Keeping watch on Medicare as the IRA is implemented: Formulary management practices

With appreciation for feedback from Mark Fendrick, Director of the Value-Based Insurance Design (V-BID) Center at the University of Michigan, and Daneen Seekoni, Vice President of Policy and Advocacy at the Cancer Support Community

The Inflation Reduction Act (IRA), passed in 2022, made changes to the way drugs are covered and reimbursed in Medicare. While some of the changes taking effect this year could save the government money, beneficiaries may experience mixed effects, with some saving money on out-of-pocket costs while also facing more restrictive formularies and additional utilization management, paying higher drug plan premiums, and having fewer drug plans to choose from.[1]

As the IRA is implemented in 2025, our team’s latest assessment examined the management of Medicare drug plan formularies for a selection of medicines over the last four years to identify variation between coverage in classes of drugs. Our previous alert explored how the number and types of Medicare plans changed from 2021 to 2024.

We take a concise look at our findings below.

Executive summary

Analysts, health plan providers, patient groups, and scholars anticipate that access to medicine on formularies will become more restrictive, particularly in the Medicare Part D drug benefit.[2] To monitor access to medicines as the IRA is implemented, DLA Piper established a program within its experienced Analytics, Government Affairs, and Policy teams. This program is designed to identify any initial trends potentially related to the implemented IRA provisions. We evaluate formulary access in different therapeutic categories and plan types to consider implications to a diverse set of beneficiaries depending on the medications they use and the type of drug plan they select. This report is a baseline assessment of the formulary management for a selection of drugs before and after certain IRA provisions take effect.

Our formulary access assessment

We found that of the drugs we selected for evaluation, most were covered on plan formularies. However, we found sizeable variation between therapeutic classes and plan types. Medicines for serious conditions that were higher-cost were less likely to be on the formulary if they were not in a Medicare protected class (explanation to follow). The drugs we examined that were in a protected class had a high degree of formulary utilization management, unless that management was disallowed (as in HIV medicines). The drugs we evaluated were often not covered on preferred formulary tiers, meaning the beneficiary pays a coinsurance rather than a predictable fixed co-pay. This type of management practice indicates that beneficiary access protections may correlate to the costs they experience in the Medicare drug benefit.

Careful monitoring of this publicly available data, considering specific types of therapies and how formulary management affects those beneficiaries over time, can help to ensure access to medicine as the drug benefit evolves with the IRA. If the IRA does result in more restrictive formulary management practices – as many have predicted – then corrective action by policymakers and the Trump Administration may be warranted to preserve the popular drug benefit.

Our approach to the assessment

We identified a set of commonly used drugs in Medicare Part D in 2020, our baseline year, and then evaluated formulary access for those drugs in Q1 2020 and Q1 2024. We choose 2024 because it is the most recent time period with both beneficiary enrollment and formulary data available. 2020 is the year of comparison because it was a year prior to the implementation of the Senior Savings Model that made certain changes to the Medicare Part D benefit structure.[3]

We identified the top 100 Medicare Part D drugs by total cost in 2020 using the Centers for Medicare and Medicaid Services (CMS) Part D prescription drug data file. Then, we removed any drug that had an available generic equivalent by Q1 2024.[4] This resulted in 77 unique drugs in 50 unique chemical moieties in a range of therapeutic classes and with a range of costs (list of drugs in footnote by generic name).[5] Data was sourced from the publicly available CMS plan files and formulary files.

We identified the therapeutic area for each of the 77 drugs, using the US Pharmacopeia (USP) classification system. We noted if the drug was in a therapeutic area covered as one of the six protected classes in Medicare, where all or substantially all treatments are required to be included on a formulary – although utilization management such as prior authorization or step edits are allowed.[6] Sixteen of our selected drugs are in a protected class and 61 are not in a protected class (listed in the footnote along with other statistics).[7][8]

Of those 77 medicines, we examined what percent were on formulary, available without a prior authorization, available without a step edit, and available on formulary Tier 3 or lower using the CMS formulary data files weighted by enrollment.[9][10] When a drug is “on formulary,” that means it is covered within the plan’s benefit and expenses for that drug count toward deductibles and other out of pocket limits. “Prior authorization” means an additional approval by the plan provider is required to receive the drug that is prescribed by the health provider. A step edit requires the beneficiary to first try another treatment, often a lower-cost medicine, before receiving the prescribed drug. Drugs on Tier 3 or lower are typically with lower cost to the beneficiary relative to higher tiers and usually with fixed co-pays; Tier 4 and above is typically a specialty tier with variable coinsurance.[11] “Utilization management” is an umbrella term that describes both prior authorization and step edits.

