Skip to main content

Pharma Insights

Journeying Through the Past, Present, and Future of Medicare Part D

Authored by

Andrew Cournoyer, RPh, MBA1; Charline Shan, RPh, MPh1; Larry Blandford, PharmD2—Column Editor


1Access Experience Team —PRECISIONvalue

2Precision Value & Health


Authors report no relevant financial relationships beyond employment.


J Clin Pathways. 2020;6(5):35-40. doi:10.25270/jcp.2020.6.00004

This article explores the beginnings of Medicare Part D and the different dynamics driving current and future change for various stakeholders including the Centers for Medicare & Medicaid Services, plan sponsors, and beneficiaries. To get a clearer understanding of how payers are reacting to new benefit allowances, 25 Medicare plan sponsors were surveyed with responsibility for over 27 million Medicare Advantage prescription drug plan lives and over 24 million Medicare prescription drug plan lives. Based on history and how participants responded to the survey, benefit design changes are needed to address the shifts in drug utilization that have occurred since the early days of Part D.

Let us pretend for a moment that we are in a time machine and traveling back in time to the beginnings of the Medicare Part D benefit, which officially began on January 1, 2006. At this time, approximately 22 million1 Americans were enrolled in Part D plans where cardiovascular, psychotherapeutic, and gastrointestinal drugs accounted for almost half of all drug costs,2 all predominantly nonspecialty therapeutic areas. Nonspecialty brand drugs were more abundant with less generic competition at this time. Only 56% of drugs dispensed (generic dispensing or generic utilization rate) were generics,3 providing for a larger breadth of brand drugs to fuel rebates into the system. Conversely, specialty drug impact to the Medicare benefit was limited. A report by the Medicare Payment Advisory Commission (MedPAC) revealed that specialty tier expenditures in 2007 were $3.4 billion or 6% of total Part D drug spend.4 

Jumping back into the time machine, let us fast forward to the modern day, where the landscape is vastly different. Enrollment into plans with Part D benefits has doubled,1 and MedPAC reported that 2017 specialty tier expenditure had inflated to 25% of total part D drug spend, which represents 27% annual growth over a 10-year period.5 Within this period, federal spending in the catastrophic phase has more than tripled over a 5-year period from 2010 to 2015.  

The modern-day drug landscape has also experienced a couple of patent cliffs, where a number of popular nonspecialty brand drugs were replaced by generic alternatives. As a result, generic dispensing rates increased in excess of 82%,6 signaling greater emphasis on brand specialty drugs to fuel rebates for the entire Medicare population. This poses a challenging dynamic for Medicare, as typically <5% of the population utilize specialty drugs, and this group will be responsible for driving a significant proportion of total rebate dollars for the entire benefit.

With that said, beneficiaries who use specialty drugs are most susceptible to high drug costs and challenges with affordability, most notably for the non-low income population. Hence, this is a top legislative issue, and the federal government is challenged to mitigate the impacts of high-cost specialty drugs to its own budget as well as to the American public. In response, the Centers for Medicare & Medicaid Services (CMS) made benefit modifications aimed at helping to lower specialty drug costs. Starting with the Bipartisan Budget Act of 2018, CMS accelerated the closing of the Medicare coverage gap phase, or Donut hole, and increased the manufacturer contribution from 50% to 70%.7 Next, we saw the Trump administration publish its American Patient’s First Blueprint in May 2018,8 which prompted CMS to respond with a number of changes that would impact drugs under Medicare Part B and Part D benefits. Examples of these changes include the use of indication-based formularies and Part B step therapy programs. Finally, recently for the 2021 benefit year, CMS issued a proposal on February 5, 2020, that allows plan sponsors to add a “preferred” specialty tier to Part D formulary designs.9 We could argue that these benefit changes will result in minimal impacts to the larger issues at hand, but they are movements in the right direction.  

Gauging the Reaction to New Benefit Allowances

To better understand how payers are reacting to these new benefit allowances, we surveyed 25 Medicare plan sponsors with responsibility for over 27 million Medicare Advantage prescription drug plan (MAPD) lives and over 24 million Medicare prescription drug plan (PDP) lives. The respondents were asked questions regarding current and future benefit designs. 

The chart at Figure 1 indicates the number of MAPD plans that implemented indication-based formularies, Part B step therapy, Part B and Part D crossover step therapy, and rebates at point-of-sale. Based on the results, step therapy programs were the most prevalent benefit designs. Factors such as ease of administration and the opportunity to manage Part B utilization and spend contributed to their popularity.

F1We focused on PDP plan sponsors (Figure 2) to understand the extent of rebates at point-of-sale or indication-based formulary deployment within 2020 Part D benefit designs. Given the complexity of administering rebates at point-of-sale and CMS withdrawing the proposal in July 2019,10,11 it is no surprise that only a few plans implemented the benefit design.

F2Future Projections of Benefit Design Implementation

Using our time machine analogy, let us now travel to the future to understand how likely the respondents would implement the same types of benefit designs in 2021
(Figures 3 and 4).



