Medicare Prescription Payment Plan

What is Copay Smoothing and How can Part D Plan Sponsors Prepare?

Issue at a Glance

Thanks to the Inflation Reduction Act (IRA), the Medicare Part D benefit will undergo a major redesign in 2025. As part of this, all plan sponsors will be required to offer all beneficiaries the Medicare Prescription Payment Plan, a benefit that had informally been referred to as “copay smoothing” or the “Out-of- Pocket (OOP) Smoothing Program.”1 Plan sponsors shoulder most of the responsibility for implementing and managing the program.

Plan sponsors need to begin thinking about impacts of the program, both what they need to do internally to prepare and what questions they need to ask their Pharmacy Benefit Manager (PBM). Plan sponsors will have responsibility for accurately calculating and billing beneficiaries for their OOP costs (in accordance with program rules), “making pharmacies whole” for beneficiaries who opt to participate in the program, developing a financial reconciliation plan for payments, and processing program enrollments both during annual open enrollment and throughout the benefit year. Marketing materials for 2025 must educate beneficiaries about the program. All plan sponsors must have programs ready to “go live” for enrollment on October 15, 2024, the first date of Medicare open enrollment for 2025.

While many parameters and requirements for the program are known, there remain outstanding issues that will not be finalized until later in 2024. The Centers for Medicare and Medicaid Services (CMS) is expected to release the first of two final program guidance documents in early 2024.2 The National Association of Chain Drug Stores (NACDS) and the National Community Pharmacists Association (NCPA) submitted comments in response to draft guidelines urging CMS to require increased dispensing fees to account for expected increases in pharmacy administrative burden due to coordination of benefits issues.3 CMS is also planning to release additional requirements and details for beneficiary outreach on the program in 2024.

It is critical that plan sponsors begin tracking the issue now and stay on top of updates throughout the early part of 2024 to make sure they are following the new requirements.

1In draft guidance released in August 2023, CMS announced that the formal name of the program would be the Maximum Monthly Cap on Cost-Sharing Payments Program; however, based on the results of beneficiary focus group testing, the agency announced a shorthand name of “Medicare Prescription Payment Plan.” This white paper will use “Medicare Prescription Payment Plan” or “the program” as needed, but technical guidance from CMS may refer to the Maximum Monthly Cap on Cost-Sharing Payments Program.

2Centers for Medicare and Medicaid Services. 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 (August 21, 2023). 1-guidance.pdf

3National Association of Chain Drug Stores and National Community Pharmacists Association. Joint Comments to CMS on the Maximum Monthly Cap on Cost-Sharing Payments Under Prescription Drug Plans (September 18, 2023).


The Medicare Prescription Payment Plan gives beneficiaries the option to spread out their Part D OOP expenses into equal monthly amounts throughout the plan year. The benefit is expected to be especially helpful for beneficiaries taking high-cost drugs who face large OOP expenses in a single month early in theyear and few (or no) OOP expenses for the remainder of the year. All Part D plan sponsors – including standalone Part D plans, Medicare Advantage plans with prescription drug coverage (MA-PD), Employer Group Waiver Plans (EGWPs), cost plans, and demonstration plans – will be required to offer all beneficiaries the option to enroll in the program at the time of enrollment in the plan (e.g., during Medicare’s annual open enrollment period) or at any point throughout the plan year. Once enrolled, beneficiaries will owe $0 at the point-of-sale (POS) for a covered Part D drug.4

Plan sponsors are responsible for paying pharmacies for both the plan’s portion of the drug costs and the beneficiary’s portion of costs, within existing regulatory timeframes. Beneficiaries will be billed monthly for any cost-sharing incurred during that month. If a beneficiary does not elect to join the program during open enrollment, but fills a prescription exceeding a specified threshold, plan sponsors will be required to message the pharmacy to educate the beneficiary about the program and offer the opportunity to enroll. Plans must process applications for beneficiaries joining the program mid-year within 24 hours; at the POS, the beneficiary would have the option of returning after this time period to pick up their prescriptions in order to have the OOP costs included in the program.

