Editor’s Note: This month, we offer commentary on two topics around Unpacking Part D Redesign in 2026 and Trump’s Drug Pricing Executive Order. As always, if you have questions on any of the content found in this or previous market updates, please reach out to your IntegriChain Consulting & Advisory Lead or consulting@integrichain.com and we would be happy to talk you through it.

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On April 7, 2025, the Centers for Medicare & Medicaid Services (CMS) released the Final CY 2026 Part D Redesign Program Instructions, which detail major changes to the Medicare Part D drug benefit as required by the Inflation Reduction Act of 2022 (IRA). These updates, effective January 1, 2026, continue the evolution of the Medicare Part D program, aiming to improve affordability and predictability for beneficiaries while aligning incentives across payers and manufacturers.

While the release addressed several components, below are the important items for manufacturers to know.

Here’s What Manufacturers Need to Know:

1) Lower Annual Out-of-Pocket (OOP) Maximum for Beneficiaries

The CY 2026 OOP cap will be $2,100, slightly up from the 2025 cap of $2,000. This amount is adjusted based on the annual percentage increase in average ananual expenditures for covered Part D drugs in the US for Part D eligible individuals in the previous year (API).

2) Changes in Cost-Sharing and Liability Across Benefit Phases

As a reminder, the redesigned Part D benefit restructures who pay what and when across the three main phases:

1. Annual Deductible Phase:
   • Beneficiaries pay 100% of drug costs up to a deductible of $615 (new deductible for CY 2026)
2. Initial Coverage Phase
   • Enrollee pay 25% coinsurance
   • Plan Sponsors pay most of the remaining costs:
     • 65% for applicable and selected drugs
     • 75% for all other covered drugs
   • Manufacturers provide a 10% discount on applicable drugs through the Manufacturer Discount Program
   • CMS contributes a 10% subsidy for selected drugs during the price applicability period. This phase ends when the enrollee has reached the annual OOP spending threshold of $2,100 for CY 2026
3. Catastrophic Phase (once OOP cap is reached):
   • No cost-sharing for enrollee
   • Plan sponsors pay 60% of all covered drugs
   • Manufacturers pay 20% discount on applicable drugs
   • CMS provides reinsurance subsidy during price applicability period:
     • 20% for applicable drugs
     • 40% for all other covered drugs, including selected drugs

These shifts further reduce patients’ burden while creating more consistent liabilities for plan sponsors and manufacturers.

3) Introduction of the Selected Drug Subsidy

The selected drug subsidy program, established by the Inflation Reduction Act (IRA), provides Part D sponsors with a government subsidy for selected drugs, equal to 10% of the drug’s negotiated price. This subsidy applies to covered Part D drugs that would qualify for the Manufacturer Discount Program if they were not selected drugs during the price applicability period.

Key Points:

• · Eligibility: The subsidy is available for selected drugs dispensed to beneficiaries enrolled in a prescription drug plan (PDP) or a Medicare Advantage prescription drug (MA-PD) plan, who have not yet reached the annual out-of-pocket (OOP) threshold.
• · Coverage Phase: Once an enrollee exceeds the annual deductible under the defined standard benefit, the subsidy becomes available during the initial coverage phase.
• · Sponsor Liability: The subsidy reduces Part D sponsor liability on the negotiated price of the selected drug.

4) Clarification on Formulary Substitution Rules for Negotiated Drugs

The Inflation Reduction Act (IRA) mandates that Part D sponsors include selected drugs with a maximum fair price on their formularies starting in 2026. However, it also allows for exceptions where Part D sponsors can remove a selected drug if permitted under specific regulations.

Key Points:

• · Original Regulation: Initially, § 423.120(b)(5)(iv) allowed immediate substitution of a newly available generic drug for its brand name counterpart, provided certain notice and timing requirements were met.
• · Regulatory Changes: The CY 2025 Parts C & D Final Rule (CMS-4201-F3 and 4205-F) revised these regulations, eliminating § 423.120(b)(5)(iv).
• · Current Regulations: Immediate substitution approval requirements are now codified at § 423.120(e)(2)(i), with corresponding notice requirements at § 423.120(f)(2), (3), and (4).
• · Successor Regulation: The Final CY 2026 Program Instructions identify these updated provisions as the “successor regulation,” allowing Part D sponsors to make formulary substitutions under the new guidelines.