Because each drug’s formulary position was weighted by the number of enrollees, the percentages reflected in our assessment can be affected by two things: plan management and beneficiary enrollment. Larger plans with more enrollees will have a greater effect on estimates.[12]

There are six categories of drugs that are considered “protected classes” in Medicare, meaning plans need to cover all or substantially all medicines in that category on their formularies; but they may use utilization management, with the exception of antiviral drugs to treat HIV where utilization management is prohibited. For these reasons, we evaluated the protected class drugs that appeared in our sample of 77 separately.

We examined formulary coverage in the Medicare Advantage Prescription Drug plan (MA-PD) and the stand-alone Medicare prescription drug plan (PDP) distinctly as well as in aggregate. In an integrated benefit MA-PD, the Part D plan is accountable for the cost of the medical benefit (eg, doctor and hospital visits), as well as the prescription drugs. A PDP is only accountable for drug costs. A benchmark PDP, the PDP-Low Income Subsidy (PDP-LIS), is available to Medicare beneficiaries who receive a low-income subsidy without any additional cost for the premium to that person.[13]

Key findings from the formulary access assessment

We found that of the 77 drugs we analyzed, they:

• Were covered on formulary roughly 90 percent of the time
• Had prior authorization required roughly 40 percent of the time
• Had low use of step edits, 1 to 3 percent of the time
• Were on formulary Tier 3 or lower roughly 40 percent of the time, and
• Experienced increases in all formulary and utilization management measures from 2024 compared to 2020.

We also found variation between plan types:

• MA-PD plans had higher rates of formulary coverage on Tier 3 access or lower when compared to PDPs
• PDP-LIS had the least formulary coverage and least access on Tier 3 or lower

There were differences between the therapeutic categories (based on USP designation) of drugs:

• The 16 drugs in protected classes in our assessment were more often on formulary relative to the 61 nonprotected drugs in our assessment
  
  
• Our selected drugs in the Central Nervous System (CNS) and respiratory therapeutic areas had the lowest rates of formulary coverage of any therapeutic class in our assessment, and included medicines for serious conditions including multiple sclerosis and Huntington’s disease as well as cystic fibrosis, pulmonary hypertension, and chronic obstructive pulmonary disease[14]
  
  
• Antineoplastics, medicines for cancer that are in a protected class, were covered on all formularies but almost entirely with prior authorization (97 percent); and the antivirals in our assessment (all in a protected class as HIV treatments) had 100 percent formulary coverage and the lowest prior authorization (0 percent), as expected due to protections for those treatments in the Medicare benefit
  
  
• Immunology drugs, which included immunosuppressants for treating arthritis, Crohn’s disease, psoriasis, and colitis, had the second highest rate of prior authorization
  
  
• Blood glucose regulators (medicines for diabetes) were the category most commonly covered on Tier 3 access or lower of the drugs in our assessment
  
  
• CNS, antineoplastics, antivirals, and immunology were rarely covered with Tier 3 access or lower

All measures evaluated increased between 2020 and 2024. This may reflect plan providers’ ability to negotiate discounts for formulary placement for these medicines or other factors, such as changes in enrollment to plans with more access on formulary.

Table 1: Part D coverage of the most frequently used drugs (N=77), weighted by Part D plan enrollment 

We found that protected class drugs in our selected group of 77 drugs have higher rates of being on formulary, are more likely to have prior authorization, and are less likely to be on Tier 3 or lower relative to the nonprotected class drugs. This means that a person taking a drug that is in a protected class will almost always find their drug is covered, but the beneficiary is almost always faced with a higher out-of-pocket cost relative to a co-pay, and typically 25 to 35 percent or more of the list price of the drug. In our assessment, a beneficiary taking one of our selected drugs that is not in a protected class would find their drugs in Tier 3 or lower, roughly half the time.

Table 2: Part D coverage in 2024 of the most frequently used drugs, protected class and not in a protected class, weighted by Part D plan enrollment[16]

N=number of drugs of that type in the assessment

We found that MA-PDs more often have a drug available on formulary, and more often on Tier 3 or lower compared to PDPs and PDP-LIS. Tier 3 access was the most variable between plan types. Other utilization management metrics were similar between the plan types.

Table 3: Part D coverage in 2024 of the most frequently used drugs (N=77), by plan type, weighted by Part D plan enrollment

We evaluated the therapeutic categories where there were three or more drugs in the class among the 77 drugs we selected. Formulary coverage varied widely. CNS medicines and respiratory medicines in our assessment had the lowest formulary access. Prior authorization was most common in antineoplastics.[18] For five of these classes, the dominant position on the formulary was not Tier 3 or below, meaning that beneficiaries were subject to coinsurance rather than a fixed co-pay – usually 25 to 33 percent of the undiscounted price of the drug.