Actual billed amounts to each beneficiary will vary based on factors such as the participant’s overall Part D drug costs and the number of months remaining in the plan year. It will be the responsibility of the Part D plan sponsor to correctly calculate the monthly caps, determine the amount to be billed, and send monthly bills to program participants. Program bills must be sent separately from any bill for premium collection (if applicable).

While plan sponsors may include past due balances on future billing statements, past due balances must be billed as a separate line item. Beneficiaries are entitled to a grace period of at least two months, beginning on the first day of the month for which the balance is unpaid, before terminating a beneficiary from the program. Plan sponsors (or any third parties) may not bill late fees, interest payments, or other fees – including fees for different payment mechanisms.5 While CMS leaves payment options (e.g., cash, paper check, electronic funds transfer, credit card) at the discretion of plan sponsors, the agency encourages plan sponsors to offer multiple payment options for beneficiaries. Plan sponsors are also encouraged to offer participants flexibility around requesting a specific day of the month for program changes and withdrawls from a bank account.


Option 1: Election During Open Enrollment A beneficiary enrolls in the program during Medicare Part D open enrollment. In January 2025, the beneficiary only fills a prescription for a low-cost drug. The OOP costsharing for the low-cost drug in January is $4.00.

4Plan sponsors must include all drugs on a plan’s formulary, or drugs treated as being included in a Part D plan’s formulary because of a coverage determination or appeal and obtained at a network pharmacy or an out-of-network pharmacy in accordance with program regulations, in the program. Drug claims not meeting these requirements are not subject to the program.

5While plan sponsors may not impose late fees or interest payments, beneficiaries with past due balances at the end of a plan year may be prohibited from participating in the program in future years.

  • At the POS in January, the beneficiary would pay $0. The plan would pay the pharmacy $4.00, plus any plan financial liability.
  • The Part D plan sponsor would bill the beneficiary $4.00 at the end of January.

In February 2025, the beneficiary fills a prescription for a high-cost medicine. Based on plan design, the OOP cost for the prescription is $2,534.11. However, due to the $2,000 OOP cap, the beneficiary’s liability is only $1,996 (the $2,000 OOP cap, less the $4.00 in spending from January).

  • At the POS in February, the beneficiary would pay $0. The plan would pay the pharmacy the beneficiary’s $1,996, plus any additional plan liability.
  • The Part D plan sponsor would bill the beneficiary $181.45 ($1,996/11) beginning in February and continuing through December. Because the beneficiary has reached the $2,000 OOP cap, he or she will not accrue any additional OOP expenses for the duration of the plan year.

Option 2: Mid-Year Enrollment The same beneficiary declines to enroll in the program during open enrollment. In January, the beneficiary fills a prescription for the same low-cost drug ($4.00), but pays the pharmacy at the POS.

In February, the beneficiary fills the prescription for the high-cost drug. The beneficiary’s plan notifies the pharmacy that the beneficiary would likely benefit from the program and the pharmacy provides the beneficiary with materials about the program. The beneficiary decides to enroll in the program at that point. The plan must process the beneficiary’s request for enrollment within 24 hours; once enrolled, the beneficiary returns to the pharmacy to pick up their prescription:

  • At the POS, the beneficiary would pay $0. The beneficiary’s liability would remain the same as in Option #1 ($1,996), and the plan would be responsible for making that payment to the pharmacy on behalf of the beneficiary.
  • Like in Option #1, the plan would bill the beneficiary $181.45 for 11 months.


The Centers for Medicare and Medicaid Services (CMS) released part one of draft guidance on implementation of the program in August 2023. Final guidance is expected in early 2024.

A second draft guidance will be released in early 2024 and subject to a 30-day public comment period, with a final document released in the summer of 2024.

Starting October 15, 2024, beneficiaries will be able to opt into the Medicare Prescription Payment Plan for the 2025 plan year.


