Commercial Readiness for the Part D Redesign (2025): Adherence and Contracting

1. Commercial Readiness for the Part D Redesign (2025): Adherence and Contracting 2025 marks a watershed moment in the history of Medicare Part D. Driven by statutory shifts from the Inflation Reduction Act, the Part D Redesign rewrites many of the rules that commercial teams, payers, manufacturers, and provider partners once relied on. If you're not aggressively re-engineering your commercial readiness now, you’ll be playing catch-up next year. In this post, I walk you through what’s changed, how it affects adherence, contracting dynamics, formulary design, and what to put on your 2025 scorecard. What changed on January 1, 2025

2. On January 1, 2025, the new Part D benefit structure, mandated by the Inflation Reduction Act, took effect in full. Key changes include: ● The elimination of the traditional coverage gap (“donut hole”) phase, replaced by a revamped Manufacturer Discount Program (MDP). ● A hard cap on out-of-pocket (OOP) costs at $2,000 for covered Part D drugs. ● A redefined benefit structure with three phases: deductible → initial coverage → catastrophic (no more “gap”). ● Changes to how TrOOP (true out-of-pocket) is calculated discounts from the MDP do not count toward TrOOP. ● A shift of reinsurance methodology and reduced government reinsurance burden: for brand drugs, government reinsurance drops to ~20%; for non‐applicable drugs, to ~40%. ● New bidding and subsidy dynamics: the direct subsidy to plans (NAMBA, DS) is larger, because more plan liability is shifted “up front” instead of being reconciled in reinsurance. ● The Medicare Prescription Payment Plan (M3P) is made available, letting beneficiaries “smooth” their drug cost sharing over time rather than paying everything at the pharmacy. ● The regulatory definition of “creditable coverage” is updated so that discounts under MDP are excluded from the actuarial value calculation. These changes are foundational. Everything downstream—adherence incentives, contracting math, formulary strategy—must be rethought in their light. Adherence Implications With the new structure, adherence becomes even more delicate and critical: ● Lower predictable OOP ceiling: The $2,000 cap gives patients better protection, but many will hit portions of the deductible or coinsurance earlier under the new model. So patient behavior at the front end matters more. ● Higher exposure earlier to list price: Because more drugs are in coinsurance rather than fixed copays, patients may see larger swings in costs (especially for brand drugs). ● Smoothing via M3P could reduce abandonment: The option to smooth payments over time (rather than paying all cost sharing at POS) may reduce the immediate burden and improve adherence among cash-flow constrained patients. ● Incentive to switch to lower cost alternatives: As adherence programs and copay support play out, manufacturers will want to tailor support to reduce drop-off risk—especially for those who might balk at higher coinsurance. ● Discontinuity risk at benefit transitions: Patients moving from deductible to initial coverage or then to the catastrophic threshold could face abrupt changes in cost burden unless communications are carefully engineered.

3. Commercial teams should anticipate that adherence drop off will be more sensitive to small cost shifts in 2025 than in prior years. Contracting Math Has Changed One of the most disruptive shifts is in the contracting and financial flows among payers, PBMs, and manufacturers under Inflation Reduction Act–driven Part D redesign. A. The shift in risk and discount burden In the old environment, much of the liability beyond catastrophic was borne by government reinsurance, and manufacturers contributed via the Coverage Gap Discount Program (CGDP). Now: ● Manufacturers pay mandatory discounts via MDP (replacing CGDP). ● Plans (or PBMs) carry more exposure because the federal government’s reinsurance share is lower. ● For “applicable” drugs, the split is now: beneficiary 25%, sponsor typically 65%, manufacturer typically 10% in the initial coverage phase, once the MDP is fully phased in. ● In the catastrophic phase, for applicable drugs, manufacturer discount is ~20%, plan pays ~60%, government ~20%. ● For non‐applicable drugs, plan liability is higher, and reinsurance is ~40%. B. Phase-in dynamics The MDP is phased in over 2025–2028 (initial coverage) and 2025–2030 (catastrophic) for certain manufacturers. During the transition, plan sponsors must cover portions that manufacturers would otherwise have contributed. This complicates forecasts: your expected discount obligations vary year to year depending on the phase-in schedule for each manufacturer. C. Changes in rebate allocation and benefit design Because government reinsurance is lower, fewer rebate dollars are funneled to the government, meaning plans/PBMs retain more rebate value. This places a greater premium on strategic rebate negotiation and contracting. D. New baseline math for bids Plan bids must account not only for drug cost trends, utilization, and administrative loads, but also: ● The full or phased MDP liability per manufacturer ● The reduced reinsurance burden ● The smoothing risk in M3P (i.e., bad debt considerations)