When comparing 2020 to 2024 within therapeutic categories, there were minimal changes in formulary placement and management for nearly every category of drugs except for the blood glucose regulator class (assessment not shown). In that category of drugs, 99 percent were covered without prior authorization in 2020 and 91.4 percent were on Tier 3 or lower in 2020. Those rates both declined to a sizeable degree in 2024 (20 points lower and 13 points lower respectively), as seen in the table below.

Table 4: Part D coverage in 2024 of the most frequently used drugs selected in our assessment (N=74), by therapeutic area (defined by USP Category), weighted by Part D plan enrollment[19]

Percent available	Antineo- plastics (N=9)	Antivirals[20] (N=6)	Blood glucose regulators (N=17)	Blood products (N=3)	CNS (N=5)	Immunology (N=24)	Respiratory (N=8)
On formulary	100	100	84.2	100	62.9	87.5	79.8
Without prior authorization	3.2	100	77.6	100	19.6	11.4	40
Without step edit	100	100	100	100	100	100	100
Tier 3 or lower	9.2	12.1	78.6	89	0.6	12.3	37.9

Coverage varied between different plan types among the therapeutic categories. Noting the biggest differences, CNS drugs were covered far more on formulary in MA-PDs, while other differences were more minimal in formulary coverage. Five categories of drugs had greater rates without prior authorization in MA-PDs. Blood glucose regulators were far more available on Tier 3 or lower in MA-PD.

Table 5: Part D coverage in 2024 of the most frequently used drugs (N=74), in major therapeutic areas, segmented by plan type, weighted by Part D plan enrollment

Presents rate in MA-PD/PDP followed by the difference between the MA-PD and PDP in brackets (PDP includes PDP-LIS).

A positive number in brackets means the value is greater in MA-PD, a negative number in brackets means the value is greater in PDP.

Percent available (MA-PD/PDP) (difference*)	Antineo- plastics (N=9)	Antivirals (N=6)	Blood glucose regulators (N=17)	Blood products (N=3)	CNS (N=5)	Immunology (N=24)	Respiratory (N=8)
On formulary	100/100 [0]	100/99.1 [-0.9]	82.8/85 [-3]	100/100 [0]	76.5/47.4 [29.1]	88.1/86.7 [1.4]	79.3/80.5 [-1.2]
Without prior authorization	6/0 [6]	100/100 [0]	79.3/75.5 [3.8]	100/100 [0]	21.4/16.8 [4.6]	12.1/10.5 [1.6]	40.9/37.5 [3.4]
Without step edit	100/100 [0]	100/100 [0]	99.2/100 [-0.8]	99.9/98.6 [1.3]	100/100 [0]	100/100 [0]	99.9/100 [-0.1]
Tier 3 or lower	10.4/7.8 [2.6]	12.4/11.7 [0.7]	93.6/62.2 [31.4]	90.9/86.8 [4.1]	0.9/0 [0.9]	12.2/12.5 [-0.3]	38.3/37.5 [-0.8]

Conclusion

This assessment examined Medicare drug plan formularies for a selection of medicines. We found that there is substantial variation between coverage in classes of drugs. We found that drugs for serious and life-threatening conditions are often excluded from the formulary. Drugs for serious and life-threatening conditions that are in a protected class face a high degree of prior authorization and cost sharing. We find that MA-PDs tend to have somewhat greater access for medicines on formulary and on a lower tier relative to PDPs or PDP-LIS. However, there are other differences between MA-PDs and PDPs in terms of access to medicine that we don’t consider, such as geographic variation in access to plans in different regions of the country or different access to providers.

It is anticipated that the IRA will encourage plan providers to use more formulary restrictions, particularly for higher cost treatments. Moreover, it is expected that PDPs may be less able to manage the changes imposed by the IRA. As shown in our assessment of plans and premiums, certain areas of the country, particularly low-income and rural counties, have less access to a variety of plans. Policymakers and administrators at CMS may consider paying close attention to how formularies evolve and take action as needed to preserve beneficiary access.

 

^{[1] https://www.milliman.com/en/insight/financial-implications-ira-formulary-strategies-part-d, and https://avalere.com/insights/how-may-the-ira-shift-part-d-market-dynamics.}

^{[2] https://www.valueinhealthjournal.com/article/S1098-3015(23)02818-8/fulltext.}

^{[3] https://www.cms.gov/priorities/innovation/innovation-models/part-d-savings-model.}

^{[4] This was done by first eliminating any drug that had prescription data from of a generic equivalent in the Medicare Part D prescription drug data file, then by reviewing the US Food and Drug Administration (FDA) orange book for the remaining selected drugs that did not have a generic equivalent by 2022 in the Medicare drug event data. When a generic drug was noted as approved in the FDA orange book, we also confirmed that it had marketing authorization by the FDA and removed it when that occurred. Branded drugs with generic competition are typically removed from preferred formulary placement as a beneficiary can access a generic equivalent on a low-cost tier typically. See First Generic Drug Approvals.} 