CMS and plan sponsors have less than a year to stand up the program. While basic parameters and requirements are outlined in statute, there are several issues that still require additional clarity:

A claims processing methodology to accurately handle supplemental insurance coverage and Prescription Drug Event (PDE) data If a program participant is eligible for supplemental insurance coverage, that supplemental insurance should still be billed for the prescription prior to the application of the $0 cost sharing. In the draft guidance, CMS acknowledges that the current coordination of benefits (COB) electronic billing process could be disrupted if a Part D plan sponsor returns a “Patient Pay Amount” of $0 on a Part D claim. Other downstream reporting requirements, including PDE records and explanation of benefits (EOB) reporting should also reflect the actual participant liability amounts as incurred, rather than paid by the beneficiary. CMS is seeking feedback from stakeholders on an appropriate claims processing methodology and electronic claims processing workflow.

POS pharmacy notification process

Plan sponsors must notify a pharmacy when a beneficiary incurs OOP costs for a single-day that equal or exceed a specified threshold. CMS is considering establishing a single-day OOP cost threshold between $400 and $700 to trigger the notification requirement. Plan sponsors will also carry the responsibility for ensuring that pharmacies are notifying beneficiaries about the program at the POS. The notification threshold will be finalized in early 2024. Additional specifics around the pharmacy notification process will be included in the second guidance, scheduled for release in early 2024.

Parameters for plans to identify beneficiaries “likely to benefit” from the program

Plan sponsors are required to perform targeted outreach to individual beneficiaries that are “likely to benefit” from the program, both before and during the plan year. In the draft guidance, CMS included a framework for plans to identify these beneficiaries; that framework will be finalized in early 2024. Additionally, CMS announced plans to release parameters for identifying enrollees prior to the plan year who are likely to benefit from the program in the second guidance document, slated for release in early 2024.

Specific requirements related to debt collection for amounts due under the program and additional financial reconciliation standards appropriate for the program

These requirements and details are expected in the second guidance, which will be released in early 2024. Billing periods will be set to calendar months. CMS will also be providing guidance to plans on how to develop financial reconciliation standards to correct inaccuracies in billing and/or payments for the program.

Data submission requirements

CMS will require plan sponsors to report information related to the program on PDE records and will also be implementing new annual reporting requirements. While PDE financial should reflect beneficiary and plan liability amounts as if the program did not apply, CMS will be releasing additional guidance on the updated reporting requirements. Plans will also need to submit annual reports on the program, at both the beneficiary and contract level. Additional guidance on these reports will be released in the Fall of 2024.

Real-time POS enrollment for 2026 and beyond

CMS is considering the feasibility of requiring plan sponsors – if technically feasible – to effectuate beneficiary POS elections at the POS without any delay (or only a nominal delay) beginning in 2026 or later.


On the surface, the Medicare Prescription Payment Plan seems somewhat straightforward. However, it doesn’t take long to realize that the program is quite complicated and contains a lot of moving parts, especially with less than a year for the government, plan sponsors, PBMs, and pharmacies to finalize requirements. It is critical for plan sponsors to begin communicating with their PBM and get up to speed on how the PBM is approaching preparation and implementation of the program, and to begin working internally to make sure plan marketing materials meet beneficiary outreach requirements.

Prepare for changes in claims processing methodologies, pharmacy messaging requirements, and data submission requirements

The introduction of the program will change pharmacy workflow and messaging requirements and will also introduce additional annual data reporting requirements for plan sponsors. Plan sponsors will carry responsibilities for messaging pharmacies at the POS that the beneficiary may benefit from the program, processing mid-year enrollment requests within specified timeframes, and accurately calculating and billing the beneficiary for their OOP costs under the program, including the potential for retroactive elections for urgent prescriptions. While specifics of these requirements are still unclear (see above), it will be critical for plan sponsors to ensure that their contracted PBMs are preparing for the changes so that claims can be processed smoothly January 1, 2025, mid-year enrollments can be handled without undue delays or disruption in medication therapy, and all CMS requirements for beneficiary outreach and data submission will be met.