F3Based on operational experience and success, both MAPD and PDP plan sponsors are likely to continue to leverage these new benefit designs, particularly step therapy and indication-based formularies. On February 5, 2020, CMS released a proposed rule that would allow plan sponsors to implement another benefit design in 2021: preferred and nonpreferred specialty tiers. An additional tier designation allows greater flexibility for plan sponsors to manage utilization and cost in specialty medications. While most specialty medications thrust a beneficiary into the catastrophic phase sooner, the premise of the proposed rule is to delay the beneficiary from entering the catastrophic phase and, thus, reduce costs for CMS. A preferred specialty tier would incur less patient co-insurance than a nonpreferred specialty tier. Additionally, CMS included a maximum member out-of-pocket cost share for the nonpreferred specialty tier. This maximum allowance is similar to how specialty tiers contain a maximum cost-sharing threshold, ie, 25% to 33% depending on the inclusion of a front-end deductible. In our survey, we asked how probable plan sponsors would leverage the proposed rule in 2021. A majority of respondents indicated extremely likely to moderately likely on the possibility of implementing the proposed rule if passed (Figure 5).

F5The other issue we examined is whether the division of the specialty tier would impact protected classes defined by CMS. Protected classes are generally less managed by plan sponsors due to CMS regulation. The proposed rule now opens the door to a new mechanism for plan sponsors to manage protected classes and negotiate with manufacturers for a preferred specialty tier position.  With no surprise, respondents who were likely to implement two specialty tiers overwhelmingly indicated preferred and nonpreferred specialty tiers would apply to both protected and nonprotected drug classes (Figure 6).

F6On May 22, 2020, CMS issued a final rule for contract year 2021 that did not include a decision on the capability for plan sponsors to implement two specialty tiers. In the statement, CMS indicated a second final rule will address the proposed two specialty tiers, and the rule will be applicable no earlier than January 1, 2022. While the decision delays the implementation for another year, plan sponsors will still look forward to the opportunity to drive competition and control costs.

Looking Ahead Even Further 

As we continue to journey along the evolutionary path of Medicare Part D, our final stop is set 3 years in the future. We asked our respondents to consider other benefit design features and determine the likelihood they would implement them in the future (Figure 7). Biosimilar promotion and tighter formulary designs received the most votes as benefit design features that may be expanded in coming years. There are likely a number of factors driving these selections to the top of the list, some of which may include increased scrutiny on drug prices and the need to improve patient affordability.  

f7Retrospectively, we witnessed a shift in the Medicare landscape that began with heavier utilization of nonspecialty branded drugs to an environment where expensive specialty drugs drive significant costs to the system. In response, CMS allowed more flexibility for plan sponsors to implement benefit designs not originally permitted in Medicare. Our research indicates that plans are implementing some changes more than others, and one final question remains: what are the environmental factors that will influence change in the future? The survey respondents indicated that improving clinical outcomes, quality performance, and controlling plan costs will be primary drivers for considering plan design changes in the future (Figure 8). Coincidentally, these responses are consistent with the direction Medicare is moving with regards to recent cost-based allowances and annual refinements to Medicare Stars and Quality Payment Programs (QPP).  

f8Beyond recent CMS legislative rule changes and proposals, MAPD and PDP plan sponsors are considering multiple factors to shape how they manage utilization and spend while remaining competitive in a commoditized market.


Our travel into the past, present, and future of Medicare Part D concludes for now. This journey enabled us to explore the beginnings of Medicare Part D and the different dynamics driving change for various stakeholders (ie, CMS, plan sponsors, and beneficiaries). Based on history and how MAPD and PDP plan sponsors responded to our survey, it is clear that benefit design changes are needed to address the shifts in drug utilization that have occurred since the early days of Part D. We can also expect further evolution of Medicare plan designs since payers just scratched the surface on managing the trends that are propelling change. Finally, (possibly) more importantly, the federal government has started peeling away the layers of Medicare plan design complexity, meaning more change is inevitable.


1. Chubanski J, Damico A, Neuman T. 10 things to know about Medicare Part D coverage and costs in 2019. Kaiser Family Foundation. June 4, 2019. Accessed May 18, 2020.

2. The Centers for Medicare & Medicaid Services. Medicare releases Part D data for 2006 and 2007 at Medicare prescription drug benefit symposium. October 30, 2008. Accessed May 18, 2020. 

3. Department of Health and Human Services. Generic drug utilization in Medicare Part D program. November 2007. Accessed May 18, 2020. 

4. Medicare Payment Advisory Commission. Medicare payment policy. March 2019. Accessed May 18, 2020.

5. Department of Health and Human Services. High-price drugs are increasing federal payments for Medicare Part D catastrophic coverage. January 2017. Accessed May 18, 2020. 

6. The Centers for Medicare & Medicaid Services. Increasing access to generics and biosimilars in Medicare. February 5, 2020. Accessed May 18, 2020. 

7. Bipartisan Budget Act, HR 1892, 115th Cong (2017-2018). Accessed May 18, 2020. 

8. Department of Health & Human Services. American patients first. May 2018. Accessed May 18, 2020. 

9. Proposed changes to Medicare Advantage and Part D will provide better coverage. Press release. The Centers for Medicare & Medicaid Services. February 5, 2020. Accessed May 18, 2020. 

10. Health and Human Services Department. Fraud and abuse; removal of safe harbor protection for rebates involving prescription pharmaceuticals and creation of new safe harbor protection for certain point-of-sale reductions in price on prescription pharmaceuticals and certain pharmacy benefit manager service fees. Federal Register. February 6, 2019. Accessed May 18, 2020.

11. Gaffney A. PBMs, Part D plans to benefit from withdrawal of drug pricing rebate rule. PwC. July 19, 2019. Accessed May 18, 2020.

Back to Top