Part D Benefit Changes under the IRA

The IRA makes a number of important changes to the current Part D benefit design, consisting of pre-2025 changes and a broader redesign, beginning in 2025.

Pre-2025 changes include the following:

• Coverage of vaccines and insulin with no deductible. For plan years beginning on or after January 1, 2023, Part D plans will be required to cover vaccines licensed by the FDA for adult use under the Public Health Service Act (“PHS Act”) that are recommended by the Advisory Committee on Immunization Practices of the Centers for Disease Control and Prevention (“ACIP”), so long as the vaccine is a “Part D drug” and is administered in accordance with the ACIP recommendations.  Please note that, inasmuch as FDA-approved COVID-19 vaccines will be covered under Medicare Part B (per the CARES Act), this mandate will not apply to them.⁵ Coverage must be provided without a deductible and or any cost-sharing. Additionally, beginning in 2023, insulin products covered by a Part D plan will not be subject to a deductible, and cost-sharing for a month’s supply may not exceed $35.⁶
• Elimination of cost-sharing in the catastrophic phase. Beginning in 2024, beneficiaries will no longer be required to pay any cost-sharing when they reach the catastrophic phase of the Part D benefit—in particular, for high-cost drugs, they will no longer have to pay 5 percent coinsurance. This effectively creates a cap on beneficiary out-of-pocket costs equal to the existing out-of-pocket threshold for entering the catastrophic benefit ($7,400, plus the annual adjustment to such amount for 2024, when determined).
• Reduced requirements for certain low-income subsidies. Medicare Part D currently provides a higher level of cost-sharing and premium subsidies for enrollees with incomes below 135 percent of the federal poverty line (“FPL”) than for those with incomes between 135 and 150 percent of the FPL.⁷ Beginning in 2024, the IRA will modify these provisions to provide the higher level of subsidies to enrollees with incomes between 135 and 150 percent of the FPL. For example, instead of a reduction in the deductible, these enrollees will be entitled to elimination of the deductible (funded by a higher low-income cost-sharing subsidy), and instead of partial premium subsidies, these beneficiaries will be entitled to full premium subsidies. 
• 6 percent limit on annual premium growth. For each of plan years 2024 through 2029, the nationwide “base beneficiary premium” used in the formula to determine the premiums for individual Part D plans will be limited to the base beneficiary premium for the previous year, plus 6 percent. Consequently, while premiums under individual Part D plans potentially may increase by more than 6 percent due to various factors, average premiums as a whole should not increase by more than that amount on an annual basis. For 2030, CMS will determine a new “beneficiary premium percentage” against which the “standardized national average bid amount” will be multiplied to determine the base beneficiary premium, consistent with limiting the increase in the base beneficiary premium from 2029 to 2030 to 6 percent, except that in no event may the beneficiary premium percentage be less than 20 percent. That new beneficiary premium percentage will apply for years after 2030.⁸

Changes beginning in 2025 include the following:

