42 U.S.C. § 1395w–102 — Prescription drug benefits

(a) Requirements

(1) In general. For this part and part C, “qualified prescription drug^* coverage” means either standard prescription drug coverage plus access to negotiated prices, or alternative coverage for covered Part D drugs that meets subsection (c), has access to negotiated prices, and has a benefit design approved by the Secretary^*. This section does not define “covered part D drugs,” “standard prescription drug coverage,” or “negotiated prices” except through the provisions below.

(2) Supplemental coverage.

(A) Qualified coverage may also include one or both of these types of supplemental coverage:

(i) Reduced cost-sharing^*. The plan may reduce the annual deductible or coinsurance, or, for a year before 2025, increase the initial coverage limit^*, to the extent the change raises the actuarial value above basic coverage. This paragraph does not change subsection (c)(3).

(ii) Optional drugs. The plan may cover a product that would be a covered Part D drug but for subsection (e)(2)(A).

(B) A PDP sponsor^* may offer supplemental coverage in an area only if it also offers a plan in that area that provides only basic coverage.

(3) Basic coverage means either coverage meeting paragraph (1)(A), or coverage meeting paragraph (1)(B) without supplemental coverage described in paragraph (2)(A).

(4) The secondary-payer rules in section 1395w–22(a)(4) apply under this part in the same way they apply under part C.

(5) Nothing in this subsection changes how incurred costs are computed under subsection (b)(4).

(b) Standard prescription drug coverage. This means coverage of covered Part D drugs meeting these rules:

(1) Deductible.

(A) Subject to paragraphs (8) and (9), the annual deductible is $250 for 2006. For each later year, it is the previous year’s amount increased by the annual percentage increase in paragraph (6).

(B) An amount that is not a multiple of $5 is rounded to the nearest multiple of $5.

(2) Benefit structure.

(A) Subject to (C), (D), and (E), and paragraphs (8) and (9), the plan must charge 25 percent coinsurance, or an actuarially equivalent amount, for costs above the deductible and up to the initial coverage limit for years before 2025, and above the deductible and up to the annual out-of-pocket threshold for 2025 and later years. Actuarial equivalence uses the methods established under section 1395w–111(c).

(B) A PDP sponsor or MA organization may use tiered copayments if they are consistent with (A)(ii), (C), and (D).

(C) Generic drugs in the coverage gap. For years before 2025, subject to paragraphs (4), (8), and (9), an applicable beneficiary must pay for covered Part D drugs that are not applicable drugs, for costs above the initial coverage limit and below the out-of-pocket threshold, either the generic-gap coinsurance percentage or an actuarially equivalent amount. The percentage is 93 percent in 2011; for 2012 through 2019 it is the previous year’s percentage minus 7 percentage points; and for 2020 through 2024 it is 25 percent.

(D) Applicable drugs in the coverage gap. For years before 2025, subject to paragraphs (4), (8), and (9), an applicable beneficiary must pay, for the negotiated price of applicable drugs above the initial coverage limit and below the out-of-pocket threshold, either the applicable gap percentage minus the manufacturer discount percentage, or an actuarially equivalent amount. The applicable gap percentage is 97.5 percent in 2013 and 2014, 95 percent in 2015 and 2016, 90 percent in 2017, 85 percent in 2018, and 75 percent in each year from 2019 through 2024.

(E) Maximum monthly cost-sharing cap.

(i) For plan years beginning on or after January 1, 2025, every PDP sponsor and MA organization must let every enrollee, including a subsidy eligible individual^*, choose to pay plan cost-sharing in monthly amounts capped under this subparagraph.

(ii) For each month after the enrollee makes that choice, the sponsor or organization must determine the maximum monthly cap.

(iii) For each such month, it must bill no more than that cap for the enrollee’s out-of-pocket costs for the month.

(iv) For the first month, the cap equals the annual out-of-pocket threshold minus the enrollee’s incurred costs under paragraph (4)(C), divided by the number of months left in the plan year. For a later month, it equals the enrollee’s unpaid out-of-pocket costs carried from an earlier month plus new out-of-pocket costs, divided by the number of months left in the plan year.

(v) The Secretary must explain this option through educational materials, including notices under section 1395b–2(a). An enrollee may choose it before the plan year or during any month of the year. A sponsor or organization may not limit it to particular covered drugs; must tell prospective enrollees about it in promotional materials before the year; must include it in enrollee educational materials; must notify a pharmacy when costs make it likely the enrollee may benefit; must require the pharmacy to tell the enrollee; must ensure the choice does not change the amount or timing paid to pharmacies; and must have a reconciliation process to correct payment inaccuracies. If the enrollee does not pay a billed monthly amount, the election ends, the enrollee pays ordinary cost-sharing for later covered drugs until reaching the annual threshold, and the sponsor or organization may bar a new election in a later year. The sponsor or organization may still bill past-due amounts. Unsettled amounts are plan losses, and the Secretary is not liable for them except for losses estimated in plan bids.

