sharing in the coverage gap or above the annual OOP threshold were necessary as the coverage gap phase and beneficiary cost sharing above the annual OOP threshold were eliminated. In CY 2026, the defined standard deductible, the annual OOP threshold, and the maximum copayment below the annual OOP threshold for low-income, full-subsidy-eligible beneficiaries with incomes between 100 and 150 percent of the FPL were updated using the API.
We propose to revise § 423.104(d)(5)(iv) by adding three paragraphs describing (1) the overall calculation of the annual percentage increase, or the API, in per capita Part D drug expenditures, (2) the calculation of the annual percentage trend, or the APT, and (3) the calculation of the multiplicative update factor, or the MU. We will continue to publish updates to the Part D benefit parameters calculated through these methodologies through the Advance Notice and Rate Announcement process described in section 1853(b) of the Act.
Calculation of the Annual Percentage Increase in CPI
Section 1860D-14(a)(4)(A) of the Act specifies that the annual percentage increase in CPI, a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services, 15 is the annual percentage increase in the CPI (all items; U.S. city average) as of September of such previous year
al percentage trend, and MU is the multiplicative update factor for prior year revisions. The APT consists of a year-over-year comparison of the CPI in the United States for all items, ending in the month of September. For a given payment year, it is the ratio of the CPI in the year ending the previous September (numerator) to the CPI for the year ending the September two years prior (denominator). To ensure that plan sponsors and CMS have sufficient time to incorporate cost-sharing requirements into the development of the benefit, any marketing materials, and necessary systems, we include an estimate of the September CPI based on projections from the President's Budget in its

methodology to calculate the annual increase in the CPI for the 12-month period ending in September prior to the applicable payment year.
For example, the annual percentage trend in the September CPI for CY 2027 is calculated as follows:
EP28NO25.007
The MU factor revises APTs in the September CPI to reflect updates (provided by the BLS) from the previously estimated September CPI to the actual reported September CPI. The MU factor for a given year is the ratio of the product of the APTs for all prior recorded years (since the first calculation in 2007), with the most recent year updated with the currently available data (numerator) to the product of APTs in prior recorded years as published in the previous year's Rate Announcement (denominator). As mentioned in the preceding paragraphs, data since 2007 is included for informational purposes. To convert the ratios to percentages, it is necessary to add 1.0 to each factor prior to entering them into the formula.
For example, the MU factor for CY 2027 is equal to—
EP28NO25.008
In this example, the numerator is updated from CY 2025 through CY 2026, using recent economic assumptions, and the denominator uses data published in the CY 2026 Rate Announcement (published in April 2025)
lculate the deductible for certain low-income subsidy eligible individuals is calculated as provided in § 423.104(d)(5)(iv). Second, we propose to streamline the regulation text at § 423.782(b)(3) so that it directly cross references the updated maximum copayment amounts that apply for years subsequent to 2006. Section 1860D-2(b)(4)(A)(i)(I) is implemented in regulation at § 423.104(d)(5)(i)(A)(2). We propose to replace the description in § 423.782(b)(3) of the annual process for updating maximum copayments with a cross reference to § 423.104(d)(i)(A)(2).
7. Changes to GCPDC and Allowable Reinsurance Cost Definitions To Include Costs Paid by the MDP (§ 423.308)
Section 1860D-15(b)(3) of the Act defines “gross covered prescription drug costs” as, “with respect to a part D eligible individual enrolled in a prescription drug plan or MA-PD plan during a coverage year, the costs incurred under the plan, not including administrative costs, but including costs directly related to the dispensing of covered part D drugs during the year and costs relating to the deductible. Such costs shall be determined whether they are paid by the individual or under the plan . . . regardless of whether the coverage under the plan exceeds basic prescription drug coverage.” Section 1860D-15(b)(2) of the Act defines allowable reinsurance costs as “. . . such costs that are actually paid (net of discounts, chargebacks, and average percentage rebates) by the sponsor or organization or by (or on behalf of) an enrollee under the plan . . .” GCPDC and allowable reinsurance costs are defined and used at section 1860D-15(b) of the Act for the purpose of describing the methodology for calculating the reinsurance payment amount.
In the January 2005 Medicare Final Rule (70 FR 4194), we codified the definition of “gross covered prescription drug costs” at § 423.308
or organization or by (or on behalf of) an enrollee under the plan . . .” GCPDC and allowable reinsurance costs are defined and used at section 1860D-15(b) of the Act for the purpose of describing the methodology for calculating the reinsurance payment amount.
In the January 2005 Medicare Final Rule (70 FR 4194), we codified the definition of “gross covered prescription drug costs” at § 423.308. This regulatory definition referred to “gross covered prescription drug costs” as “actually paid costs.” In the final rule that appeared in the Federal Register on April 12, 2023(70 FR 22120), we revisited the regulatory definition of GCPDC by amending the definition at § 423.308 to remove the phrase “actually paid.” We made this change because the term “actually paid” has a specific meaning in Medicare Part D and is separately defined at § 423.308 to mean costs actually incurred by the plan that are net of direct and indirect remuneration (DIR), including discounts, rebates, or other price concessions typically received and applied after the point of sale (POS). However, unlike the statutory definitions of “allowable reinsurance costs” and “allowable risk corridor costs” at sections 1860D-15(b)(2) and 1860D-15(e)(1)(B) of the Act, respectively, the statutory definition of “gross covered prescription drug costs” at section 1860D-15(b)(3) of the Act does not use the phrase “actually paid” or otherwise specify that such costs must be net of all DIR. As we explained in the December 2022 proposed rule (87 FR 79611), because the definition of “gross covered prescription drug costs” was codified in regulation for the sole purpose of describing the methodology for calculating the reinsurance payment amount, in using the phrase “actually paid” in the regulatory definition of “gross covered prescription drug costs,” We were incorporating a requirement from the statutory definition of “allowable reinsurance costs” to emphasize that DIR would be netted out

in the calculation of costs eligible for Part D reinsurance
purpose of describing the methodology for calculating the reinsurance payment amount, in using the phrase “actually paid” in the regulatory definition of “gross covered prescription drug costs,” We were incorporating a requirement from the statutory definition of “allowable reinsurance costs” to emphasize that DIR would be netted out

in the calculation of costs eligible for Part D reinsurance. As we explained in the proposed rule, the proposed revisions to the definition would not change the fact that Part D reinsurance is ultimately based on net drug costs or change the final reinsurance payment amount a Part D sponsor receives. Rather, allowable reinsurance costs would continue to be defined at § 423.308 as the subset of gross covered prescription drug costs actually paid.
