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Medicare Part D

Medicare Part D


The Medicare Modernization Act of 2003 (MMA), Pub. L. No. 108-173 (2003), established the Medicare prescription drug benefit under Part D of the Social Security Act (SSA), Social Security Act § 1860D-1 et seq., 42 U.S.C. § 1395w-101 et seq., to cover certain outpatient prescription drugs, beginning January 1, 2006.


Participation in the Part D program is voluntary (except for certain dual eligibles). Participants must obtain coverage through a private insurer or other entity that contracts with Medicare. Participating beneficiaries may select either:

• a qualified prescription drug plan (PDP), which is a stand-alone, drug-only insurance benefit offered by a private entity licensed to offer health insurance under state law; or

• a Medicare Advantage (MA) managed care plan that includes prescription drug coverage along with other Medicare services (MA-PD).


An individual is eligible for Part D if he or she is (1) entitled to benefits under Medicare Part A or is enrolled in Part B, and (2) lives in a Part D plan service area. See 42 C.F.R. § 423.30(a). CMS must ensure the enrollment of full-benefit dual eligible individuals into a Part D plan. See 42 C.F.R. § 423.34(a). The annual coordinated election period is November 15 through December 31 for coverage beginning the following January 1.

Generally, Part D Plan Sponsors must be licensed “as a risk bearing entity eligible to offer health insurance or health benefits coverage in each State in which it offers” Part D products. 42 C.F.R. § 423.401(a)(1).

Employers, unions, and others sponsoring full Part D plans for their retirees do not have to meet the licensure requirements. Employers and Unions may also receive a “retiree drug subsidy,” reimbursing them for 28% of the cost of prescription drug coverage provided to retirees (but not active employees) who are eligible for Medicare Part D. See 42 C.F.R. Part 423, subpart R.

To be covered under Part D, a drug must be: (i) available only by prescription; (ii) approved by the Food and Drug Administration (FDA); (iii) used and sold in the United States; and (iv) prescribed for a medically accepted indication.

Insulin, certain vaccines, biological products and medical supplies may also be covered. Part D generally does not cover drugs that may be excluded under Medicaid or certain drugs that may be eligible for Medicare Part A or Part B coverage. See Social Security Act § 1860D-2(e); see also 42 C.F.R. § 423.100.

Complex provisions establish the methodology for Medicare reimbursement to Part D plan sponsors. See, e.g., 42 C.F.R. §§ 423.301-350. Although the Part D Plan Sponsor is generally at risk for beneficiaries’ prescription drug costs, Medicare is at risk for most of “catastrophic coverage.”


Regulations published on January 28, 2005 (“the Regulations”) (Medicare Prescription Drug Benefit, 70 Fed. Reg. 4193 et seq. (Jan. 28, 2005), implement the Medicare Part D Program. The Regulations are generally found at 42 C.F.R. pt. 423. The Regulations closely parallel and occasionally cross-reference the Medicare Advantage (Medicare Part C) regulations at 42 C.F.R. Part 422. Medicare Advantage Program, 70 Fed. Reg. 4587 et seq. (Jan. 28, 2005).

Part D Plan Sponsors must comply with significant “subregulatory” guidance, such as an the CMS annual “Call Letter,” the Prescription Drug Benefit Manual, and Health Plan Management System messages. See the following CMS links:

Part D Contracting Information:

Part D General Information:

Prescription Drug Benefit Manual (PDBM):

Excerpt from Barry D. Alexander and James F. Flynn, Medicare Part D, Fundamentals of Health (American Health Lawyers Association Nov. 2011).