The Inflation Reduction Act (IRA) aims to protect “small manufacturers” from too much financial exposure resulting from the manufacturer discount program (MDP) provisions in the IRA. The MDP components are simply the manufacturer’s required contribution (or liability) in the initial coverage phase (10%) and in the catastrophic phase (20%). Because these required discounts may be significant for small manufacturers, the IRA will allow qualifying manufacturers to “phase in” the discount over time. To qualify for this small manufacturer exception, there are 2 main criteria that the manufacturer must meet:

  • Total 2021 drug expenditure represented less than 1% of total Part D expenditures; AND
  • Total expenditure in 2021 for any of the manufacturer’s drugs represents at least 80% of total Part D expenditures for that manufacturer

In short, the drug’s total spend cannot represent a large portion of Medicare spend, and the drug must make up the majority of a manufacturer’s revenue. If the manufacturer qualifies, they are then able to phase in their contribution, or MDP discount, as follows:

Here is the unintended consequence—these small manufacturers will be competing for access against other manufacturers who are required to pay the 10% MDP in the initial phase and 20% in the catastrophic phase from the outset. These discounts lessen the liability that payers must absorb. When a small manufacturer is granted an exception, the payer picks up the added liability; hence it can become more costly to the payer to prefer or cover drugs with small manufacturer exceptions. Therefore, to compete, payers are likely to require these small manufacturers to provide added rebates to compensate for the lost discount resulting from the phase-in. Moreover, small manufacturers already face hurdles for access as rebate walls from market leaders and their associated revenue are difficult to overcome.

To counteract these pressures, small manufacturers should analyze their market baskets from a net cost perspective. Certainly, if they have a lower list price (wholesale acquisition cost, or WAC) compared to their competitors, this bodes well for minimizing additional rebate dollars. Beyond WAC, however, data and evidence become more important. We often look to health economics and outcomes research (HEOR) data to demonstrate where clinical cost offsets may exist; hence robust HEOR data will be required to substantiate value and offsets. These data can also serve as the premise for innovative value or outcomes-based contracts that offer some level of payer protection for added spend but also help preserve margins or gross-to-net for the manufacturer.

Beneficiary Choice

The Medicare Part D benefit redesign is the most impactful component of the IRA affecting payers. When it is fully implemented in 2025, payers will incur 4 times more liability in the catastrophic phase than they did in 2023 and years prior. And although only a small percentage of beneficiaries reach catastrophic coverage (roughly 10%), this group accounts for almost half of total Part D spend. Once we move into 2025, a large portion of this spend will be pushed back onto payers at a clip of 60% of total catastrophic phase spending. We, along with many others, have researched what this means in terms of how payers will compensate for this higher liability, and all the findings yield a consistent response. Payers anticipate tightening formulary choice, promoting generics, and deploying more restrictive utilization management protocols to control spend. Despite the government’s aim to improve affordability for Medicare beneficiaries, and in some regard it has, the unintended consequence results in decreased access to medications that address a variety of unmet medical needs within a dynamic population of elderly patients and patients with disabilities. This unintended consequence, however, is well known.

But that’s not the only impact on beneficiary choice. One unintended consequence receiving less attention involves the availability of plan offerings. In October 2023 the Kaiser Family Foundation predicted that the number of stand-alone prescription drug plans (PDPs) offered in 2024 will be the lowest since the inception of Medicare Part D in 2006. This reduction represents an 11% decrease from 2023. What happened between 2023 and 2024 to prompt this? The IRA removed the Medicare beneficiary’s 5% liability in the coverage phase and put this liability onto the plan sponsor (payer). This 5% added liability is significantly smaller than what payers will take on in 2025. It prompted a number of plans to exit the stand-alone Part D program; profitability is likely a large reason for this. Case in point, Cigna sold its Part D business to Health Care Services Corporation for $3.7B, with some reports citing government pressures impacting the business.

Interestingly, Medicare Advantage plan offerings remained consistent from 2023 to 2024, as did the number of zero-premium plans and those plans with supplemental benefits. There were 3 new organizations offering contracts in 2024, yet 12 organizations exited the market. Also of interest is the mix of “extra benefits” offered by plans. The primary extra benefits remained consistent (eg, vision, fitness, telehealth, dental), but there appears to be reduction in some less frequently offered benefits. For example, there were fewer plans offering transportation, acupuncture, and in-home support services benefits.

The resulting impact of the reduction in Medicare plan offerings on beneficiary choice is certainly a trend to watch in 2025: 2025 could be the year that Medicare Advantage plans take a stronger look at specific markets and adverse risk selection, potentially exiting markets where profitability is challenged. Ultimately, fewer plan offerings translate to higher urgency for securing access.


Freed M, Biniek JF, Damico A, Neuman T. Medicare Advantage 2023 spotlight: first look. KFF. November 10, 2022. Accessed March 21, 2024.

Freed M, Damico A, Biniek JF, Neuman T. Medicare Advantage 2024 spotlight: first look. KFF. November 15, 2023. Accessed March 21, 2024.

Inflation Reduction Act: Roadmap of Drug Pricing Provisions. 2nd ed. Latham and Watkins; September 2023. Accessed March 21, 2024.

An overview of the Medicare Part D prescription drug benefit. KFF. October 17, 2023. Accessed March 21, 2024.