4. ● Risk adjustment under the new RxHCC model for 2025 ● Worst-case scenario spread in utilization shifts In short, your contracting models from 2023/24 won’t simply port. The equation is materially different in 2025. Visit us :-Pharma Compliance Webinars Manufacturer Discount Program (MDP) Playbook The MDP is at the heart of the new landscape. Here’s how you should think about it: A. Understand which products are “applicable” Not all drugs fall under the MDP. Your commercial team must segment whether your product is in scope (i.e., subject to MDP) or not, because that determines your discount liability and how your economics shift. B. Phase-in curves and timing Because the MDP is phased in, your discount obligations escalate over time. You should map out your obligation schedule 2025–2028 (initial) and 2025–2030 (catastrophic), and stress test your portfolio under those evolving obligations. C. Mitigate via contracting, rebates, and formulary strategy To manage your share of discount burden: ● Negotiate favorable rebate and supplemental contracts to offset your MDP liability ● Work with payers/PBMs to secure preferred formulary positioning, so as to preserve volume ● Consider whether to offer tier rebates or value‐based contracts that align with payer risk ● In certain cases, restrict access to products that maximize your discount burden unless favorable terms are agreed D. Forecast discount leakage and profit erosion Model the net present value (NPV) of your MDP obligations per product, subtracting the benefit of any supplemental agreements, and estimating volume shifts or loss of share due to formulary moves or patient switching. E. Align with adherence and support programs Your patient assistance, copay support, and adherence programs must reflect the new cost sensitivity of patients. Use these to preserve uptake and minimize discontinuation—even in the face of higher out-of-pocket exposure.

5. In short: the MDP is no longer a back-end calculation—it’s central to your commercial playbook in 2025. Benefit & Formulary Design Watch-Outs for 2025 Designing a winning formulary and benefit package is trickier under the new regime. Some key watch-outs: A. Incentive to avoid “specified / small manufacturer” drugs Because these may have lower discount obligations (or special rules), plans may steer away from them, resulting in decreased formulary coverage for those products. This is especially acute in classes like MS, PAH, long-acting injectables, and various niche specialty areas. B. Greater reliance on generics, biosimilars Many plan sponsors will favor generics or biosimilars to reduce liability and risk, especially in classes with multiple options. C. Tiering and utilization management pressure Plans may shift more drugs onto higher tiers or add prior authorization / step therapy to manage high-cost brand exposure. But these moves must be carefully balanced with adherence and regulatory risk. D. Zero deductible vs higher deductible trade-offs Some plans may retain zero deductible designs for competitiveness, but under the new structure, they still “credit” the standard deductible toward TrOOP and OOP ceilings. This design choice can distort patient incentives. E. Copay vs coinsurance Many plans are moving away from flat copays toward coinsurance-based cost sharing, especially for brand / specialty drugs. That means more proportional exposure for patients. F. Exception, appeals, continuity rules Given disruption in access, watch for regulatory scrutiny on step therapy, medical necessity overrides, non-formulary exception rates, and continuity of therapy protections. G. Portfolio risk from negotiation regime

6. Starting 2026, some drugs (via the Medicare negotiation mandate) must be on every Part D formulary. Plans will demand justification if those products are disadvantaged. That could shrink leverage in 2025 contracting. In short: the cost, clinical, and competitive balance of your formulary design must be revisited through a risk lens. Provider & Patient Experience Transformations at the payer-product level cascade into experience challenges (and opportunities) for providers and patients. A. Patient communications & transparency With coinsurance and shifting cost burdens, patients must see clear estimates of their out-of-pocket at point-of-care or during prescription decisioning. Decision support tools must reflect deductible progress, coinsurance tiers, and the $2,000 cap. B. At the pharmacy counter Under M3P, patients may choose to pay $0 at the pharmacy and settle costs later. That introduces complexity at POS in tracking participation, ensuring proper billing, and managing bad debt. C. Provider prescribing behavior Providers need access to real-time formulary and benefit data (including coinsurance tiers and patient cost estimates), to guide prescribing toward more affordable options and avoid surprise costs for patients. D. Prior authorization / utilization management friction Expect increased appeals burden. Providers will push back on denials where cost adherence or access is restricted. You’ll need streamlined processes, real-time adjudication, and provider incentives to avoid “leakage” to competitor products. E. Care management alignment Health systems and provider groups may need to more tightly integrate with payer adherence and financial support programs to nudge patients toward adherence, particularly when switching from preferred brand to an alternative. F. Patient burden and trust Patients who suddenly see higher cost sharing—even with a $2,000 cap—may perceive the system as opaque or arbitrarily shifting. Invest in clear, empathetic communication, transparency tools, and support escalation paths.

7. From the commercial readiness vantage, working backward from the patient and provider journey is essential. A misstep in user experience could amplify drop-off or dissatisfaction. Conclusion 2025 isn’t just another incremental year—it’s a reset. The Part D Redesign, driven by the Inflation Reduction Act, restructures who pays what, when, and how. For manufacturers, payers, and commercial teams, it’s a call to rebuild your playbook. The old levers of rebates, formulary positioning, and volume maximization may no longer suffice in isolation. You’ll need deeper modeling, sharper contract insight, aggressive adherence and support programs, and a culture of rapid feedback. If your commercial readiness plan doesn’t explicitly map to the nine themes above (what changed, adherence, contracting math, MDP playbook, benefit risks, experience, therapy focus, analytics, KPIs), you’re vulnerable. Let me know if you want a version tailored to your therapeutic class or a cut-sheet you can hand to internal stakeholders.