• Out-of-pocket cap of $2,000 and elimination of coverage gap. Part D enrollees will have a $2,000 limit on their out-of-pocket costs for covered Part D drugs in 2025. Specifically, the “initial coverage limit” and “coverage gap” under the current Part D benefit will be eliminated, and the current incurred cost threshold for entering the catastrophic benefit (where there is no cost-sharing) will be reduced to $2,000. For 2026 and subsequent years, this incurred cost threshold will be increased by the annual percentage increase in average per capita average expenditures for covered Part D drugs for Part D eligible individuals. LIS cost-sharing subsidies paid by CMS will continue to count as incurred costs, so LIS beneficiaries will reach the catastrophic benefit faster than under the current out-of-pocket threshold, without having to actually spend $2,000 out of pocket. 
• Changes to calculation of incurred costs. The IRA provides that, beginning in 2025, incurred costs will no longer include coverage gap discounts paid by pharmaceutical manufacturers (which will be eliminated in 2025) or the new mandatory manufacturer discounts that will replace them (described below). This change will reduce the impact of lowering the out-of-pocket threshold to $2,000; for example, the Kaiser Family Foundation estimates that the $7,400 threshold for 2023 translates to approximately $3,100 in actual annual out-of-pocket spending for a beneficiary using only applicable drugs, after the coverage gap discounts on those drugs are credited to incurred costs.⁹ Conversely, amounts paid for Part D cost-sharing that are reimbursed through insurance, a group health plan, or “certain other third party payment arrangements” (without indication of what those are) will be deemed incurred costs, thereby speeding enrollees through the initial coverage phase to the catastrophic phase of the benefit. Presumably, CMS will determine what “other third party payment arrangements” should qualify as incurred costs; one possibility is costs borne by a charitable foundation, such as those supported by manufacturer contributions. 
• Option to spread cost-sharing obligations over the remainder of the plan year. Beginning in 2025, enrollees who face a large cost-sharing obligation in a given month (e.g., a beneficiary who has just been prescribed an expensive specialty drug) will have the opportunity to elect to pay that cost-sharing amount over the remaining months in the plan year. Specifically, the beneficiary may elect to pay monthly cost-sharing limited to the remaining cost-sharing amounts the beneficiary would owe before reaching the annual out-of-pocket cap, divided by the remaining months in the plan year. The law includes provisions for notifying pharmacies when they should inform enrollees of the option to pay cost-sharing in that manner, and specifies that Part D plan sponsors will bill enrollees who make such election the monthly payment amount, with no effect on the amount paid to pharmacies (or the timing of such payments) for the covered Part D drugs dispensed to the enrollee. Enrollees who fail to pay the amount billed may have their election terminated by the plan, in which case they will owe any unpaid cost-sharing owed for covered Part D drugs to the plan.¹⁰ Amounts not so paid by the enrollee shall constitute “plan losses,” although it appears that Part D plan sponsors may include an allowance for such losses in their plan bids.
• Requirements for “selected drugs” for which CMS negotiates “maximum fair prices.” The “maximum fair prices” negotiated by CMS with manufacturers for “selected drugs” will become applicable beginning in 2026. During each year that a maximum fair price is applicable, the negotiated price for such drug may not exceed such maximum fair price, plus any dispensing fees. This may result in lower beneficiary cost-sharing, particularly for high-cost specialty drugs for which cost-sharing is determined by multiplying a coinsurance percentage by the negotiated price. Additionally, Part D formularies will be required to include each Part D drug that is a selected drug during each plan year that a maximum fair price applies.¹¹

Changes to Mandatory Manufacturer Discounts

As noted above, beginning in 2025, the coverage gap phase of the Part D benefit will be eliminated, and pharmaceutical manufacturers will no longer be required to pay the “coverage gap discounts” they currently must agree to pay to have their drugs be eligible for coverage under Part D plans. Instead, they will be required to enter into agreements with CMS under which they will pay a new type of manufacturer discount, which is also required for their drugs to be eligible for Part D coverage.¹² The new “manufacturer discount program” is similar in many respects to the coverage gap discount program that it replaces, but there are a number of important differences.

The basic parameters of the new manufacturer discount program are as follows:

• The “applicable drugs” on which discounts may be payable are defined in essentially the same way as under the current coverage gap discount program—i.e., as drugs approved by the FDA under an NDA (including authorized generics), or biologics (including biosimilars) licensed by the FDA under the PHS Act, and which are either on the Part D plan’s formulary or covered under an exception or appeal.¹³ However, such term does not include a “selected drug” for which CMS has negotiated a “maximum fair price” under the price negotiation provisions, during any price applicability period when such maximum fair price applies.
• Instead of providing discounts (in the form of a rebate) limited to utilization of their applicable drugs dispensed to non-LIS beneficiaries during the coverage gap, under the new program, manufacturers must pay discounts on all utilization of their applicable drugs dispensed to any “applicable beneficiary.” The IRA defines an “applicable beneficiary” as an enrollee in a PDP or MA-PD plan who “has incurred costs … for covered part D drugs in the year that exceed the annual deductible specified” for defined standard coverage. As noted above, that deductible is $505 for 2023 and is subject to adjustment on an annual basis.¹⁴
  • For Part D plans offering a benefit that includes the same deductible as under defined standard coverage, this provision is straightforward as it relates to non-LIS enrollees—i.e., manufacturers will not pay manufacturer discounts on their applicable drugs dispensed to non-LIS enrollees during the deductible phase, but will pay such discounts after they satisfy their deductible.
  • However, it is not entirely clear how this definition will be applied for non-LIS beneficiaries of a basic or enhanced alternative coverage plan that has no deductible. Read literally, it would appear to provide that non-LIS beneficiaries of such plans must actually pay copayments and coinsurance on covered Part D drugs equal to the deductible under defined standard coverage in order to fall within the definition of “applicable beneficiary.” If that is how the definition is interpreted by CMS, it could pose a challenge for program administration, potentially requiring CMS to create a new accumulator metric to track when a beneficiary has the relevant level of incurred costs to trigger application of the manufacturer discount to the drugs dispensed to that beneficiary.
  • Similarly, for LIS enrollees, on whose utilization coverage gap discounts currently are not payable, the definition will require changes from that program. LIS cost-sharing subsidies will count towards LIS enrollees’ incurred costs, but those beneficiaries must still have the required level of such “deemed” incurred costs before they become applicable beneficiaries, on whose utilization a manufacturer discount must be paid. Consequently, while those beneficiaries will not have to pay a deductible, CMS will presumably need to use an appropriate accumulator metric to track when their deductible has been deemed satisfied through payment of cost-sharing subsidies, to identify the specific prescriptions on which the new manufacturer discounts are payable.
• Subject to the exceptions described below, there are two levels of discounts that manufacturers must pay on applicable drugs dispensed to applicable beneficiaries:
  • 10 percent of the negotiated price, for beneficiaries who have not yet entered the catastrophic phase of the benefit; and
  • 20 percent of the negotiated price, for beneficiaries who have entered the catastrophic phase of the benefit.^{15 16}
• “Negotiated price” refers to the general definition of that term under the Part D statute, and specifically includes any dispensing fee and, if applicable, vaccine administration fee. 
  • That is in contrast to the definition under the coverage gap discount program provisions, which refers to the regulatory definition in effect at the time the ACA was adopted and excludes dispensing fees. 
  • We note that CMS recently adopted changes to the regulatory definition of “negotiated price” that provide negotiated prices are “the lowest possible reimbursement that [the dispensing network pharmacy] will receive, in total, for [the] particular drug,” including all post-adjudication pharmacy price concessions (frequently referred to as “DIR fees”) that the pharmacy may be required to pay.¹⁷ We presume that definition will be used for calculating manufacturer discounts, as well as beneficiary cost-sharing amounts.
