FAQ: Inflation Reduction Act and Medicare Drug Pricing

The Inflation Reduction Act (IRA) of 2022 introduced sweeping changes to the US prescription drug market, most notably empowering Medicare to negotiate prices on high-cost medications, capping out-of-pocket (OOP) costs for beneficiaries, and restructuring aspects of the Medicare Part D benefit.¹

Stakeholders across the pharmaceutical supply chain—from manufacturers and pharmacy benefit managers (PBMs), to plans and pharmacies—are navigating the operational and commercial ramifications of these reforms.

Pharmaceutical Commerce answers key questions about how IRA implementation is unfolding, along with what it means for manufacturers, plans, pharmacies, and patients.

What Changes Has the IRA Made to Medicare Part D?

The IRA established several prominent reforms to Medicare Part D, including granting the Centers for Medicare & Medicaid Services (CMS) authority to negotiate prices for selected high-cost drugs and enacting an annual beneficiary OOP cap.²

These negotiation authorities apply to both Part D retail prescriptions and, in later rounds, Part B physician-administered drugs, with the latter taking effect Jan. 1 of this year. The law also includes provisions requiring manufacturers to pay rebates if list prices rise faster than inflation, and it affects plan liability structures.

When Does the $2,100 OOP Cap Take Effect?

The annual Part D OOP cap ($2,100 beginning this year) limits the total beneficiary expense for covered prescription drugs. This cap replaces the previous lack of a ceiling on beneficiary cost sharing and is intended to protect patients from catastrophic drug expenditures. While this cap is a major policy milestone, complexity in benefit design and patient understanding may limit its real-world impact.

What Is the Medicare Prescription Payment Plan (M3P), and How Does It Work?

The Medicare Prescription Payment Plan (M3P) allows Part D beneficiaries to “smooth” drug expenses over the calendar year instead of incurring large payments at the point of sale. This mechanism spreads OOP cost liabilities to make them more predictable, but early participation has been low, in part due to awareness and enrollment challenges.

Which Drugs Are Subject to Medicare Price Negotiation?

Under the IRA’s negotiating authority, CMS has selected specific high-cost medications for price negotiation. As noted previously, the first 10 drugs—including widely used treatments such as Novo Nordisk’s Ozempic and Wegovy—will see negotiated prices effective Jan. 1, 2026, and a second group of 15 drugs will see prices in 2027. Negotiated prices aim to reduce program spending and beneficiary costs.

How Will Negotiated Pricing Affect Manufacturers and PBMs?

Industry observers have speculated that manufacturers might adjust launch strategies, hub services, copay assistance programs, or patient support operations to adapt to compressed margins under the IRA. PBMs and plans are also responding to shifting rebate demand and formulary decisions tied to negotiated prices.

What Drugs Are Excluded from IRA Negotiations?

The IRA’s negotiation program targets high-expenditure drugs covered under Medicare Part D (and in later rounds Part B), but many therapies, especially newer products or those with smaller Medicare spend profiles, remain outside current negotiation lists. Additionally, international price benchmarks are not mandated in CMS negotiation processes.

How Might IRA reforms Impact Patient Adherence and Affordability?

While negotiated prices and OOP caps may reduce financial barriers, evidence suggests patient health literacy and program awareness remain major determinants of adherence. Low understanding of cost-smoothing tools like M3P can blunt potential affordability gains.

What Operational Changes Must Plans and Pharmacies Implement?

Plans must adjust formulary placement, pricing assumptions, and liability models given negotiated price timelines. Pharmacies and plans alike may need to educate beneficiaries on the OOP cap and cost smoothing, integrate updated pricing into claims systems, and monitor coverage and reimbursement impacts as IRA-driven policies take effect.

References

1. Academy of Managed Care Pharmacy. Inflation Reduction Act (IRA) resource center. AMCP. Published 2024. Accessed February 27, 2026. https://www.amcp.org/advocacy/ira-implementation

2. Wingrove P, Beasley D. US Negotiated Medicare Prices for 15 More drugs to Test Cost Savings Promise. Reuters. November 25, 2025. Accessed November 25, 2025. https://www.reuters.com/business/healthcare-pharmaceuticals/us-negotiated-medicare-prices-15-more-drugs-test-cost-savings-promise-2025-11-25/