Manufacturer discounts, among other costs, paid under the Coverage Gap Discount Program (as described in section 1860D-14A of the Act) were always included in the calculation of GCPDC. This policy was consistent with the statutory and regulatory definition of GCPDC, which generally requires the inclusion of all costs incurred under the plan, including those paid on behalf of the Part D beneficiary. The IRA sunset the Coverage Gap Discount Program as of January 1, 2025. As such, these costs are no longer included in the calculation of GCPDC. Section 11201(b)(3) of the IRA amended section 1860D-15(b)(3) of the Act in two places to also require the inclusion of manufacturer discounts paid under the Manufacturer Discount Program in the calculation of GCPDC (first, by specifying that the definition of GCPDC is subject to paragraph (2)(B) of section 1860D-15(b) of the Act and second, by adding language specifying that, in the case of an applicable drug, as defined at § 423.100, GCPDC shall be determined whether the costs are paid by the individual, under the plan, or by a manufacturer)
f the Act) paid by manufacturers under the Manufacturer Discount Program (as defined in section 1860D-14C of the Act).”
In the Final CY 2026 Part D Redesign Program Instructions, we stated that certain policies described in the Final CY 2025 Part D Redesign Program Instructions, including the policy with respect to the definitions of GCPDC and allowable reinsurance costs, also applied in CY 2026.
We propose to codify the policy that we established in the Final CY 2025 Part D Redesign Program Instructions for CY 2025 and applied via the Final CY 2026 Part D Redesign Program Instructions for CY 2026 with the limited modifications mentioned later in this section. Specifically, we propose that the regulatory definition of “gross covered prescription drug costs” at § 423.308 be revised to include “all amounts paid by manufacturers under the Manufacturer Discount Program (as defined at § 423.100).” We also propose to add the phrase “for years prior to 2025” before the phrase “amounts between the initial coverage limit and the out-of-pocket threshold” and the phrase “because the enrollee is between the initial coverage limit and the out-of-pocket threshold” to reflect that the coverage gap phase does not exist for 2025 and subsequent years. Additionally, we propose to revise the regulatory definition of “allowable reinsurance costs” at § 423.308 to include “the portion of the negotiated price (as defined in section 1860D-14C(g)(6) of the Act) of an applicable drug (as defined at § 423.100) paid by manufacturers under the Manufacturer Discount Program (as defined at § 423.100).”
8. Reinsurance Methodology (§ 423.329)
Section 1860D-15(b) of the Act, originally enacted into law by the MMA, sets forth rules for the calculation and payment of federal reinsurance subsidies for Part D plans
ts for non-applicable and selected drugs above the annual OOP threshold at the individual beneficiary level (from PDE records).
• Sum incurred reinsurance costs for non-applicable and selected drugs at the plan level.
• Allocate DIR for non-applicable and selected drugs to incurred reinsurance costs for non-applicable and selected drugs by applying the ratio of total DIR to total allowed costs. (The allocated DIR for reinsurance is referred to as “reinsurance DIR.”)
• Subtract reinsurance DIR for non-applicable and selected drugs from incurred reinsurance costs for non-applicable and selected drugs, then multiply the difference by 40 percent (the reinsurance payment amount percentage for non-applicable and selected drugs).
The sum of the adjusted reinsurance amounts for applicable drugs and non-applicable and selected drugs for CY 2026 will then be reconciled with prospective reinsurance payment amounts made to plans during the coverage year. To determine the appropriate category (applicable, non-applicable, or selected) for drugs, we stated we would use the 11-digit NDC submitted on each PDE record and assign it with an applicable, non-applicable, or selected designation based on the marketing category listed for that NDC in the U.S. Food and Drug Administration (FDA)'s NSDE file used for PDE processing and the list of NDCs referenced in the Medicare Drug Price Negotiation Program guidance.
For CY 2026, the calculation formulas for applicable drugs are:
Reinsurance DIR for applicable drugs = (total DIR/total allowed costs) × incurred reinsurance costs for applicable drugs. Adjusted reinsurance for applicable drugs = (incurred reinsurance costs for applicable drugs−reinsurance DIR for applicable drugs) × 0.20. For CY 2026, the calculation formulas for non-applicable and selected drugs are:
Reinsurance DIR for non-applicable and selected drugs = (total DIR/total allowed costs) × incurred reinsurance costs for non-applicable and selected drugs
, provide Part D plan sponsors with a subsidy for selected drugs, as defined under section 1192(c) of the Act, equal to 10 percent of the drug's negotiated price. The selected drug subsidy applies to a covered Part D drug that would otherwise meet the definition of an applicable drug but for being a selected drug under the Medicare Drug Price Negotiation Program during a price applicability period. The subsidy is paid on behalf of an applicable beneficiary who is enrolled in a PDP or an MA-PD plan, has not incurred costs that are equal to or exceed the annual OOP threshold, and is dispensed a selected drug.
