On August 15, the Centers for Medicare and Medicaid Services (CMS) released the list of maximum fair prices (MFPs) for 10 drugs covered under Medicare Part D and negotiated under the Inflation Reduction Act (IRA). The MFPs will go into effect on January 1, 2026.

The IRA requires that Medicare Advantage Prescription Drug plans (MA-PDs) and standalone Part D Prescription Drug Plans (PDPs) provide coverage for all drugs selected for negotiation on their formularies, including all dosage forms and strengths. Plans must also provide a justification to CMS if they:

• Place the selected drugs on a non-preferred tier or on a higher tier than non-selected drugs in the same class;
• Require more restrictive utilization management (UM) on selected drugs relative to non-selected drugs in the same class; and/or
• Require UM that is not based on medical appropriateness

Plans are in uncharted waters; never have the negotiated rates between manufacturers and payers been made public, nor have the rates been negotiated between manufacturers and the government.

Avalere has considered several scenarios that plans may encounter using hypothetical information below to illustrate the potential impact on formulary negotiations under each. In the table, we provide a hypothetical MFP for a selected drug, the hypothetical net price to the plan in the year prior to initial price applicability year (IPAY) negotiations for the selected drug, and the hypothetical net price to the plan for a therapeutic alternative (TA) in the year prior to IPAY negotiations. We illustrate four pricing scenarios to evaluate the potential impact on formulary negotiations.

Table 1. Hypothetical Pricing Scenarios and Considerations for Formulary Negotiations

Considerations and Next Steps 

Now that the MFPs have been published, plans must evaluate the strategic and operational impacts in advance of provider contracting updates and the 2026 bid submission deadline in early June 2025. Given potential impacts to rebating as a result of the MFP, now more than ever, plans should assess opportunities to incentivize prescribing patterns. Plans can build incentives into provider payments and quality bonuses based on prescription patterns. If plans have lower negotiated prices for the selected drugs prior to the MFP release and manufacturers lower their rebates to plans in response, plans should evaluate opportunities to incentivize prescribing patterns. Further, to the extent that plans have made changes to their cost-sharing structures because of broader Part D reforms to incorporate more coinsurance, they should evaluate incorporating point-of-sale alerts at the pharmacy when a there is a lower-price alternative for members.

IRA drug price negotiation is a continuation of a series of significant changes to the health plan market over the last decade. Avalere experts in MA-PDP and PDP plan design and formulary negotiation can help you understand what IRA provisions mean for your organization. To better prepare for the changing healthcare landscape, connect with us.