• Different discount percentages apply for (i) applicable drugs of a “specified manufacturer” dispensed to an LIS applicable beneficiary, and (ii) applicable drugs of a “specified small manufacturer” dispensed to any applicable beneficiary, during a phase-in period. 
  • Specifically, a “specified manufacturer” is a manufacturer: (i) which had a coverage gap discount agreement in effect for 2021; (ii) whose applicable drugs (subject to certain exceptions) covered by such agreement represented less than 1 percent of the total expenditures for covered Part D drugs during 2021; and (iii) whose applicable drugs (subject to certain exceptions) that are single-source drugs and biologics for which payment may be made under Medicare Part B during 2021 represent less than 1 percent of the total expenditures under Part B for all drugs and biologics for 2021.¹⁸
  • A “specified small manufacturer” is a specified manufacturer for which one of the manufacturer’s applicable drugs accounted for 80 percent or more of the total expenditures under Part D in 2021 for all of the manufacturer’s applicable drugs covered under a coverage gap discount agreement for such year.¹⁹
  • For an applicable drug of a specified manufacturer that is marketed as of the date of enactment of the IRA and is dispensed to an LIS enrollee, and for any applicable drug of a specified small manufacturer, the following discount percentages apply, whether the applicable drug is dispensed prior to or during the catastrophic phase, during each year indicated:
    • 2025: 1 percent
    • 2026: 2 percent
    • 2027: 5 percent
    • 2028: 8 percent
    • 2029: 10 percent
  • For subsequent years, the 10 percent discount rate continues to apply for such applicable drugs dispensed prior to the catastrophic benefit, but for such applicable drugs dispensed during 2030, the rate is 15 percent, and in 2031 and subsequent years, 20 percent. 
  • Accordingly, by 2031, the discount rates for both specified manufacturers and specified small manufacturers match those payable for applicable drugs of other manufacturers, both prior to and during the catastrophic phase. 
• In contrast to the coverage gap discount program provisions, the IRA amendments do not provide that manufacturer discounts are to be calculated after application of any supplemental benefits under a Part D plan; consequently, they will presumably be calculated before application of supplemental benefits. Those coverage gap discount provisions created a disincentive for Part D sponsors to offer supplemental benefits during coverage gap, inasmuch as the majority of the value would be applied to reduce the coverage gap discounts payable by manufacturers.²⁰
• The legislation provides that nothing in the statutory section relating to the manufacturer discount program shall be construed as affecting the application of coinsurance of 25 percent of the negotiated price under defined standard coverage. This appears to reflect an intent that manufacturer discounts will not reduce negotiated prices, but instead will effectively provide funding to Part D plan sponsors for the portion of the negotiated price that they bear.
• Manufacturers must enter into a manufacturer discount program agreement with CMS (i) for 2025, by no later than March 1, 2024, and (ii) for subsequent years, by “not later than a calendar quarter or semi-annual deadline established by” CMS. The latter provision gives CMS flexibility to allow new manufacturers to enter into an agreement later than required under the statutory language for the coverage gap discount program (no later than January 30 of the year prior to the applicable plan year), which has posed problems for many new manufacturers.
• Unlike the coverage gap discount program, there is no requirement for CMS to enter into a contract with a third party to administer the new manufacturer discount program or requirements for what such third party would do under such contract, but CMS is still subject to a prohibition on receiving or distributing any funds of a manufacturer under the program. As such, it would appear that the use of a third-party administrator may still be required, but there may be differences in contracting and administration as compared to the coverage gap discount program.
• Like the coverage gap discount program, there are civil money penalties for manufacturers that fail to provide the required discounts, equal to “the amount that the manufacturer would have paid with respect to such discounts under the agreement, which will then be used to pay the discounts which the manufacturer had failed to provide,” plus 25 percent of such amount. 

