What is the Medicare Prescription Payment Plan?

This program, also known as MPPP or M3P, was introduced under the Inflation Reduction Act of 2022¹ (IRA) and allows beneficiaries to smooth their cost sharing (also known as out-of-pocket costs or OOP) over the course of the year. In the most extreme example, under the M3P, a beneficiary who reaches the $2,000 maximum out-of-pocket (MOOP) in January would pay 12 monthly payments of $166.67 rather than $2,000 in January and $0 the rest of the year. The program is effective January 1, 2025. As of the writing of this paper, the Centers for Medicare and Medicaid Services (CMS) has released initial guidance² on the program and stated its intention to release further guidance in early 2024. Note, participants in the M3P must have cost share smoothing applied to all fills of Part D covered drugs, however, drugs not covered by Part D (e.g., anti-obesity medications) are not included in the M3P program.

The mechanics of the M3P will be operationally complex and it will be critically important for plan sponsors to understand and prepare for their responsibilities under this program.

Figure 1 shows an example of how payments would be calculated for a participant with $500 monthly cost sharing, beginning in January. The initial guidance provided by CMS includes several additional examples.

In this example, the member owes $167 in cost sharing in January ($2,000 MOOP / 12 months) based on the first month formula. The member pays $0 in cost sharing at the point-of-sale and is then billed by the plan sponsor for the amount calculated by the M3P formula. Subsequent payments are recalculated in February and later using the subsequent month formula, based on their new unpaid balance and the remaining number of months in the year. In many cases, the payment amount will fluctuate if the member has new cost sharing, but the payment amount will remain static once no additional cost sharing is owed (either due to meeting the MOOP or not filling new prescriptions). Although the cost sharing paid by the member is smoothed, the M3P does not impact member progression through the Part D benefit and the accumulation of drug costs to the MOOP.

What responsibilities do plan sponsors have with respect to M3P?

Plan sponsors have several responsibilities under M3P. CMS has indicated that further guidance is forthcoming, but has laid out the following requirements already.⁴

Member outreach and enrollment

Plan sponsors must…

• Provide beneficiaries with clear information about M3P, with more guidance forthcoming on what it will entail.
• Conduct targeted outreach to beneficiaries who are considered “likely to benefit” from M3P, both prior to and during the plan year.⁵
• Allow all beneficiaries to opt into M3P even if they do not meet the threshold of “likely to benefit.” CMS encourages plan sponsors to ensure that beneficiaries are aware of their low-income-subsidy (LIS) eligibility (if applicable), as the LIS program provides additional benefits beyond M3P, and LIS beneficiaries are likely to see limited value from M3P because their cost sharing is already very low. Other patients, such as those with flat copays (as opposed to coinsurance) who do not reach MOOP by the end of the year, may also see limited value from M3P.
• Allow beneficiaries to enroll in M3P during the standard open enrollment period or during the year.⁶ Enrollments during the plan year must be processed within 24 hours to prevent dispensing delays. Additionally, CMS is proposing the ability for beneficiaries to enroll in M3P in real-time at the pharmacy counter beginning in 2026. For real-time enrollments, the plan sponsor would be responsible for offering a telephone line or web-based app to provide beneficiaries with expected payment information and process enrollments.

Billing and claims processing

Plan sponsors must…

• Supply bills to participants on a calendar month basis and have a financial reconciliation process for billing corrections.
• Take responsibility for bad debt and may not charge late fees, interest, or other fees. Plan sponsors must terminate a participant from M3P for non-payment after a grace period but must reinstate the terminated participant if they demonstrate good cause for failure to pay and pay outstanding debt. A plan sponsor may not, however, disenroll the beneficiary from the plan. Additionally, a plan sponsor may preclude a beneficiary from participating in M3P in the subsequent year if they have prior debt to the same plan sponsor (participants with debts to different plan sponsors are not eligible for preclusion). Plan sponsors must also prioritize payments toward Part D plan premiums rather than allocating payments towards outstanding M3P balances.
• Supply pharmacies with an additional bank identification number (BIN) and/or processor control number (PCN) for participants in order to process M3P payments separately from traditional cost sharing.

Reporting requirements

Plan sponsors must…

• Report data related to the M3P program’s operational costs, utilization, accessibility, performance, and other measures to CMS, beneficiaries and the public.
• Adhere to new annual reporting requirements for prescription drug event (PDE) files, including beneficiary-level and plan-level information, with more guidance forthcoming.⁷

How should plans prepare for M3P?

Plans should consider how M3P may impact their financials and ensure they are prepared to meet all program requirements. Some key items for consideration are below.