Under the selected drug subsidy program, once an enrollee incurs costs exceeding the annual deductible specified in section 1860D-2(b)(1) of the Act (that is, the deductible under the defined standard benefit) the selected drug subsidy is available in the initial coverage phase of the benefit. The selected drug subsidy lowers Part D plan sponsor liability on the negotiated price of the drug.
Because of the intertwined structure and wording of the Manufacturer Discount Program and selected drug subsidy program provisions at sections 1860D-14C and 1860D-14D of the Act, we interpret the statute as establishing the selected drug subsidy as a substitute for the Manufacturer Discount Program discount for a covered Part D drug that would otherwise meet the definition of an applicable drug but for being a

selected drug under the Medicare Drug Price Negotiation Program during a price applicability period. As such, we propose to treat claims that are subject to the selected drug subsidy as coterminous with claims that would qualify for applicable discounts under the Manufacturer Discount Program, but for the drug's status as a selected drug during a price applicability period
drug but for being a

selected drug under the Medicare Drug Price Negotiation Program during a price applicability period. As such, we propose to treat claims that are subject to the selected drug subsidy as coterminous with claims that would qualify for applicable discounts under the Manufacturer Discount Program, but for the drug's status as a selected drug during a price applicability period. In other words, the selected drug subsidy will apply if the selected drug that otherwise would be an “applicable drug” would have received an applicable discount under the Manufacturer Discount Program for the particular claim at issue under the rules of the Manufacturer Discount Program. Conversely, the selected drug subsidy will not apply if the applicable discount under the Manufacturer Discount Program otherwise would not have applied to that particular claim. For example, as discussed in section II.C. of this proposed rule, certain claims involving an applicable drug, such as Medicare Secondary Payer claims, are not subject to discounts under the Manufacturer Discount Program; in these situations, the selected drug subsidy would also not apply.
Because certain actual expenses can only be fully known after all costs have been incurred for a payment year, we make final payment for these costs after a coverage year after obtaining all the information necessary to determine the amount of payment. We currently make monthly prospective payments of certain estimated costs submitted with bids, including reinsurance costs and low-income cost-sharing subsidy (LICS) costs, to mitigate cash-flow concerns that plans could experience if such payments were made wholly on a retrospective basis.
In the Final CY 2026 Part D Redesign Program Instructions, we stated that similar concerns suggested that we should also make monthly prospective payments for the selected drug subsidy program
at the statutory formula described in the preceding paragraph would apply subject to a newly added section 1860D-13(a)(8)(A) of the Act, which states that, for a prescription drug plan for a month in 2024 through 2029, the BBP shall be equal to the lesser of the BBP for the preceding year increased by 6 percent or the amount computed under the formula described at section 1860D-13(a)(2) of the Act. In the Advance Notice of Methodological Changes for CY 2024 for Medicare Advantage (MA) Capitation Rates and Part C and Part D Payment Policies (2024 Advance Notice) 16 and the July 31, 2023 HPMS memorandum titled, “Annual Release of Part D National Average Bid Amount and Other Part C & D Bid Information”, 17 we stated that it would calculate the BBP as the lesser of the prior year's BBP increased by 6 percent, or the BBP as it would have been calculated if the IRA's premium stabilization provision had not been enacted, to determine the CY 2024 BBP. In the July 29, 2024, HPMS memorandum titled, “Annual Release of Part D National Average Bid Amount and Other Part C & D Bid Information,” we applied the revised formula described in this paragraph to determine the CY 2025 BBP.
16 https://www.cms.gov/files/document/2024-announcement-pdf.pdf.
17 https://www.cms.gov/files/document/july-29-2024-parts-c-d-announcement.pdf.
In this proposed rule, we propose to codify the statutory amendments to section 1860D-13(a) of the Act.

Specifically, we propose to redesignate § 423.286(b) as § 423.286(b)(1) and codify the BBP formula for 2024 through 2029 at new § 423.286(b)(2).
12. Low-Income Cost-Sharing Subsidy (§ 423.782)
The Part D low-income subsidy (LIS) helps individuals with Medicare who meet certain statutory income and resource criteria pay for prescription drugs and lowers the costs of prescription drug coverage. Prior to the enactment of the IRA, individuals who qualified for the full LIS received assistance to pay their full premiums and deductibles (in certain Part D plans) and have reduced cost sharing
The Part D low-income subsidy (LIS) helps individuals with Medicare who meet certain statutory income and resource criteria pay for prescription drugs and lowers the costs of prescription drug coverage. Prior to the enactment of the IRA, individuals who qualified for the full LIS received assistance to pay their full premiums and deductibles (in certain Part D plans) and have reduced cost sharing. Individuals who qualified for the partial LIS paid reduced premiums (on a sliding scale based on their income) and also had reduced deductibles and cost sharing. Section 11404 of the IRA amended section 1860D-14 of the Act to expand eligibility for the full LIS to individuals who are determined to have incomes below 150 percent of the FPL and who meet either the resource standard in paragraph (3)(D) or paragraph (3)(E) of section 1860D-14(a) of the Act, with respect to plan years beginning on or after January 1, 2024. Thus, beginning in CY 2024, individuals who previously would have qualified for the partial subsidy now receive the full LIS.