These changes ensure that Part D sponsors can continue to manage their formularies effectively while complying with the IRA’s requirements.

Implications for Stakeholders

The threshold between the patient deductible and the OOP maximum amount has slightly increased from 2025, contributing to a slightly larger gap until when the patient OOP maximum occurs.

Next Steps

Stakeholders should begin scenario planning and financial modelling now to prepare for these changes. Monitoring final guidance on drug price negotiations and manufacturer discount processes will also be critical as 2026 approaches.

For further detail, see the full Final CY 2026 Program Instructions on the CMS website. Here is the link to the article posted by CMS: Final CY 2026 Part D Redesign Program Instructions | CMS

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The White House and the Trump Administration released an Executive Order (EO) on April 15 aiming to lower prescription drug prices by putting Americans first and making America healthy again¹. The EO lays out the administration’s goals of delivering a more transparent pharmaceutical landscape with more linear pricing, which could shift the pharmaceutical industry’s current long-term plans. This article raises pertinent questions that manufacturers may want to consider. (Note: The EO may have varying impacts on each manufacturer’s business strategies, depending on the stage of their product’s life cycle).

Ending the Inflation Reduction Act (IRA) “Pill Penalty”:

Summary: In the IRA, price controls on small molecule prescription drugs (those with NDA’s) begin in the 7th year post-launch, whereas for large molecule biologics (those with BLA’s) occur in the 11th year. This is known as the “pill penalty”, disadvantaging small-molecule drugs in pill and tablet form by making them eligible for Medicare drug price negotiations 4 years earlier. Within the EO, Trump seeks to have the Secretary of the HHS to work with Congress to align the timelines for small molecule and large molecule (biologic) drugs.

Considerations: Without clarity on whether the timeline for small molecule drugs will be extended or the timeline for biologics will be shortened, the impact of this alignment will affect NDA holders vs. BLA holders differently. Regardless of which way the timeline shifts, manufacturers at risk of Medicare price negotiation should begin forecasting and analyzing possible impacts of a Maximum Fair Price (MFP) on their net revenue, pricing, and contracting strategies from launch.

Improving upon the Inflation Reduction Act:

Summary: Trump Administration is seeking updated guidance on the Medicare Drug Price Negotiation Program, specifically on the selection of drugs for Initial Price Applicability Year (IPAY) 2028 and effectuation of MFP for IPAY 2026, 2027 and 2028. Additionally, the White House is seeking guidance on how to stabilize and reduce Medicare Part D premiums, and the mechanism to shift costs is currently unclear.

Considerations: Updated guidance on the selection process for high-cost drugs in the Medicare program for IPAY 2028 and the operationalization of the negotiated MFP’s for IPAY 2026, 2027, and 2028 should allow increased transparency for manufacturers preparing for selection and the impacts of an MFP.

Reducing the Prices of High-Cost drugs for Seniors:

Summary: The Trump Administration is seeking to assist in obtaining better value for high-cost prescription drugs in the Medicare program by developing a payment model for the Medicare program in accordance with the Center for Medicare and Medicaid Innovation (CMMI) testing model. CMMI uses models aiming to lower health care costs.

Considerations: Manufacturers should monitor any updates from the Trump administration within 1 year of this EO to evaluate if any pricing and contracting strategy shifts should be assessed.

Accounting for Acquisition Costs of Drugs in Medicare:

Summary: Within 180 days of this EO, a 340B cost survey will be conducted to propose adjustments to align Medicare payment with hospital acquisition cost. HHS will implement additional measures to determine and enhance the visibility of actual costs at the hospital level, which subsequently impacts outpatient services.

Considerations: The EO mentions that any adjustments made to Medicare payments should not increase overall government spending. Manufacturers should monitor the findings of the cost survey for additional considerations on their access strategy.

Promoting Innovation, Value, and Enhanced Oversight in Medicaid Drug Payment:

Summary: EO provides recommendations on how to ensure that manufacturers pay accurate Medicaid rebates.