In the next 3 to 6 months

• Estimate increased utilization: Lower monthly payments may remove a cost barrier preventing beneficiaries from starting a new treatment or staying adherent to an existing treatment. It is likely the introduction of M3P may increase utilization, particularly of high-cost specialty treatments. Additionally, to the extent patients lose eligibility for or do not enroll in patient assistance programs (PAPs) due to lower monthly cost sharing, additional prescriptions may shift from a PAP to the Part D program. Plan sponsors should develop appropriate assumptions and build this expectation into financial projections and bids.
• Estimate bad debt: Bad debt on M3P will be a new expense for plan sponsors to consider as they will need to account for cost sharing not collected due to participant default, disenrollment, or death. CMS appears to be expecting plans to build an estimate of bad debt into premiums by including it as a non-benefit expense field in the 2025 Bid Pricing Tool (BPT).⁸ Plans should develop a method (and consider working with their Milliman consultant) to estimate what this expense will be. For plan sponsors with high morbidity, such as special needs plans (SNPs), bad debt may be a significant cash flow risk and expense.⁹ Plans should build this expense into financial projections as well.
• Prepare beneficiary communications: Plan sponsors should begin planning to incorporate M3P information in their marketing materials for the 2025 plan year (which will be provided to Medicare beneficiaries in 2024). Plan sponsors should ensure that their compliance and marketing teams are monitoring upcoming CMS guidance to ensure that all marketing and outreach requirements are met.
• Cash flow modeling: M3P will significantly impact cash flow during the year—in particular, a larger portion of cost sharing will be collected later in the year than would otherwise be the case without M3P. Particularly in light of high interest rates, this change may be impactful to monthly cash flow: Plan sponsors should consider modeling the potential change in monthly cash flow to ensure they have the capital to support the timing shift.
• Monitor CMS guidance: CMS has indicated further guidance is forthcoming in early 2024. Plans should watch for future CMS communications to make sure they are aware of all guidance for the M3P program.

In the next 6 to 12 months

• Consider star ratings impact: The operational complexity and payment structure of M3P could result in participant confusion. In particular, participants will pay $0 at the pharmacy counter so they may be surprised when they are billed later and the billed amount changes in subsequent months. Although the Part D benefit is already complex, any additional layers of complexity or delays in receiving medication may result in dissatisfaction or complaints which could then impact plan sponsor’s star ratings. Plan sponsors should proactively consider ways to communicate what to expect from M3P to mitigate any negative Stars impact, which in turn may impact Medicare Advantage plan financials.
• Communicate with PBM: Plan sponsors should discuss parameters of the program with their pharmacy benefit manager (PBM) to ensure both the PBM and plan sponsor are prepared to implement M3P in 2025.¹⁰ Plan sponsors should understand whether the PBM expects any increased costs from the implementation of M3P requirements, such as increased dispensing fees, and reflect those adjustments as appropriate in financial projections and bids. Plans may also want to consider assessing existing contracts with pharmacies to determine if any changes are necessary.
• Prepare enrollment resources: Current CMS guidance requires plans to create a web-based app to allow beneficiaries to enroll in M3P at the point of sale by 2026, which may require significant lead time. Plans will also need to set up a telephone line to process M3P enrollments.

What’s next?

CMS will review comments on the initial guidance and finalize it by spring 2024. CMS will also release additional guidance by early 2024, to be finalized by summer 2024. Plans should review the second part of the guidance and submit comments if needed. Given the short timeframe between finalized guidance and preparation of member communications for 2025 open enrollment, plans may need to begin working on member materials and identifying targeted members before the guidance is final. While CMS estimates as many as 2.4 million beneficiaries may be likely to benefit from M3P,¹¹ it remains to be seen how many beneficiaries will opt into the program. Clear communication and system preparations will be necessary to optimize the rollout.

¹ The full text of the IRA is available at https://www.congress.gov/117/bills/hr5376/BILLS-117hr5376enr.pdf.

² CMS (August 21, 2023). Maximum Monthly Cap on Cost-Sharing Payments Under Prescription Drug Plans: Draft Part One Guidance on Select Topics, Implementation of Section 1860D-2 of the Social Security Act for 2025, and Solicitation of Comments. Retrieved September 24, 2023, from https://www.cms.gov/files/document/medicare-prescription-payment-plan-part-1-guidance.pdf.

³ CMS (July 17, 2023). Technical Memorandum on the Calculation of the Maximum Monthly Cap on Cost-Sharing Payments Under Prescription Drug Plans. Retrieved September 24, 2023, from https://www.cms.gov/files/document/monthly-cap-cost-sharing-technical-memo-july-2023.pdf.

⁴ CMS (August 21, 2023), Maximum Monthly Cap, op cit.

⁵ CMS will provide criteria to define “likely to benefit” but for notification at the point of sale, CMS has proposed using a threshold of between $400 and $700 in out-of-pocket costs for a single prescription or in a single day. CMS estimates roughly 5% of beneficiaries would be included at the $400 threshold. CMS has not yet proposed criteria for determining whether beneficiaries that are new to Medicare Part D are “likely to benefit.”

⁶ For Part D enrollees remaining in their current plans (or who have not yet selected a new plan), plan sponsors must integrate the opportunity to opt into M3P into annual notices sent to Part D enrollees regarding changes for the plan year.

⁷ Note: PDE amounts are not impacted by M3P.

⁸ CMS (September 21, 2023). September 2023 Actuarial User Group Call. Retrieved September 24, 2023, from https://www.cms.gov/files/document/user-group-call-agenda-2023-09-21.pdf.

⁹ American Academy of Actuaries (September 20, 2023). Letter to CMS: Re: Comments on Maximum Monthly Cap on Cost-Sharing Payments Under Prescription Drug Plans: Draft Part One Guidance on Select Topics, Implementation of Section 1860D-2 of the Social Security Act for 2025, and Solicitation of Comments. Retrieved September 24, 2023, from https://www.actuary.org/sites/default/files/2023-09/health-comment-Medicare-Part-D-OOP.pdf.

¹⁰ Specific consideration should be given to EGWP and enhanced plans to ensure that cost sharing accumulates appropriately pending CMS guidance for the accumulation of these benefits.

¹¹ CMS (August 21, 2023), Maximum Monthly Cap, op cit.