In the final rule titled, “Medicare Program; Contract Year 2024 Policy and Technical Changes to the Medicare Advantage Program, Medicare Prescription Drug Benefit Program, Medicare Cost Plan Program, and Programs of All-Inclusive Care for the Elderly,” which appeared in the April 12, 2023 Federal Register (88 FR 22120), and therewithin, we codified the applicable rules under §§ 423.773 and 423.780 to expand eligibility for the LIS under Part D. In this rule, we propose to also amend the eligibility criteria for LIS cost sharing reductions at § 423.782 to align with the IRA's amendments to section 1860D-14(a)(1) of the Act and the changes to §§ 423.773 and 423.780. Specifically, we propose to update the FPL limit specified in § 423.782(a)(2)(i)(B) to 150 percent for plan years beginning on or after January 1, 2024
or the LIS under Part D. In this rule, we propose to also amend the eligibility criteria for LIS cost sharing reductions at § 423.782 to align with the IRA's amendments to section 1860D-14(a)(1) of the Act and the changes to §§ 423.773 and 423.780. Specifically, we propose to update the FPL limit specified in § 423.782(a)(2)(i)(B) to 150 percent for plan years beginning on or after January 1, 2024.
In addition, we propose to amend paragraph (a)(2) of § 423.782 to state that for years preceding 2025, LIS cost sharing reductions applied to covered Part D drugs obtained after the initial coverage limit and below the OOP limit.
13. Retiree Drug Subsidy Parameters (§§ 423.882 and 423.884)
Section 1860D-22 of the Act provides for subsidy payments to sponsors of qualified retiree prescription drug plans, provided that the employment-based retiree health coverage is at least actuarially equivalent to the standard prescription drug coverage under Medicare Part D. In the January 2005 Medicare Final Rule, we established regulations at 42 CFR part 423 Subpart R to, in part, determine which group health plans may qualify as qualified retiree prescription drug plans and, therefore, be eligible to receive retiree drug subsidy payments for a qualifying covered retiree.
Per section 1860D-22(a)(2)(A) of the Act, qualified retiree prescription drug plans are required to annually attest that the actuarial value of prescription drug coverage under the plan (as described in section 1860D-11(c) of the Act) is at least equal to the actuarial value of standard prescription drug coverage, not taking into account the value of any discount provided under the Manufacturer Discount Program as established in section 1860D-14C of the Act, and disclose that coverage under the plan is creditable in accordance with section 1860D-13(b)(6)(B) of the Act
er the plan (as described in section 1860D-11(c) of the Act) is at least equal to the actuarial value of standard prescription drug coverage, not taking into account the value of any discount provided under the Manufacturer Discount Program as established in section 1860D-14C of the Act, and disclose that coverage under the plan is creditable in accordance with section 1860D-13(b)(6)(B) of the Act.
In the Final CY 2025 Part D Redesign Program Instructions, we addressed the implications of the amendments to the parameters of the standard prescription drug coverage made by the IRA for the retiree drug subsidy parameters described at Subpart R and summarized the IRA policies in effect for 2025 that are considered in determining the actuarial value of the defined standard benefit. While the IRA amends the parameters of the standard prescription drug coverage and makes other changes to the Part D benefit, we stated that there are no changes to the requirements for qualified retiree prescription drug plans.
In the Final CY 2026 Part D Redesign Program Instructions, we stated that certain policies described in the Final CY 2025 Part D Redesign Program Instructions, including the guidance related to the retiree drug subsidy parameters, also applied in CY 2026.
The majority of the IRA policies in effect for CY 2027 and subsequent years do not require updates to Subpart R; however, there are certain conforming edits required to reflect the proposed revisions to the definitions of “gross covered prescription drug costs” and “allowable reinsurance costs” as well as revisions needed to reflect the sunsetting of the Coverage Gap Discount Program and the establishment of the Manufacturer Discount Program. Specifically, we propose to revise the definitions of “gross covered retiree plan-related prescription drug costs” and “allowable retiree costs” at § 423.882 to reflect the proposed revisions to the definitions of “gross covered prescription drug costs” and “allowable reinsurance costs” at § 423.308
ng of the Coverage Gap Discount Program and the establishment of the Manufacturer Discount Program. Specifically, we propose to revise the definitions of “gross covered retiree plan-related prescription drug costs” and “allowable retiree costs” at § 423.882 to reflect the proposed revisions to the definitions of “gross covered prescription drug costs” and “allowable reinsurance costs” at § 423.308. We also propose to replace all references in § 423.884(d) to “not taking into account the value of any discount or coverage provided during the coverage gap” with the statement “for years prior to 2025, not taking into account the value of any discount or coverage provided during the coverage gap and for 2025 and subsequent years, not taking into account the value of any discount provided under the Manufacturer Discount Program.”
14. Medical Loss Ratio (§ 423.2420)
Section 1103 of Title I, Subpart B of the Health Care and Education Reconciliation Act (Pub. L. 111-152) amended section 1857(e) of the Act to add a medical loss ratio (MLR) requirement to Medicare Part C (MA program). An MLR is expressed as a percentage, generally representing the percentage of revenue used for patient care rather than for such other items as administrative expenses or profit. Because section 1860D-12(b)(3)(D) of the Act incorporates by reference the requirements of section 1857(e) of the Act, these MLR requirements also apply to the Medicare Part D program. In the final rule titled “Medicare Program; Medical Loss Ratio Requirements for the Medicare Advantage and the Medicare Prescription Drug Benefit Programs,” which appeared in the May 23, 2013 Federal Register (78 FR 31284) (hereinafter referred to as the May 2013 Medicare MLR final rule), in which we codified the MLR requirements for MA organizations and Part D prescription drug plan sponsors (“Part D sponsors”) (including organizations offering cost plans that offer the Part D benefit) in the regulations at 42 CFR part 422, subpart X, and part 423, subpart X
luded from the MLR calculation (78 FR 31290); accordingly, LICS and Coverage Gap Discount Program payments are excluded from both the MLR numerator and denominator.