^{[5] Generic names of selected drugs abacavir/dolutegravir/lamivudi, adalimumab, apalutamide, apixaban, bictegrav/emtricit/tenofov ala, canagliflozin, cariprazine hcl, dapagliflozin propanediol, deutetrabenazine, dolutegravir sodium, dulaglutide, dupilumab, elviteg/cob/emtri/tenof alafen, empagliflozin, emtricitabine/tenofov alafenam, enzalutamide, etanercept, ibrutinib, immun glob g(igg)/pro/iga 0-50, insulin degludec, insulin detemir, interferon beta-1a, linaclotide, linagliptin, liraglutide, lurasidone hcl, macitentan, mirabegron, nintedanib esylate, osimertinib mesylate, palbociclib, paliperidone palmitate, pomalidomide, rifaximin, riociguat, rivaroxaban, ruxolitinib phosphate, sacubitril/valsartan, secukinumab, selexipag, semaglutide, sitagliptin phos/metformin hcl, sitagliptin phosphate, teriflunomide, ticagrelor, tofacitinib citrate, ustekinumab, valbenazine tosylate, varicella-zoster ge/as01b/pf, and venetoclax.}

^{[6] Six protected classes in Medicare include antidepressants, antipsychotics, anticonvulsants; immunosuppressants for treatment of transplant rejection, antiretrovirals, and antineoplastics: https://www.cms.gov/newsroom/fact-sheets/medicare-advantage-and-part-d-drug-pricing-final-rule-cms-4180-f.}

^{[7] We matched these drugs to the formulary file with National Drug Code (NDC) codes identified through Prescription Drug Data Collection Code (RxDC).}

^{[8] We used the USP Medicare Model Guidelines 9.0 to identify the therapeutic class for each drug. Of the 77 drugs analyzed,16 are in a protected class (biggest two classes of drugs are 9 antineoplastic, 6 antivirals for HIV, 1 antipsychotic) and 61 are not in a protected class (biggest two classes are 24 immunology, 17 blood glucose regulators). Eight of these drugs were selected for the MDNP in 2026. The 77 drugs include 37 percent of all Part D spending in 2020 and 43 percent of all Part D spending in 2022 and captures 29 percent of Medicare Part D beneficiaries in 2020 and 36 percent in 2022.}

^{[9] We collected all unique Concept Unique Identifier (RXCUI) codes, which is a system for uniquely identifying drugs, to then identify all unique National Drug Codes (NDC) codes. The NDC codes were then used to identify whether a drug is covered on a given formulary (using the plan information data and basic drugs formulary data). Useful explanation provided by NIH and Duke University, accessed: https://dcricollab.dcri.duke.edu/sites/NIHKR/KR/Using%20the%20RxNorm%20System.pdf, NDC Data.} 

^{[10] Tier 1 through 3 formularies are typically associated with a fixed co-pay of $45 to $60 where Tier 4 and above are generally associated with coinsurance, where a beneficiary is responsible for 25 percent or more of the list price of the drug. Beneficiaries with a low-income subsidy pay a lower fixed copay of $11.20 for brand drugs in 2024: https://secure.ssa.gov/poms.nsf/lnx/0603001005.}

^{[11] Explanation: See https://www.medicare.gov/publications/11109-Medicare-Drug-Coverage-Guide.pdf.}

^{[12] For example, a plan with 100,000 people was weighted 10 times greater than a plan with 10,000 enrollees when calculating averages.} 

^{[13] There are also zero premium MA-PD plans but they are not benchmark plans.}

^{[14] In the 77 drugs we selected, the categories with the highest average Medicare Part D drug cost per beneficiary were respiratory, antineoplastic and CNS (in that order) average cost per beneficiary in 2022 based on Medicare Part D drug event data CMS.}

^{[15] Tier 3 or lower means the drug is on a formulary tier that most commonly uses a co-pay rather than a coinsurance.}

^{[16] Meaning the number of people enrolled in the plan affect the calculation, plans with higher enrollment count more in the assessment.}

^{[17] In this table the PDP includes only the nonbenchmark PDPs and the PDP-LIS includes only benchmark PDPs.}

^{[18] The undiscounted cost per beneficiary in 2022 in the Medicare Part D drug event data ranged widely in our drug categories, with blood glucose regulators, blood products, cardiovascular, and genitourinary drugs all costing an average of less than $5000 per year per beneficiary. The highest cost per beneficiary categories on average were respiratory, central nervous system, and antineoplastics.}

^{[19] We did not show therapeutic categories where there were three or fewer drugs in our assessment, that eliminated three drugs.}

^{[20] These are all treatments for HIV, where utilization management is not allowed.}