Negotiation Process for Medicare Part D Drugs
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