The IRA introduced new categories of Part D plan payments from the Federal government. These include the Manufacturer Discount Program payment, the Inflation Reduction Act Subsidy Amount (IRASA), and the selected drug subsidy payment. The payment process for the Manufacturer Discount Program payments includes a cost-based reconciliation intended to make Part D sponsors whole for the manufacturer discount amounts they advance on behalf of the manufacturer. The IRASA is a Part D payment specific to CY 2023 that we provided to Part D plan sponsors. This temporary retrospective subsidy was paid to Part D plans for the reduction in cost sharing and elimination of the deductible for ACIP-recommended adult vaccines and covered insulin products during the 2023 plan year (that is, to cover the difference between the beneficiary cost sharing for the covered insulin, or ACIP-recommended adult vaccine, under the plan's 2023 benefit design, and the applicable statutory maximum cost sharing ($35 for a one month-supply of covered insulin products and $0 for vaccines)). Finally, under the selected drug subsidy program, the government provides a subsidy to Part D plan sponsors for selected drugs dispensed to enrollees in the initial coverage phase.
In the Final CY 2025 Part D Redesign Program Instructions, we stated that for CY 2025 and prior years, the new Part D plan payments for the Manufacturer Discount Program and IRASA are excluded from the denominator of the MLR calculation, and associated expenditures are excluded from the numerator of the MLR calculation. In the Final CY 2026 Part D Redesign Program Instructions, we stated that the new Part D plan payments for the selected drug subsidy are excluded from the denominator of the MLR calculation, and associated expenditures are excluded from the numerator of the MLR calculation
ded eliminating the coverage gap phase of the Part D benefit after 2024 and adding section 1860D-14C to the Act, which established the Manufacturer Discount Program, under which manufacturers pay discounts for applicable drugs when dispensed to Part D enrollees during the initial and catastrophic coverage phases. Our proposal to codify the Manufacturer Discount Program is discussed in section II.C. of this proposed rule.
Consistent with the elimination of the coverage gap phase of the Part D benefit, section 11201 of the IRA added section (h) to section 1860D-14A of the Act, which sunset the Coverage Gap Discount Program and terminated all Coverage Gap Discount Program agreements, effective January 1, 2025. Section 1860D-14A(h)(2) of the Act further specifies that the provisions of section 1860D-14A of the Act, including all responsibilities and duties under such agreements continue to apply with respect to applicable drugs dispensed prior to January 1, 2025. Accordingly, we propose to amend § 423.2300 by adding a new paragraph to specify that the requirements of Subpart W apply before January 1, 2025 and, with respect to applicable drugs dispensed prior to that date, continue to apply on and after January 1, 2025. To make this change, we propose to redesignate the existing text of § 423.2300 as paragraph (a) and redesignate existing paragraphs (a) through (h) as § 423.2300(a)(1) through (8), respectively. We propose to add the new text at § 423.2300(b). We also propose to revise § 423.2315(c)(2) to reflect the sunset of the Coverage Gap Discount Program by limiting this provision specifying the effective date of a Coverage Gap Discount Program agreement to 2012 and subsequent years prior to 2025. Finally, in accordance with section 1860D-14A(h)(1) of the Act, we propose to amend § 423.2345 by adding a new paragraph (f) to specify

that, subject to § 423.2300(b), as redesignated, all Coverage Gap Discount Program agreements under this subpart are terminated as of January 1, 2025
xceeded the annual Part D deductible specified in section 1860D-2(b)(1) of the Act. While the discounts are a lower percentage of the negotiated price of the applicable drug than under the Coverage Gap Discount Program (10 percent in the initial coverage phase and 20 percent in the catastrophic coverage phase), they continue through the end of the plan year once the enrollee exceeds the deductible. The discount percentages manufacturers are required to pay are phased in over the first several years of the program for manufacturers that meet statutory criteria for specified manufacturers and specified small manufacturers.
Many of the other policies currently in effect pursuant to the Manufacturer Discount Program Final Guidance, which we propose to codify in this rule, mirror longstanding policies under the Coverage Gap Discount Program, including use of a third party administrator (TPA) to facilitate program operations such as invoicing and payment, use of the Health Plan Management System (HPMS) to execute agreements and house data, and the manufacturer dispute resolution process. All of these policies are discussed in more detail later in this section.
2. Basis and Scope (§ 423.2700)
We propose to codify the requirements for the Manufacturer Discount Program under sections 1860D-14C and 1860D-43 of the Act as new subpart AA of part 423. Proposed § 423.2700(a) and (b) set forth the basis and scope, respectively.
We propose a conforming change at § 423.1 to incorporate section 1860D-14C of the Act into the scope of part 423.
3. Definitions (§§ 423.100, 423.1002, 423.2305, and 423.2704)
In this proposed rule, we propose to codify the definition of frequently used terms consistent with section 1860D-14C of the Act or established in the Manufacturer Discount Program Final Guidance, as well as new definitions based on the policies in this proposed rule.
Several of these terms are also used for purposes of the Coverage Gap Discount Program
3.100, 423.1002, 423.2305, and 423.2704)
In this proposed rule, we propose to codify the definition of frequently used terms consistent with section 1860D-14C of the Act or established in the Manufacturer Discount Program Final Guidance, as well as new definitions based on the policies in this proposed rule.
Several of these terms are also used for purposes of the Coverage Gap Discount Program. In some cases, the same term has a different meaning for the Manufacturer Discount Program than for the Coverage Gap Discount Program because of differences in the programs reflected in sections 1860D-14C and 1860D-14A of the Act, respectively. Where possible under the statutory requirements, we propose to use the same terms, defined in the same way, for both programs. Because some of the terms are applicable to both subpart W and proposed subpart AA, we propose to revise certain definitions in existing §§ 423.100, 423.1002, and 423.2305, move certain definitions from § 423.2305 to § 423.100 with revisions

as necessary to comply with relevant statutory requirements, and add new definitions for purposes of the Manufacturer Discount Program at proposed § 423.2704.
At § 423.100, we propose to revise a number of existing definitions as discussed below.