  • How is the PBM preparing to update their claims processing systems to meet the requirements for proper workflow and pharmacy messaging? When will those systems be ready for testing?
  • How is the PBM working to develop the messaging infrastructure to meet the program requirements, and also ensure that pharmacies are carrying out their responsibilities?
  • What protections does the PBM have in place to ensure that the proposed 24-hour timeframe for mid-year enrollments is met and that patients do not abandon their prescriptions at the pharmacy (or are otherwise delayed) due to enrollment?
  • What quality assurance procedures will be in place to ensure that OOP amounts are accurately billed for beneficiaries who enroll during open enrollment and during the plan year?

Potential for increased dispensing fee requests from network pharmacies

While plan sponsors maintain the bulk of the administrative burden for operationalizing the program, there is no question that pharmacies will also face an increased administrative burden, as they will be expected to coordinate benefits for program participants and also educate beneficiaries at the POS about options for beneficiaries that are not already enrolled. In comments to CMS, both NACDS and NCPA messaged that their members will expect to be compensated for this work via higher dispensing fees and increased vigilance in meeting program requirements.

  • How does the PBM plan to approach pharmacy networking and contracting to ensure adequate pharmacy compensation, while also controlling costs?

Track enrollee outreach requirements

The IRA places responsibility for enrollee outreach about the program on the shoulders of both CMS and plan sponsors. CMS is requiring plan sponsors to engage in general outreach to all enrollees during open enrollment, as well as targeted outreach to enrollees “likely to benefit” from the program. The targeted outreach requirement includes both a pharmacy notification process and outreach directly to beneficiaries. Plan sponsors must have a mechanism to notify a pharmacy when a beneficiary incurs OOP costs that make it likely that the enrollee may benefit from the program. Plan sponsors are also responsible for ensuring that pharmacies, after receiving the notification, informs the beneficiary about the program. Plan sponsors must also engage individually with beneficiaries who are “likely to benefit” from the program. In the draft guidance, CMS included a framework for plans to identify these beneficiaries. Plans need to develop methodologies and algorithms now to properly identify beneficiaries eligible for targeted outreach, in accordance with CMS’ framework.

  • How does the PBM plan to integrate this requirement into pharmacy contracts and performance measures?
  • How does the PBM plan to identify beneficiaries within the parameters finalized by CMS and perform the required outreach?

Additionally, CMS announced plans to release parameters for identifying enrollees prior to the plan year who are likely to benefit from the program in the second guidance document, slated for release in early 2024. At the same time, CMS will be developing tools, including model documents and training materials) to help beneficiaries decide if the program is right for them. Notably, NCPA and NACDS requested that CMS not require pharmacies to carry plan-specific outreach materials and to instead develop a single set of standardized materials in order to reduce burdens at the pharmacy counter.

  • Plan sponsors need to make sure that all 2025 marketing materials are in compliance with the final guidelines, once they are released, and track any requirements to develop materials specifically for network pharmacies.

CMS is also requiring that plan sponsors provide beneficiaries with information about both the Medicare Prescription Payment Plan and the low-income subsidy program (LIS), for which eligibility will also be expanded in 2025. While LIS beneficiaries are eligible to participate in the Medicare Prescription Payment Plan, CMS acknowledges that they are unlikely to benefit since most have low, stable drug costs. However, plan sponsors are “encouraged” to provide additional education to beneficiaries undergoing retroactive LIS eligibility and enrollment, as there may be limited circumstances in which a LIS enrollee would benefit from remaining in the Medicare Prescription Payment Plan.

  • Plan sponsors must track the final guidance from CMS regarding the appropriateness of outreach to LIS enrollees and have systems in place to identify the limited circumstances when a LIS enrollee would benefit from remaining in the Medicare Prescription Payment Plan.

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