Considerations: For manufacturers who have branded prescription drugs where Medicaid is a prevalent part of their book of business, it will be important to monitor what changes the administration puts forth related to ensuring accuracy in Medicaid rebate payments. Specifically, ensuring the linkage of payments for drugs to the actual value of the drug obtained by the patient, indicating a possible push towards value-based purchasing arrangements in MDRP.

Access to Affordable Life-Saving Medications:

Summary: Make insulin and injectable epinephrine available at or below the discounted 340B price.

Considerations: While this does not impact manufacturers directly, the ability for low-income patients to receive important medicines at or below the 340B price is important for access and affordability. The goal is to ensure the 340B discount given to the health center is benefited by the patient.

Reevaluating the Role of Middlemen:

Summary: Promote a competitive, efficient, transparent, and resilient pharmaceutical value chain while delivering lower drug prices.

Considerations: While there is no outline to assess and evaluate the role of PBMs, within 90 days of this EO, we should expect to see recommendations on how the administration will increase transparency and competition. Potential considerations include whether the Trump administration will shift certain portions of the PBM’s role to the manufacturer versus the provider.

Improving Transparency into Pharmacy Benefit Manager Fee Disclosure:

Summary: Similar to the section above on the role of middlemen, the administration is targeting PBM reform. Specifically, increasing the transparency of pharmacy benefit manager fees.

Considerations: Impacts on the way manufacturers get medicines for patients. Today, many branded drugs pay fees to PBMs for formulary placement to compete with competitors. If PBM fee transparency laws are implemented, it will be important to observe how they influence prescribing patterns within certain drug classes.

Accelerating Competition for High-Cost Prescription Drugs:

Summary: Seeking a report from the FDA Commissioner to provide administrative and legislative recommendations to accelerate approval of generics, biosimilars, combination products, and second-in-class brand meds.

Considerations: Important for manufacturers whose drug(s) do(es) not currently have competition. This item may speed up the process of competitor approvals and impact on long-term budget and forecasts. Pricing and contracting teams should closely monitor any updates with Sec. 9 of the EO.

Increasing Prescription Drug Importation to Lower Prices:

Summary: Streamline and improve the Importation Program to ease obtaining approval for States without compromising safety and quality.

Considerations: The Importation Program under Section 804 of the FD&C Act allows importation of certain prescription drugs from Canada to:

1. Significantly reduce the cost of these drugs to the American consumer,

2. Without imposing additional risk to public health and safety.

Improvements of this program may increase competition for similar products imported from Canada which may result in manufacturers experiencing less US demand and possible loss of market share. Contracting and pricing strategies will be important for manufacturers to consider.

Reducing Costly Care for Seniors:

Summary: Reduce shift in drug administration volume away from hospital outpatient departments and towards Physicians’ offices

Considerations: Within 180 days of the EO, HHS may propose regulations to ensure the payment within Medicare does not encourage care for seniors to be pushed to more costly hospital outpatient settings. For manufacturers, this can change market access strategy to focus more on physician office sites of care. For instance, manufacturers should consider the potential shift in budget conditions if this action item necessitates manufacturers’ focus on targeting physician offices.

Combating Anti-Competitive Behavior by Prescription Drug Manufacturers:

Summary: Within 180 days of the EO, the Department of Justice, the Department of Commerce and the FTC will issue a report with recommendations to reduce anti-competitive behavior from pharmaceutical manufacturers.

Considerations: Sec. 13 of the EO indicates manufacturers should price their drugs in comparison with their competitors. As a result, drug makers might encounter stricter laws, which tighten the way competitive products are specifically marketed or launched. Manufacturers launching competitor drug products should seek to consider how tighter price controls will impact their market strategies.

Conclusion:

Many of the reports and surveys requested from the Trump administration have 60-, 90- or 180-day timelines. The next 2-6 months will be vital for pharmaceutical manufacturers to understand where they may need to make shifts in pricing, contracting, net revenue, and forecasting strategies based on their product portfolio. Please reach out to your IntegriChain Advisory contact for further information and/or questions you may have related to the EO.

Resources

• Lowering Drug Prices By Once Again Putting Americans First