• “Applicable beneficiary”;
We propose to revise the definition of “applicable beneficiary” to reflect the statutory definition of such term under the Coverage Gap Discount Program and the Manufacturer Discount Program
to modify the existing definition of “applicable drug” to specify that compounded drug products (as described in § 423.120(d)) containing an applicable drug are excluded. This proposed change would codify both longstanding CMS policy under the Coverage Gap Discount Program that excluded compounds as well as the policy established in section 40.1 of the Manufacturer Discount Program Final Guidance. As stated in the guidance, while plans may cover compounds that include at least one Part D ingredient, and that ingredient would be an applicable drug if dispensed on its own, we believe that the applicable drug determination must be made with respect to the compound as a whole. Because the compound as a whole is not approved under a New Drug Application (NDA) or Biologic Licensing Application (BLA), a compound does not meet the definition of an applicable drug.
Further, for the purposes of the Manufacturer Discount Program, we propose to clarify that applicable drug also includes a Part D drug that is provided to a particular applicable beneficiary as a transition fill under § 423.120(b)(3) or as an emergency supply as may be required for an applicable beneficiary who is a long-term care resident. This clarification would codify our longstanding approach under the Coverage Gap Discount Program where, in practice, such fills have been treated as meeting the definition of “applicable drug.”
Finally, in accordance with the statutory definition of “applicable drug” at section 1860D-14C(g)(2) of the Act and the Manufacturer Discount Program Final Guidance, we further propose to specify in the definition of “applicable drug” that, for the purposes of the Manufacturer Discount Program, an applicable drug is not a selected drug during a price applicability period with respect to such drug
unted claim for reimbursement.” This proposed revision is consistent with the definition of “date of dispensing” used in the Manufacturer Discount Program Final Guidance and with criteria established under § 423.2325(g) for the Coverage Gap Discount Program.
• “Labeler code”;
We propose to remove the existing definition of “labeler code” from § 423.2305 and add it, with revisions, at § 423.100. Specifically, we propose to remove the phrase “Food and Drug Administration” for conciseness and accuracy.
• “Manufacturer”;
We propose to remove the existing definition of “manufacturer” from § 423.2305 and add it at § 423.100 with a revision removing the phrase “Discount Program” and adding in its place the phrase “Coverage Gap Discount Program and the Manufacturer Discount Program” for accuracy.
• “Manufacturer Discount Program”;
We propose to define “Manufacturer Discount Program” as the Medicare Part D Manufacturer Discount Program established under section 1860D-14C of the Act.
• “Manufacturer Discount Program agreement”;
We propose to define “Manufacturer Discount Program agreement” as the agreement described at section 1860D-14C(b) of the Act.
• “Medicare Coverage Gap Discount Program”;
We propose to remove the definition of “Medicare Coverage Gap Discount Program” from § 423.2305 and add it at § 423.100, with revisions to remove the phrase “Program (or Discount Program)” and add in its place the phrase “Program (or Coverage Gap Discount Program)”.
• “Medicare Coverage Gap Discount Program agreement”;
We propose to remove the definition of “Medicare Coverage Gap Discount Program agreement” from § 423.2305 and add it at § 423.100 with revisions to remove the phrase “Program agreement (or Discount Program agreement)” and add in its place the phrase “Program agreement (or Coverage Gap Discount Program agreement)”
age Gap Discount Program)”.
• “Medicare Coverage Gap Discount Program agreement”;
We propose to remove the definition of “Medicare Coverage Gap Discount Program agreement” from § 423.2305 and add it at § 423.100 with revisions to remove the phrase “Program agreement (or Discount Program agreement)” and add in its place the phrase “Program agreement (or Coverage Gap Discount Program agreement)”.
• “National Drug Code (NDC)”; and
We propose to remove the definition of “National Drug Code” from § 423.2305 and add it at § 423.100 with revisions to remove the phrase “the product” and add in its place the phrase “the product's manufacturer, product”. This proposed revision aligns with the definition of NDC used in the Manufacturer Discount Program Final Guidance.
• “Non-applicable drug”;
We propose to define “non-applicable drug” to mean any Part D drug that is not an applicable drug and not a selected drug during a price applicability period with respect to such drug.
• “Price applicability period”;
We propose to define “price applicability period” as having the

meaning given such term in section 1191(b)(2) of the Act and any applicable regulations and guidance.
• “Selected drug”; and
We propose to define “selected drug” as having the meaning given such term in section 1192(c) of the Act and any applicable regulations and guidance. Such definition aligns with the definition used in the Manufacturer Discount Program Final Guidance.
• “Third Party Administrator (TPA)”.
We propose to add at § 423.100 the definition of “Third Party Administrator” that we propose to remove from § 423.2305, with revisions. Specifically, we propose to remove the phrase “section 1860D-14A of the Act” and add in its place the phrase “sections 1860D-14A and 1860D-14C of the Act”
icare Drug Price Negotiation Program. Therefore, applying section 1860D-43(a) of the Act's coverage exclusion in the absence of a Manufacturer Discount Program agreement to both applicable drugs and selected drugs provides incentive for manufacturers of brand name drugs and biological products to participate in the Manufacturer Discount Program, while not undermining beneficiary access to generics. Moreover, this interpretation is consistent with the IRA's addition of

section 1860D-43(c)(2) of the Act, which prohibits the Secretary from authorizing coverage for a covered Part D drug of a manufacturer without a Manufacturer Discount Program agreement for any period described in section 5000D(c)(1) of the Internal Revenue Code under the exception for drugs determined to be essential to the health of Part D enrollees. This provision further demonstrates that the statute does not allow for a selected drug to be eligible for Part D coverage in the absence of a Manufacturer Discount Program agreement. As stated in section 40 of the Manufacturer Discount Program Final Guidance and consistent with the policy on applicable drugs, beginning January 1, 2025, Part D coverage for selected drugs during a price applicability period is available only for selected drugs for which the labeler code is covered by a Manufacturer Discount Program agreement with CMS, as described in section 1860D-14C(b) of the Act.
