Negotiation Process for Medicare Part D Drugs

Negotiation Process for Medicare Part D Drugs

Negotiation Process for Medicare Part D Drugs

December 11, 2025 (IG10090)

Summary

Negotiation Process for Medicare Part D Drugs

The Inflation Reduction Act (IRA), also known as P.L. 1 17-169, established the Medicare Drug Price Negotiation Program.

The program authorizes the Secretary of Health and Human Services (Secretary) to negotiate prices for certain high

expenditure single-source chemical drugs and biological products under Medicare Part B or Part D. For the first two years

(2026 and 2027), the program applies only to Part D drugs; the negotiation process for those drugs is described below.

Implementation Timeline

2023

2024

2025

2026

New prices take effect

2027

2028

2029

Secretary selected first 10 Part D drugs

15+ Part D drugs selected

New prices take effect

15+ Part B or D drugs will be selected New prices take effect

20+ Part B or D drugs will be selected New prices take effect

Drug Selection Process

To be selected, a drug must be a covered drug under Medicare Part D. Qualifying single-source drugs (QSSDs) are prescription drugs

and biological products that have been approved and marketed for 7 years, if a chemical drug, and 1 1 years, if a biological product.

Certain Covered Part D drugs are

excluded from the definition of QSSD.

O Low-spend drugs

Plasma-derived products

O Certain categories of orphan drugs

Negotiation Process

Centers for Medicare & Medicaid Services (CMS) ranks

drugs according to their annual Part D expenditures.

Previously selected drugs with established MFP's

and certain drugs manufactured by small biotech

companies (for price years 2026-2028) are

removed during this ranking process.

The top 50 drugs are negotiation-eligible drugs.

10

The top 10 (or 15 to 20) negotiation-

eligible drugs will be the selected drugs

subject to negotiation. Selection may

be delayed for certain biological

products if there isa high likelihood

that a biosimilar may enter the market.

During the negotiation period, as specified in statute, the Secretary uses both federal and manufacturer-submitted data to examine

research and development (R&D) costs as well as production and distribution costs for the selected drug, the drug's revenue and sales

volume, and any federal financial support for its development, as well as information on existing and pending patents and therapeutic

alternatives. The Maximum Fair Price (MFP) is subject to a statutory ceiling. Some drugs may be subject to a renegotiation process in

subsequent years. The products of manufacturers who do not participate in the negotiation or fail to effectuate CMS's final MFP offer will not be

eligible for coverage under Part D or federal funding under the Medicaid program.

CMS analysis of drug-related data and

stakeholder discussions determine

their starting point MFP offer.

Application of MFP

CMS makes offer

to manufacturer.

Manufacturer accepts and negotiations end,

or

Manufacturer does not accept. CMS and

manufacturer engage in up to 3 negotiation

meetings. CMS may accept counteroffer

from manufacturer.

Manufacturers of selected drugs must provide access to the MFP to Medicare beneficiaries enrolled in a Part D plan and to pharmacies

and other dispensing entities. Part D plans are required to include selected drugs on their formularies, and a Part D plan's negotiated

payment for each selected drug must not exceed the MFP plus a dispensing fee. A beneficiary's payment for the drug, either in the

deductible phase or through coinsurance, must be based on that negotiated payment.

Rx

Pharmacy purchases drug

from wholesaler at price

that may exceed MFP.

Rx

Medicare Part D beneficiary is

prescribed a selected drug and

prescription is sent to pharmacy.

Manufacturer pays refund to

pharmacy if pharmacy's acquisition

cost exceeded the MFP.

Rx

Part D plan approves

prescription claim.

Rx

Pharmacy submits

transaction data to drug

manufacturer.

Rx

Beneficiary fills prescription at

pharmacy and makes any required

deductible or coinsurance payment.

Part D plan pays pharmacy any

remaining portion of negotiated

price plus dispensing fee.

Sources: SSA S 1191-1198 (42 U.S.C.SSI 320f—1320f-7); Centers for Medicare and Medicaid Medicare Drug Price Negotiation Program: Draft Guidance, Implementation of

Sections 1 1 91 — 1 198 of the Social Security Act for Initial Price Applicability Year 2028 and Manufacturer Effectuation of the Maximum Fair Price in 2026, 2027, and 2028

(May. 12, 2025), https://w%w.cms.gov/files/documenMpay-2028-draft-guidance.pdf; For more information, see CRS Report R47872, Medicare Drug Price Negotiation

Under the Inflation Reduction Act: Industry Responses and Potential Effects, by Kevin J. Hickey, Laura A. Wreschnig, and Hannah-Alise Rogers (2023).

Information as of December 11, 2025. Prepared by Laura Wreschnig, Analyst in Health Care Financing and Brion Long, Visual

—CRS

Information Specialist