For years, Medicare Part D plans often preferred high-list/high-rebate branded multiple sclerosis (MS) drugs over lower-cost generics. That was rational behavior inside an irrational system.
The Inflation Reduction Act (IRA) offers one example of how incentives can change behavior in the system. New research in JAMA Health Forum reveals a significant reversal in Medicare Part D formulary coverage for MS drugs. After years of plans favoring brand-name drugs over generics, 2025 formularies shifted to near-universal generic coverage.
However, in return patients got narrower formularies, higher upfront costs, and way more taxpayer dollars spent than expected.
While this wasn’t the case for all drug classes, in MS, the IRA Part D redesign has forced plans to care more about net drug spending. Below, we analyze the formulary data and explain why the coverage patterns changed so abruptly—and what new tradeoffs have emerged.
PRE-IRA INCENTIVE DISTORTION
Before 2024, Medicare Part D's benefit design was distorted for expensive specialty drugs. Plans had minimal financial exposure once beneficiaries reached catastrophic coverage—they paid just 15% of costs above the threshold, while the federal government picked up 80% through reinsurance. The remaining 5% came from beneficiaries' coinsurance. The 5% coinsurance was eliminated starting in 2024.
Below is a comparison of the pre- versus post-IRA benefit design, drawn from DCI’s 2026 Economic Report on U.S. Pharmacies and Pharmacy Benefit Managers.
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THE MULTIPLE SCLERORIS MARKET
This structure made high-list price, high-rebate brand drugs financially attractive to plans, even when lower-cost generics were available. As 46brooklyn's analysis of glatiramer acetate in 2020 (generic Copaxone) showed, the pre-2024 Part D benefit design actually resulted in savings by covering branded Copaxone instead of generic glatiramer. Plans paid just $13,187 annually—at most 17% of total costs—for the brand, versus $21,226 for the generic: an $8,039 difference.
This worked because high gross drug costs pushed beneficiaries into catastrophic coverage faster, where federal reinsurance became the primary payer. Plans collected rebates on top of their minimal liability. Generic drugs offered no such advantages.
We provide another example using treatments for hepatitis C in Why Part D Plans Prefer High List Price Drugs That Raise Costs for Seniors.
The results were that plans preferred brands over generics, patients paid more out-of-pocket, and federal reinsurance costs exploded.
BRANDS DOMINATED PRE-IRA
New JAMA Health Forum research quantifies just how persistent brand coverage remained, even years after generic entry.
The research tracked formulary coverage of four MS drugs from 2013 through 2025. Below is our analysis of the data.
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The key takeaway is generic-only coverage remained very low after the first generic was approved, and it wasn’t until the IRA that generic-only coverage really expanded.
THE IRA'S RESTRUCTURED INCENTIVES
The IRA altered Part D economics in three ways.
1. The coverage gap was eliminated.
Also known as the “donut hole,” removing the coverage gap completely increased the plan’s liability while also dramatically reducing the patient’s cost exposure.
2. A plan’s liability increased from 20% to 60% in the catastrophic phase.
Therefore, plans have begun to shift formularies to favor products based more on net price than list price as we predicted three years ago.
Plans have always known how to use prior authorizations, step therapy, and formulary exclusions, but it wasn’t until the incentives changed that formularies started being more restrictive.
This is another step toward what we call the Net Pricing Drug Channel (NPDC) where net costs matter more than inflated list prices paired with rebates.
3. For 2025, out-of-pocket prescription expenses were capped at $2,000 for Medicare Part D covered drugs, a figure that is being adjusted annually based on inflation. As we note in our pharmacy/PBM report, Part D beneficiaries could reach the $2,000 catastrophic phase in 2025 with an average out-of-pocket spending of only $1,200 due to how CMS implemented the accumulation toward the cap.
The elimination of the 5% catastrophic coinsurance and the introduction of the $2,000 cap materially reduced out-of-pocket exposure for many non-low income Part D beneficiaries utilizing specialty drugs. Those changes have contributed to increased utilization of high-cost therapies by patients who previously faced substantial financial barriers. Below you can see the difference in drug spending growth compared to beneficiaries who have historically been insulated from cost-related non-adherence through the low-income subsidy program that lowers out-of-pocket costs for patients that qualify.
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The IRA’s benefit design changes successfully pushed plans to prefer lower-cost options, but the IRA’s out-of-pocket cap does not necessarily improve affordability for every beneficiary. While the percentage of beneficiaries reaching the catastrophic phase has nearly tripled in 2025 with the lower out-of-pocket cap, a majority of Part D beneficiaries will not directly benefit from the out-of-pocket cap because their annual drug spending is below the threshold.
Section 6.3.3 of our pharmacy/PBM report as well as a public KFF Part D analysis for 2025 note that plans are increasingly shifting from fixed copays to percentage-based coinsurance and adding or increasing deductibles, which can raise upfront costs for many branded drugs and slow progress toward the annual out-of-pocket cap.
A recent Health Affairs analysis Inflation Reduction Act Changes To Part D Plan Design: Lower Premiums, Higher Deductibles, And Some Smaller Formularies quantified the difference in benefit design for 2025 by comparing actual plan designs to a counterfactual no-IRA world. Even with the Part D Premium Stabilization Demonstration and higher subsidies to cap premium growth to 6%, deductibles were 63% higher for MAPDs and 22% higher for PDPs.
From an affordability perspective, beneficiaries with moderate drug spending may experience increased out-of-pocket costs and premiums relative to the pre-IRA period.
The narrowing of formularies was another general trend for Medicare Advantage plans in 2025, though the intensity varies by plan and drug. National carriers had modest volatility, while smaller and regional carriers made more significant adjustments.
For diseases like MS that are complex with wide variation in treatment response, patients often need to try multiple products to find the right match. When eight of 11 brand-only drugs have less than 25% coverage as found in the JAMA Health Forum article, there will surely be access problems for patients that require brand-only products.
THE BIG PICTURE: INCENTIVES MATTER
Early evidence suggests the IRA reduced patient catastrophic drug spending, but shifted financial risk to plans, which responded by tightening utilization management and narrowing coverage. Combined with the loss of rebate revenue and mandatory coverage of Maximum Fair Price (MFP) drugs, these pressures contributed to the decline of Part D plans as we covered in depth in Medicare Part D 2026: Preferred Networks Vanish as the PDP Market Collapses.
The IRA also cost hundreds of billions of dollars more than the Congressional Budget Office (CBO) originally projected—partially due to the unexpected need for the Premium Stabilization Demonstration. A few committee chairmen from the U.S. House of Representatives even sent a request to the CBO to ask how the costs dramatically exceeded beyond initial expectations. For those that are curious, here are a few possible suspects.
The return on government investment looks a lot worse when the program costs hundreds of billions instead of saving $129 billion.
The lesson: when you change who pays, you change what gets covered.
Just be ready for the tradeoffs that come with it.
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