Accordingly, at § 423.2708(a), we propose to codify that, in order for coverage to be available under Part D for a Part D drug of a manufacturer that is an applicable drug or a selected drug during a price applicability period:
• The FDA-assigned labeler code of such drug must be covered under a Manufacturer Discount Program agreement that is in effect;
• The manufacturer must participate in the Manufacturer Discount Program; and
• The manufacturer must have entered into and have in effect a Manufacturer Discount Program agreement
er that is an applicable drug or a selected drug during a price applicability period:
• The FDA-assigned labeler code of such drug must be covered under a Manufacturer Discount Program agreement that is in effect;
• The manufacturer must participate in the Manufacturer Discount Program; and
• The manufacturer must have entered into and have in effect a Manufacturer Discount Program agreement.
We expect each manufacturer choosing to participate in the Manufacturer Discount Program to enter into its own Manufacturer Discount Program agreement with CMS. However, we acknowledge a longstanding practice where CMS has permitted manufacturers to cover by their Manufacturer Discount Program agreement (and previously by their Coverage Gap Discount Program agreement) labeler code(s) assigned by the FDA to another manufacturer. CMS does not currently and is not proposing to prohibit this practice, provided all other requirements as discussed in this proposed rule are met. As such, we clarify that a manufacturer is considered to participate in the Manufacturer Discount Program and to have entered into and have in effect a Manufacturer Discount Program agreement under proposed § 423.2708(a)—and thus, under section 1860D-43(a) of the Act—if such manufacturer executes and has in effect its own Manufacturer Discount Program agreement or participates by means of an arrangement whereby its labeler code(s) is covered by another manufacturer's Manufacturer Discount Program agreement that is in effect. We propose to codify this requirement at § 423.2708(b).
We further clarify that, while a manufacturer that participates in the Manufacturer Discount Program in accordance with proposed § 423.2708(b)(2) is a participating manufacturer, as described in more detail in section II.C.12. of this preamble, only the entity that executes an agreement pursuant to proposed § 423.2708(b)(1) is an agreement holder (as defined at § 423.2704)
ment at § 423.2708(b).
We further clarify that, while a manufacturer that participates in the Manufacturer Discount Program in accordance with proposed § 423.2708(b)(2) is a participating manufacturer, as described in more detail in section II.C.12. of this preamble, only the entity that executes an agreement pursuant to proposed § 423.2708(b)(1) is an agreement holder (as defined at § 423.2704). Consistent with our longstanding practice, only the agreement holder is a party to the Manufacturer Discount Program agreement with CMS, and the agreement holder is the entity subject to the rights and obligations of the Manufacturer Discount Program agreement, including the obligation to pay all invoiced amounts under such agreement.
In accordance with section 1860D-43(c)(1)(A) of the Act, we propose to codify at § 423.2708(c) that an applicable drug of a manufacturer that does not participate in the Manufacturer Discount Program or has not entered into and does not have in effect a Manufacturer Discount Program agreement under section 1860D-14C(b) of the Act is not excluded from Part D coverage if CMS has made a determination that the availability of the applicable drug is essential to the health of Part D enrollees. In addition, we propose to codify that, as specified in section 1860D-43(c)(2) of the Act, this exception to the exclusion from Part D coverage does not apply to any applicable drug or selected drug of a manufacturer for any period described in section 5000D(c)(1) of the Internal Revenue Code of 1986 with respect to such manufacturer.
Consistent with our prior interpretation of section 1860D-43(a) of the Act under the Coverage Gap Discount Program, for purposes of the Manufacturer Discount Program, the exclusion from Part D coverage applies only to applicable drugs and selected drugs not covered by a Manufacturer Discount Program agreement that is fully executed and in effect
ame interpretation here with regard to the parallel provisions of section 1860D-14C of the Act. Accordingly, at § 423.2708(d), we propose that non-applicable drugs, as we propose to define the term in § 423.100, will continue to be coverable under Part D whether or not the manufacturer participates in the Manufacturer Discount Program or has a Manufacturer Discount Program agreement in effect.
5. Applicable Discounts (§ 423.2712)
Under the Manufacturer Discount Program, once an enrollee incurs costs exceeding the annual deductible specified in section 1860D-2(b)(1) of the Act, that is, the deductible under the defined standard benefit, manufacturer discounts are available in both the initial and catastrophic coverage phases of the benefit. The applicable discount lowers Part D sponsor liability on the negotiated price of the drug.
a. Defined
As described in section 50 of the Manufacturer Discount Program Final Guidance, for the purposes of the Manufacturer Discount Program, “applicable discount” means, subject to the phase-ins and the straddle claims policy described in this section, with respect to an applicable drug of a manufacturer dispensed during a year to an applicable beneficiary (as we propose to define in § 423.100) who has—
• Not incurred costs, as determined in accordance with section 1860D-2(b)(4)(C) of the Act, for covered Part D drugs in the year that are equal to or exceed the annual out-of-pocket threshold specified in section 1860D-2(b)(4)(B)(i) of the Act for the year, 10 percent of the negotiated price of such drug; and
• Incurred costs, as determined in accordance with section 1860D-2(b)(4)(C) of the Act, for covered Part D drugs in the year that are equal to or exceed the annual out-of-pocket threshold specified in section 1860D-2(b)(4)(B)(i) of the Act for the year, 20 percent of the negotiated price of such drug.
