Part D Payment Modernization Model

In January 2020, the Centers for Medicare & Medicaid Services (CMS) Center for Medicare and Medicaid Innovation (Innovation Center) began 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. Participating  standalone Prescription Drug Plans and Medicare Advantage-Prescription Drug Plans are taking increased 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, and starting in CY 2022, CMS will make available to Part D sponsors that applied to the Model, the following optional programmatic tools, to enable plans to better manage drug spending, 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:

  • Part D Formulary Flexibilities (New for CY 2022);
  • Part D Rewards and Incentives Programs;
  • Medication Therapy Management+ (MTM+);
  • New Flexibilities to Lower Costs for Beneficiaries: Limited initial days’ supply and Cost-Sharing Smoothing (new for 2021);
  • Reduction or Elimination of Cost-Sharing on Generic Drugs and Biosimilars for Low-Income Subsidy (LIS) Beneficiaries; and
  • Plan Timeliness for Standard Initial Coverage Determinations.

CMS will not apply 10 percent downside Model risk for Part D sponsors participating in the Model in CY 2022. CMS intends to apply 10 percent downside Model risk in CY 2023 and for the duration of the model thereafter. Further, given Model participants are taking additional reinsurance risk for CY2021 and beyond, for basic Part D plans that may be above the benchmark, CMS will consider, on an annual basis, offering Model participants the option for a higher de minimis amount, as necessary.

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 almost doubled between 2010 to 2018, increasing from $77.5 billion in total spending to $168.1 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 roughly seven-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 several programmatic flexibilities 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) for CY 2022 (PDF) is open for eligible standalone PDPs and MA-PDs to participate in plan year 2022, the third 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 the application process, the model will accept applications from eligible Part D plan sponsors nationally.

Part D sponsors interested in participating in CY 2022 must submit a non-binding Notice of Intent (NOI) (Survey and Spreadsheet) to apply by March 1, 2021. The NOI is available at:

More information on the NOI is available in the PDM Model Request for Applications for CY 2022.


  • CY 2022 Part D Payment Modernization Model Webinar - Overview - TBD

Additional Details


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