Changes to Subsidies Payable to Part D Plan Sponsors

The IRA makes a number of changes to the subsidies payable to Part D plan sponsors. These include the following:

• Changes to catastrophic reinsurance subsidy. Probably the most significant changes are the reductions to the “reinsurance” subsidy payable with respect to covered Part D drugs dispensed in the catastrophic phase of the benefit, which in recent years has grown to be the single largest subsidy paid under Medicare Part D.²¹ Currently, this subsidy is 80 percent of the costs (net of average percentage manufacturer rebates and other discounts) paid for such drugs by the plan or by or on behalf of the enrollee, excluding such costs attributable to supplemental benefits. Beginning in 2025, this subsidy will be reduced to:
  • 20 percent of such costs for “applicable drugs” (as defined under the manufacturer discount program, detailed above); or
  • 40 percent of such costs for non-applicable drugs.

With respect to applicable drugs, the costs used to calculate the subsidy will be determined without taking into account the discounts provided by manufacturers under the manufacturer discount program. 

The difference in the subsidy for applicable and non-applicable drugs presumably reflects the manufacturer discount of 20 percent of negotiated price paid on applicable drugs. Notably, while the subsidy percentages are significantly lower than the 80 percent payable currently, more drug utilization will be included in the calculation of the subsidy due to the reduction in the out-of-pocket threshold from more than $7,000 to $2,000.