(3) Initial coverage limit. For years before 2025, subject to paragraphs (2)(C), (2)(D), (4), (8), and (9), the plan recognizes costs up to $2,250, including the deductible, in 2006. For 2007 through 2024, the limit is the previous year’s amount increased by the annual percentage increase in paragraph (6). An amount not divisible by $10 is rounded to the nearest $10.

(4) Protection against high out-of-pocket costs.

(A) After an individual incurs costs under subparagraph (C) equal to the annual out-of-pocket threshold, the plan must provide benefits with cost-sharing equal to the greater of a $2 copayment for a generic drug or preferred multiple-source drug and a $5 copayment for any other drug, or 5 percent coinsurance, for years before 2024. For 2024 and later years, the cost-sharing is zero. After 2006, the dollar copayments are increased by the annual percentage increase in paragraph (6), rounded to the nearest 5 cents. The Secretary must continue calculating those amounts after 2023 for section 1395w–114(a)(1)(D)(iii).

(B) The annual out-of-pocket threshold is $3,600 in 2006. For 2007–2013 it increases from the prior year by paragraph (6). For 2014 and 2015 it increases that way and then is reduced by 0.25 percentage point. For 2016–2019 it increases by the lesser of the paragraph (7) increase plus 2 percentage points or the paragraph (6) increase. For 2020 it is the amount that would have applied if the specified 2010 amendment had not been enacted. For 2021–2024 it increases from the prior year by paragraph (6). It is $2,000 for 2025. In later years it increases from the prior year by paragraph (6). Amounts not divisible by $50 are rounded to the nearest $50.

(C) In applying (A), incurred costs include the deductible, cost-sharing, and, before 2025, amounts above the initial coverage limit. They do not include costs for covered drugs excluded from, or not treated as included in, the plan formulary. Costs count only if paid by the individual or someone for the individual and not reimbursed by insurance, a group health plan^*, or another third-party arrangement, subject to clause (iii). Costs still count and are not treated as reimbursed if borne or paid under section 1395w–114, a State Pharmaceutical Assistance Program^*, the Indian Health Service, an Indian tribe or tribal organization, an urban Indian organization, an AIDS Drug Assistance Program under title XXVI of the Public Health Service Act, or section 1395w–115(h). For 2025 and later, costs reimbursed through insurance, a group health plan^*, or certain other third-party arrangements count, except basic coverage supplied by a prescription drug or MA–PD plan^* and manufacturer payments under section 1395w–114c.

(D) The Secretary may coordinate with the Treasury and Labor Secretaries to establish procedures for determining whether costs are reimbursed and for alerting sponsors and organizations. A sponsor or organization may periodically ask enrollees whether they have or expect such reimbursement. A material misrepresentation, as defined by the Secretary’s standards and process, may justify terminating enrollment under section 1395w–21(g)(3)(B), as applied here, for a period set by the Secretary.

(E) For 2011–2024, incurred costs include the negotiated price of a manufacturer’s applicable drug furnished to an applicable beneficiary through the Medicare coverage-gap discount program, whether or not the manufacturer paid part of the costs. They exclude the part of the negotiated price representing reduced coinsurance from paragraph (2)(D).

(F) For an enrollee who chose the monthly-cap option in paragraph (2)(E)(i), costs count as incurred when paid by the sponsor or organization under that option.

(5) A PDP sponsor or MA organization may reduce cost-sharing for preferred or generic drugs to zero.

(6) The annual percentage increase is the increase in average per-capita aggregate United States^* spending on covered Part D drugs for Part D eligible individuals, as determined by the Secretary for the 12 months ending in July of the previous year under methods the Secretary specifies.

(7) The additional annual percentage increase is the increase in the consumer price index for all urban consumers, United States city average, for the 12 months ending in July of the previous year.

(8) Adult vaccines. For plan years beginning on or after January 1, 2023, the deductible does not apply to an adult vaccine recommended by the Advisory Committee^* on Immunization Practices^*, and there is no coinsurance or other cost-sharing for it. The term means a covered Part D drug that is a vaccine licensed under section 351 of the Public Health Service Act for adult populations and administered according to the Committee’s recommendations.

(9) Covered insulin products.

(A) For 2023 and later plan years, the deductible does not apply to a covered insulin product.

(B) In 2023 and 2024, the plan must provide benefits for any covered insulin product, whether or not the person^* has reached the initial coverage limit or out-of-pocket threshold, with monthly-supply cost-sharing no higher than the applicable copayment. For 2025 and later, the plan must provide those benefits before the person reaches the out-of-pocket threshold, with the same cap.

(C) “Covered insulin product” means an insulin product that is a covered Part D drug under the plan, approved under section 355 of title 21 or licensed under section 351 of the Public Health Service Act and marketed under that approval or license. It includes a product deemed licensed under section 351 under section 7002(e)(4) of the Biologics Price Competition and Innovation Act of 2009 and marketed under that provision.

(D) The applicable copayment is $35 for products dispensed in 2023, 2024, or 2025. For 2026 and later, it is the lowest of $35, 25 percent of the product’s maximum fair price under part E of subchapter XI, or 25 percent of its negotiated plan price.

(E) For a month’s supply dispensed from January 1 through March 31, 2023, the sponsor or organization must reimburse the enrollee within 30 days for cost-sharing above the amount applied at the point of sale under (B)(i).