We propose to codify this policy at § 423.2712(a)
ncurred costs equal to or exceeding the annual out-of-pocket threshold for the year—
++ For 2025, 1 percent;
++ For 2026, 2 percent;
++ For 2027, 5 percent;
++ For 2028, 8 percent;
++ For 2029, 10 percent;
++ For 2030, 15 percent; and
++ For 2031 and each subsequent year, 20 percent.
We propose to codify the policy for the applicable small manufacturer percent at § 423.2712(d)(2).
(3) Marketed as of the Date of Enactment
Sections 1860D-14C(g)(4)(B)(i) and 1860D-14C(g)(4)(C)(i) of the Act limit the application of the discount phase-ins for specified manufacturers and specified small manufacturers, respectively, to drugs of such manufacturers that are “marketed as of the date of enactment” (that is, August 16, 2022). CMS interprets the reference to a drug that is marketed as of August 16, 2022 to refer to a drug that was marketed by the manufacturer on one specific, backward-looking date, that is, the date of enactment of the IRA. Accordingly, for purposes of identifying applicable drugs of specified manufacturers and specified small manufacturers subject to phase-ins, CMS will determine whether an applicable drug had Part D expenditures on or before August 16, 2022, and did not have a marketing end date on the FDA NDC SPL Data Elements File before August 17, 2022.
We propose to codify this requirement at § 423.2712(d)(3).
c. Straddle Claims
In the case of a claim for an applicable drug for an applicable beneficiary that “straddles” multiple phases of the benefit, section 1860D-14C(g)(4)(E) of the Act requires that for claims that do not fall entirely—
• Above the annual deductible specified in section 1860D-2(b)(1) of the

Act, the manufacturer provides the applicable discount on only the portion of the negotiated price that falls above the deductible; and
• Below or entirely above the annual out-of-pocket threshold specified in section 1860D-2(b)(4)(B)(i) of the Act, the manufacturer provides the applicable discount on each portion of the negotiated price in accordance with this s
h liability, if any, the Part D sponsor has on such claims. Discounts are not applied to Medicaid subrogation claims under the Manufacturer Discount Program because drug costs reported on such claims are accounted for during the payment reconciliation process as contributing entirely to Covered D Plan Paid Amounts (CPP). We propose to codify those policies at § 423.2712(f)(1) and (2), respectively.
The Manufacturer Discount Program Final Guidance also referred to Indian Health Service (IHS) “subrogation” claims as not being subject to discounts under the Manufacturer Discount Program. We clarify that, while the guidance specifically referred to IHS claims, our intent was to adopt the longstanding policy applied under the Coverage Gap Discount Program where coordination of benefits claims involving payer-to-payer reconciliation are not subject to manufacturer discounts. Using an example from Appendix E, Chapter 14, of the Medicare Prescription Drug Benefit Manual, if a tribal member newly enrolled in Part D is initially unable to access their Part D benefits through their Part D plan, the tribe may step in to pay for the individual's Part D drugs. In this scenario, the tribe is entitled to seek compensation from the Part D plan once enrollment is confirmed. Consistent with CMS coordination of benefits requirements at § 423.464, the Part D plan is required to reimburse the tribe when the tribe has paid primary. In accordance with these requirements, we propose at § 423.2712(f)(3) to specify that non-standard format coordination of benefits claims involving an applicable drug are not subject to discounts under the Manufacturer Discount Program. We further clarify that claims submitted by a pharmacy operated by IHS, tribes or tribal organizations, or Urban Indian organizations to a Part D plan as the primary payer for an applicable drug dispensed to an applicable beneficiary are subject to discounts under the Manufacturer Discount Program, consistent with our policy under the Coverage Gap Discount Program
scounts on applicable drugs that are subject to phase-ins for specified manufacturers and specified small manufacturers. Since the discount reduces the plan liability for applicable drugs, Part D sponsors are responsible for covering the remaining amount of the negotiated price, less enrollee cost sharing, for applicable drugs subject to a phased-in discount percentage as discussed in this section. For example, the applicable discount for applicable drugs in the initial coverage phase is 10 percent. In 2025, the applicable LIS percent for a specified drug dispensed to an LIS enrollee during the initial coverage phase is 1 percent. In a defined standard plan, the plan liability in the initial coverage phase is 75 percent of the negotiated price before the discount. With a 10 percent applicable discount, the plan liability would be reduced to 65 percent of the negotiated price. With a 1 percent applicable LIS percent in 2025, the plan liability would be reduced to 74 percent of the negotiated price.
Section 1860D-14C(b)(1)(A) of the Act specifies that a Manufacturer Discount Program agreement shall require the agreement holder to provide discounted prices for applicable drugs covered by its agreement when dispensed to applicable beneficiaries. The IRA does not provide a mechanism by which CMS could permit specified manufacturers or specified small manufacturers to “opt out” of the phase-in discounts. At § 423.2716, we propose to codify, without modification, the criteria for phase-in eligibility for specified manufacturers and specified small manufacturers established in the Manufacturer Discount Program Final Guidance.
a
neficiaries. The IRA does not provide a mechanism by which CMS could permit specified manufacturers or specified small manufacturers to “opt out” of the phase-in discounts. At § 423.2716, we propose to codify, without modification, the criteria for phase-in eligibility for specified manufacturers and specified small manufacturers established in the Manufacturer Discount Program Final Guidance.
a. Specified Manufacturer
Pursuant to section 1860D-14C(g)(4)(B)(ii) of the Act, a specified manufacturer is a manufacturer of an applicable drug that, in 2021 had—
• A Coverage Gap Discount Program agreement in effect; 19
19 A manufacturer that participated in the Coverage Gap Discount Program in 2021 by me

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Source: Frix Law Library, https://www.frixlaw.com/law-library/statutes/FR_PRORULE_2025-21456. Check the current official text before relying on it. Not legal advice.