Part D Payment Modernization Model

In January 2020, the Centers for Medicare & Medicaid Services (CMS) Center for Medicare and Medicaid Innovation (Innovation Center) will begin the Part D Payment Modernization model to test the impact of a revised Part D program design and incentive alignment on overall Part D prescription drug spending and beneficiary out-of-pocket costs. The model aims to reduce Medicare expenditures while preserving or enhancing quality of care for beneficiaries. The model is open to eligible standalone Prescription Drug Plans (PDPs) and Medicare Advantage-Prescription Drug Plans (MA-PDs) that are approved to participate.

This voluntary, five-year model tests the impact of a modernized Part D payment structure that creates new incentives for plans, patients, and providers to choose drugs with lower list prices in order to address rising federal reinsurance subsidy costs in Part D. Eligible standalone Prescription Drug Plans and Medicare Advantage-Prescription Drug Plans that are approved to participate in the model will take two-sided risk for CMS’s federal reinsurance subsidy (80 percent of catastrophic phase liability), allowing for performance-based payments to plan sponsors or payments to CMS based on spending. As part of the model, CMS will also provide participants with additional programmatic tools, including a Part D Rewards and Incentives program, to increase engagement between plans and their enrollees and to promote better enrollee understanding of their Part D benefit, out-of-pocket costs, and clinically equivalent therapeutic options. Ultimately, CMS expects that testing a modernized Part D payment structure will maintain or improve beneficiaries’ access to affordable and necessary covered Part D prescription drugs.


The Medicare Part D program began providing prescription drug coverage to Medicare beneficiaries in 2006. A number of risk-abating mechanisms were included in the original benefit design included to ensure Medicare beneficiaries had access to a robust choice of Part D plans. These mechanisms include the direct subsidy risk corridors, risk adjustment, and federal reinsurance in the catastrophic phase of the benefit. This structure has allowed CMS to successfully implement and administer a market-based Part D program, providing critical access to prescription drugs, decreasing premiums over time, and promoting high enrollee satisfaction with their Part D benefit.

Over time, however, pharmaceutical innovation and patent expirations have led to a bifurcation in Part D prescription drug utilization and spending. While the percentage of Part D prescriptions filled with safe and effective generic medications is higher than ever, overall Part D spending has almost doubled from 2010 to 2016, increasing from $77.5 billion in total spending to $146.1 billion, with costs projected to increase further. In evaluating the reasons for this trend, the high list price of new specialty and branded medications for cancer, Hepatitis C, rheumatoid arthritis, and other conditions has led to a six-fold increase in Part D catastrophic phase spending relative to 2006. This is due, in part, to the fact that the list price determines both beneficiary out-of-pocket costs and where an enrollees are in their Part D benefit.

Given the potential difference between the list and net price of specialty and branded medications, the amount that both beneficiaries, through premiums and out-of-pocket costs, and CMS, through the federal reinsurance subsidy and low-income subsidies, pay has continued to increase. However, while payments to Part D plan sponsors to administer the benefit have more than doubled from 2006 to 2017, the portion of the Part D benefit that plan sponsors are liable for managing, termed the direct subsidy, has decreased. In 2017, the direct subsidy was 14 percent lower than it was in the first year of the Part D program. This has prompted recommendations from the Medicare Payment Advisory Commission (MedPAC), the U.S. Health and Human Services Office of the Inspector General, and other stakeholders that the original Part D risk-sharing mechanisms be updated to better reflect the current and future prescription drug landscape.

Model Details

Through this model, CMS is testing the impact of a modernized Part D payment structure that increases and better aligns Part D plan sponsor liability with the costs paid for by CMS and Medicare beneficiaries. Ultimately, this model will allow CMS to address the high list price of drugs covered by Medicare Part D and evaluate the impact on cost and quality for Medicare beneficiaries. The voluntary, five-year (CY 2020-2024) Part D Payment Modernization Model aims to promote a decrease in total Part D program spending in the following two ways:

  1. Creating new incentives for plans, patients, and providers to choose drugs with lower list prices to better manage catastrophic phase federal reinsurance subsidy spending by introducing two-sided risk to align payment incentives for plan sponsors with their enrollees and CMS; and
  2. Providing programmatic flexibilities, including Part D Rewards and Incentives programs, to ensure Medicare beneficiaries are able to maintain affordable access to the prescription drugs that they need.

For questions regarding the Part D Payment Modernization Model, please contact

How To Apply

The Model’s Request For Applications (RFA) (PDF) is open for eligible standalone PDPs and MA-PDs to participate in plan year 2020, the first year of the model. Based on participation, initial model impact, and additional considerations, CMS may consider offering additional application periods in the future. As part of a competitive application process, the model will accept applications from eligible Part D plan sponsors nationally.

By March 15th, 2019, eligible organizations must submit to CMS, via email to, a non-binding notice of intent to participate in the Part D Payment Modernization Model. The non-binding notice of intent should be a PDF on the organization’s letterhead signed by an authorized individual at the organization.

In order to provide CMS information important to its operational planning, the notice of intent should include the following information, even if preliminary:

  • Parent Organization
  • Contract(s)
  • Plan Benefit Package(s) (PBPs)
  • Prescription Drug Plan region(s) for each PBP
  • Enrollment for each PBP
  • Contact information, including email address and phone number, for the primary point of contact and plan compliance officer(s)
  • Yes/No indication for inclusion of a proposed Part D Rewards and Incentives program.

If yes in terms of offering a Part D Rewards and Incentives program, plans have the option to seek CMS review of their proposal in this stage by including full details for their proposal prior to submission of the final application information to occur concurrent with the organization’s bid submission as discussed below.

Provisionally approved applicants will  utilize the Model’s application portal as part of the third and final part of the model application process.


Additional Details