• New subsidy on certain utilization of “selected drugs.” Beginning in 2026, with respect to Part D drugs that would be applicable drugs except for the fact that they are selected drugs for which a maximum fair price has been negotiated by CMS for a plan year, Part D plans will be entitled to a new subsidy equal to the 10 percent of negotiated price manufacturer discount that they otherwise would have received with respect to such utilization. There is no similar subsidy payable with respect to such selected drugs dispensed in the catastrophic phase of the benefit, to make up for the 20 percent manufacturer discount that Part D plans would have received on utilization of such drugs if they were not selected drugs.
• Temporary subsidies for insulin and vaccines. For 2023 only, Part D plans will be entitled to a subsidy equal to the reduction in cost-sharing for insulin and adult vaccines due to the benefit changes described above. This presumably reflects the fact that Part D plans had already submitted their bids for 2023 prior to enactment of the IRA, and consequently did not take into account such reduced cost-sharing.
• Changes to manufacturer discounts. While not subsidies from the government, the replacement of manufacturer coverage gap discounts with the discounts payable under the new manufacturer discount program beginning in 2025 may be a significant economic change for Part D plans. Notably, those discounts should be payable on a much larger percentage of plans’ covered Part D drugs than coverage gap discounts are currently, albeit at much lower percentages of negotiated prices. 
• Indirect effects of other changes. Many of the changes made by the IRA are likely to have indirect effects on the subsidies that Part D plan sponsors receive. For example, elimination of cost-sharing in the catastrophic phase will also effectively eliminate the LIS cost-sharing subsidies that plans currently receive on catastrophic phase drug utilization of LIS enrollees. The 6 percent limitation on annual increases to the “base beneficiary premium” may also impact the “direct subsidy” Part D plan sponsors receive, essentially increasing it by the premium amount plans otherwise would have received in years when premium increases would have been higher absent such cap. While a full evaluation of such indirect effects is beyond the scope of this Client Alert, some could be significant.
• No direct effect from Part D inflation rebates. Notably, the “inflation rebates” that manufacturers may be required to pay on utilization of their drugs covered under Part D do not go to Part D plan sponsors, but rather to the Medicare trust fund. Consequently, they do not constitute a subsidy-like payment to Part D plan sponsors. 

Discussion and Potential Implications

The IRA amendments are certainly the most significant modifications to the Part D program since the ACA, and perhaps since the program was created. A comprehensive evaluation of the combined impacts of the numerous changes is not simple and is beyond the scope of this summary. That said, we think it is worthwhile to note the following points:

• Major reductions in enrollee cost-sharing. The establishment of a $2,000 cap on beneficiary out-of-pocket costs, together with the reductions in cost-sharing for insulin and certain adult vaccines, should generally make the Part D benefit much more valuable to enrollees. In particular, non-LIS beneficiaries who cannot afford 5 percent of the negotiated price for high-cost specialty drugs during the catastrophic phase will no longer face that financial barrier to continuing use of such drugs.
• Shifting of costs to Part D plan sponsors. In several ways, Part D plan sponsors will become responsible for a larger share of the costs for covered Part D drugs. In particular, the elimination of cost-sharing in the catastrophic phase, together with the reduction of catastrophic reinsurance subsidies, will make Part D plans responsible for roughly 60 percent of such costs, rather than the roughly 15 percent of such costs they bear currently.²² Further, the $2,000 incurred cost threshold beginning in 2025 will make more drug utilization fall within that modified catastrophic phase. 
• Potential impacts on formularies and rebates. These factors may incentivize plan sponsors to tighten plan formularies so as to drive higher voluntary rebates from manufacturers, particularly for high-cost drugs likely to represent the bulk of catastrophic phase costs. They also may lead plan sponsors to more forcefully favor biosimilars and generic drugs over innovator-branded drugs, unless branded drug manufacturers increase the rebates they offer. 
• Pricing of breakthrough drugs. On the other hand, for high-cost drugs without meaningful therapeutic alternatives (typically new “breakthrough” therapies), the elimination of coinsurance in the catastrophic phase may remove an impediment to manufacturer price increases. 
• Potential impacts on plan bids and premiums. Increases in costs borne by plan sponsors may lead to increased bid amounts, and consequently higher beneficiary premiums. While annual premium increases are capped at 6 percent per year overall in each of 2024 through 2029, even that level of increase may be noticeable to Part D beneficiaries, given that premiums have been essentially flat over the last decade. Moreover, while it appears that Part D sponsors as a whole should generally be compensated for any limitation on premiums through increased direct subsidies, plans with above-average increases in bids may nevertheless have even higher premium increases (and plans with below-average bid increases lower premium increases), potentially leading to shifts in market share. Plan sponsors will need to carefully evaluate their benefit designs and pricing in light of competitive challenges as the industry transitions to the redesigned Medicare Part D.