(c) Alternative coverage requirements

A prescription drug plan^* or MA–PD plan may use a different design from standard coverage only if the Secretary determines under section 1395w–111(c) that these requirements are met and approves the design:

(1) The total actuarial value must be at least the value of standard coverage. The unsubsidized value must also be at least the unsubsidized value of standard coverage. Unsubsidized value is the coverage’s actuarial value minus the actuarial value of subsidy payments under section 1395w–115. Based on an actuarially representative use pattern, for costs equal to the initial coverage limit before 2025 or the annual out-of-pocket threshold in 2025 and later, the design must pay at least the product of (i) that limit or threshold minus the annual deductible, and (ii) 100 percent minus the 25-percent coinsurance percentage in subsection (b)(2)(A)(i).

(2) The deductible may not exceed the amount in subsection (b)(1).

(3) The design must provide the high-cost protection required by subsection (b)(4).

(4) The monthly cost-sharing cap must apply to an enrollee who chooses it under subsection (b)(2)(E)(i).

(5) Adult-vaccine cost-sharing must follow subsection (b)(8).

(6) Insulin cost-sharing must follow subsection (b)(9).

(d) Access to negotiated prices

(1) Access.

(A) A PDP sponsor and MA organization must give enrollees access to the negotiated prices used to pay for covered Part D drugs, even when the plan pays no benefits because of a deductible, other cost-sharing, or, before 2025, the initial coverage limit.

(B) Negotiated prices must account for negotiated concessions such as discounts, direct or indirect subsidies, rebates, and direct or indirect remuneration, and must include dispensing fees.

(C) Prices negotiated by a prescription drug plan, MA–PD plan, or qualified retiree prescription drug plan for covered Part D drugs on behalf of Part D eligible individuals may not be used to establish the Medicaid best price under section 1396r–8(c)(1)(C), despite other law.

(D) For a selected drug during its price applicability period, the payment price may not exceed the drug’s maximum fair price for each year in that period, plus dispensing fees.

(2) Disclosure. A PDP sponsor or MA organization must disclose to the Secretary, as directed, the total manufacturer price concessions passed through as lower subsidies, lower monthly premiums, and lower prices through pharmacies and other dispensers. Section 1396r–8(b)(3)(D) applies to the disclosed information.

(3) Audits. To prevent fraud and abuse and ensure proper disclosure and accounting, the Secretary may periodically audit, directly or through contracts, the financial statements and records of PDP sponsors and MA organizations concerning their plans.

(e) Covered Part D drug

(1) In general. Except as this subsection provides, “covered Part D drug” means: (A) a prescription-only drug described in section 1396r–8(k)(2)(A)(i), (ii), or (iii); (B) a biological product described in section 1396r–8(k)(2)(B)(i)–(iii), insulin described in section 1396r–8(k)(2)(C), and medical supplies associated with insulin injection as defined by the Secretary; and (C), from December 29, 2022 through December 31, 2026, a prescription-only oral antiviral drug authorized under section 360bbb–3 of title 21 based on the April 1, 2020 declaration by the Secretary of Health and Human Services, published at 85 Fed. Reg. 18250 and following pages. The term also includes a vaccine licensed under section 262 of this title, and, for vaccines administered on or after January 1, 2008, its administration^*, and any use of a covered Part D drug for a medically accepted indication.

(2) Exclusions.

(A) The term excludes drugs, drug classes, or medical uses that could be excluded or restricted under section 1396r–8(d)(2), except smoking-cessation agents; barbiturates when used for epilepsy, cancer, or a chronic mental-health disorder; and benzodiazepines. It also excludes drugs or uses subject to section 1396r–8(d)(3), with those sections read as they existed on December 8, 2003. It excludes a drug used for sexual or erectile dysfunction unless it is used for a different condition for which the FDA approved it.

(B) A drug otherwise covered under this part is not a covered Part D drug for a person if payment for it, as prescribed and dispensed or administered, is available—or would be available but for a deductible—under part A or B.

(3) General exclusions. A prescription drug plan or MA–PD plan may exclude a covered Part D drug if payment would not be made when section 1395y(a) applied to this part, or if the drug was not prescribed according to the plan or this part. These exclusions may be reconsidered and appealed under section 1395w–104(g) and (h).

(4) Medically accepted indication.

(A) For a covered Part D drug used in an anticancer chemotherapy regimen, the term has the meaning in section 1395x(t)(2)(B), with “prescription drug plan or MA–PD plan” substituted for “carrier” and, subject to (B), the compendia listed in section 1396r–8(g)(1)(B)(i)(III) added to the list in section 1395x(t)(2)(B). For another covered Part D drug, it has the meaning in section 1396r–8(k)(6).

(B) On and after January 1, 2010, the added compendia rule does not apply unless those compendia meet the requirement in the third sentence of section 1395x(t)(2)(B).

(C) For applying (A)(ii), the Secretary must revise the list of compendia in section 1396r–8(g)(1)(B)(i) as appropriate for identifying medically accepted indications. The revision process must be consistent with the process for revising compendia under section 1395x(t)(2)(B).