1. Pub. L. No. 117-169.
2. Our first two Client Alerts in this series, “Inflation Reduction Act Drug Pricing Amendments – Part I: New Medicare Inflation Rebates Take Effect Within Months” and “Inflation Reduction Act Drug Pricing Amendments – Part II: Limits on Insulin Cost Sharing under Medicare Parts B and D” are available on the Reed Smith website.
3. The IRA changes to insulin cost-sharing and related subsidies under Medicare Part D are discussed in our previous Client Alert, and as such are not addressed in detail in this Client Alert.
4. There are two principal types of Medicare Part D plans: prescription drug plans (“PDPs”), which are available to beneficiaries enrolled in traditional Medicare Parts A and/or B, and Medicare Advantage prescription drug plans (“MA-PD plans”), available to beneficiaries enrolled in a Medicare Advantage (“MA”) plan. Enrollees in an MA plan may enroll only in an MA-PD plan sponsored by the MA organization that offers their MA plan.
5. A COVID-19 vaccine whose use has only been authorized by the FDA under an Emergency Use Authorization also apparently will not be covered, inasmuch as a vaccine must be licensed by the FDA under the PHS Act to be a “Part D drug.” 42 CFR § 423.4. While the same limitation applies to coverage of COVID-19 vaccines under the CARES Act amendments, CMS has stated that it believes “it is appropriate for Medicare to consider any EUA under section 564 of the FD&C Act issued for a COVID-19 vaccine during the PHE to be tantamount to a license under section 351 of the PHS Act [so as to permit it] to be eligible for Medicare coverage and payment.” 85 Fed.Reg. 71142, 71146 (Nov. 6, 2020).
6. For additional details regarding the changes related to insulin, please see our Client Alert “Inflation Reduction Act Drug Pricing Amendments – Part II: Limits on Insulin Cost Sharing under Medicare Parts B and D,” available on the Reed Smith website.
7. In each case, enrollees also satisfy a maximum resource (asset) standard in order to qualify for the given level of LIS subsidies. 
8. Subject to certain exceptions, non-LIS enrollee premiums for a Part D plan are currently determined under a formula that includes calculation of a “base beneficiary premium” equal to the “beneficiary premium percentage” of the “national average monthly bid amount,” which in turn is calculated based upon standardized “bid” amounts submitted by Part D plan sponsors nationwide, reflecting their revenue requirements for offering the benefit design specified in their bid, subject to certain adjustments. Premiums for a given Part D plan are the base beneficiary premium increased or decreased by any amount by which the standardized bid amount for the plan exceeds or is less than the national average bid amount (respectively), and increased by the actuarial cost of any supplemental benefits (e.g., under an enhanced alternative plan).
9. Kaiser Family Foundation, “What Are the Prescription Drug Provisions in the Inflation Reduction Act?” (August 2022), slide 8.
10. The IRA does not specify a timeframe within which payment must be made by the enrollee.
11. We will address federal negotiation of maximum fair prices for selected drugs in detail in an upcoming Client Alert, as part of this series. 
12. Technically, the statute allows CMS to waive the obligation to pay both coverage gap discounts and the new manufacturer discounts on an applicable drug if it determines “that the availability of the drug is essential to the health of beneficiaries under the part.” Section 1860D-43(c)(1)(A) of the Social Security Act, 42 U.S.C. § 1395w-153(c)(1)(A). However, CMS has never made such a determination to excuse a manufacturer from paying coverage gap discounts and has indicated it is unlikely to do so.
13. For any plans that do not use a formulary, the definition includes any covered Part D drug for which benefits are available under the plan.
14. The definition of applicable beneficiary also excludes individuals who are enrolled in a qualified retiree prescription drug plan—i.e., the union- and employer-sponsored plans under the Retiree Drug Subsidy program, pursuant to which plan sponsors are eligible for subsidies on amounts paid for utilization of their qualifying covered retirees who were eligible to enroll in a Part D plan but instead are enrolled in the qualified retiree prescription drug plan, which satisfies certain requirements.
15. The IRA amendments include provisions under which claims that fall partially within the deductible require discounts only on the portion of the negotiated price that falls above the deductible, and providing that the discount for claims that fall partially within the catastrophic phase will be based upon the discount percentage for the portion of the negotiated price covered under the applicable phase of the Part D benefit. 
16. Like the coverage gap discount program provisions, the IRA amendments technically state that the manufacturer must provide a “discounted price,” and describe the discounted price as 90 percent or 80 percent of the negotiated price (respectively). The provisions under both programs similarly provide for the establishment of procedures under which pharmacies are reimbursed for the difference between the negotiated price and the discounted price (i.e., 10 percent or 20 percent). In practice, we expect the new manufacturer discount program will be administered in the same way as the coverage gap discount program, under which manufacturers provide the given “discount” as a rebate after the drug is dispensed. 
17. 87 Fed.Reg. 27704, 27899 (May 9, 2022).
18. The legislation excludes from the definition of “specified manufacturer” a manufacturer that is acquired after 2021 by another manufacturer that is not a specified manufacturer, effective at the beginning of the plan year following the acquisition or, for an acquisition before 2025, effective for plan year 2025. Further, it technically bases the expenditure tests upon “specified drugs” of the specified manufacturer, which are defined as, for 2021, “an applicable drug that is produced, prepared, propagated, compounded, converted, or processed by the manufacturer.” As such, authorized generics manufactured by another manufacturer pursuant to a license would appear not to be counted.
19. Similar to the prior note, the term “specified small manufacturer” excludes a manufacturer that is acquired after 2021 by another manufacturer that is not a specified small manufacturer, effective at the beginning of the plan year following the acquisition or, for an acquisition before 2025, effective for plan year 2025, and also bases the expenditure test upon “specified small manufacturer drugs” of the specified small manufacturer, which parallels the definition of “specified drugs.” 
20. The CMS Part D “Senior Savings Program” for insulin required participating manufacturers to agree that their coverage gap discounts would be calculated without first applying the supplemental benefits that reduce insulin copays during the coverage gap to $35 per month.
21. For example, for 2021, CMS paid $52.4 billion in reinsurance subsidies, $35.1 billion in low-income subsidies, and only $5.9 billion in “direct” subsidies. 2022 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds, Table IV.B10, at p. 152 (available through CMS's website).
22. These “rough” percentages consist of the following: under the current Part D benefit, 100 percent less the 80 percent (net of voluntary average manufacturer rebates) reinsurance subsidy and the 5 percent (of negotiated price) enrollee cost-sharing or low-income cost-sharing subsidy; and under the 2025 plan year benefit as modified by the IRA, 100 percent less (i) for applicable drugs other than select drugs, the 20 percent manufacturer discount and the 20 percent (net of voluntary manufacturer rebates) reinsurance subsidy, or (ii) for non-applicable drugs, the 40 percent reinsurance subsidy.

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