Legislative and regulatory changes, along with changes in utilization patterns, have significantly altered the Medicare Part D landscape in recent years, driving an increase in focus on Part D costs across all stakeholders. This article provides an overview of top-line gross cost trends in Medicare Part D, focusing on factors that Part D stakeholders should consider as they review 2024 prescription drug data. The Q1–Q3 2024 data reveals gross average allowed costs per member per month (PMPM) decreased 1.7%, due to offsetting key downward and upward trends relative to 2023.

Understanding the interactions of these market forces is crucial for stakeholders navigating the evolving landscape of Medicare Part D.

Key findings

Across the market, average 2024 Part D gross costs PMPM are 1.7% lower than average 2023 costs, as utilization increases do not outweigh reimbursement changes.

Despite utilization spikes of certain brand classes such as glucagon-like peptide-1s (GLP-1s) and sodium-glucose cotransporter-2s (SGLT-2s), among others, overall average gross allowed costs PMPM decreased slightly between 2023 and 2024, comparing the first three quarters of each year. This result may seem counterintuitive but is primarily explained by a significant average increase in POS discounts negotiated between pharmacies and plan sponsors between 2023 and 2024, resulting in a decrease in gross cost. This change is driven by requirements of the 2023 CMS Final Rule¹ to move pharmacy direct and indirect remuneration (DIR) to the POS, ultimately triggering a movement of pharmacy price concessions from the form of a post-POS rebate to an incremental increase in POS discount. Note this is a one-time shift in pharmacy reimbursement effective in 2024.

Comparing Part D claims data through Q3 between 2023 and 2024, utilization per 1,000 increases 1.5%, while the average allowed cost per 30-day prescription decreases 3.2%, on average. These two opposing forces drive a decrease of 1.7% in gross costs PMPM through Q3 2024, relative to the same time period in 2023. Of note, average wholesale price (AWP) PMPM increased 6.9% over the same period, demonstrating the increase in average POS discount. The average POS discount can be derived from Figure 1 below, which shows the average delta between Part D gross cost and AWP PMPM increasing from 54% in 2023 (calculated as 1 – $437/$960) to 58% in 2024 (calculated as 1 – $430/$1,026).

Specialty drug utilization is trending upward.

While gross allowed costs PMPM are relatively consistent between 2023 and 2024, we observe stark upward utilization trends among specialty drugs, particularly in the third quarter of 2024. Given the seasonality in Part D, where the first quarter is typically lower and utilization increases throughout the year, we develop the year-over-year (YoY) trend shown in Figure 2 by comparing 2024 utilization levels to 2023 for each quarter. This shows both an upward trend in specialty drug utilization between 2023 and 2024, as well as an increase in YoY trend, from 4% in Q1 to 11% in Q3.

Three of the five top spend therapeutic classes in 2024 show YoY gross cost PMPM trends north of 15%.

The five therapeutic classes shown in Figure 3 make up 36% of total Part D gross costs in 2024 through Q3. These same classes comprised 32% of total Part D costs in 2023, demonstrating their stark increase relative to other therapeutic classes.

Among antidiabetic classes, utilization of SGLT-2s and GLP-1s has increased by 30% and 20%, respectively, between 2023 and 2024. Gross allowed PMPM trends in Figure 3 are lower than utilization trends due to the shift of pharmacy DIR noted above.

Comparing 2023 and 2024 Part D gross allowed costs and utilization, there are several key trends emerging, each varying in directional impact and magnitude. We highlight the key drivers below.

Downward pressures: In 2024, new legislative changes, such as the 2023 CMS Final Rule and the American Rescue Plan Act (ARPA), introduced distinctive downward pressures on gross costs.

• As discussed above, pharmacy DIR was required at the POS for the first time in 2024, with price concessions reflected as higher POS discounts and therefore lower gross Part D costs, but lower rebates. DIR levels for 2023 are not available, so it is difficult to know if the change in price concessions resulted in higher or lower net cost on average.
• All three major insulin manufacturers announced significant list price reductions in 2023, likely in response to a provision in ARPA causing Medicaid discounts in excess of 100% for manufacturers with large price increases. Price reductions for Novo Nordisk products including Novolog took effect in March 2023, while reductions for Lilly and Sanofi took effect in 2024, driving a decrease in average insulin costs in 2024 of over 50%.

Upward pressures: Changes to the standard Part D benefit design in 2024 may have accelerated utilization of brand and specialty products.

• In 2022, the American Diabetes Association (ADA) strengthened its recommendation for using GLP-1s and SGLT-2s as first-line therapy for type 2 diabetes, especially for patients with cardiovascular comorbidities. Although these drugs have been available for several years, the updated guidelines led to increased utilization in 2023 and further growth in 2024.
• Specialty drug utilization also increased in 2024. Financial barriers to prescription drug access and adherence lessened for some patients due to the removal of catastrophic phase cost sharing for all beneficiaries starting in 2024. This established a maximum out-of-pocket (MOOP) of roughly $3,500 in patient costs.³

Conclusion

The confluence of the high utilization trends on brand and specialty products alongside decreases to POS costs through changes to pharmacy contracting yielded relatively consistent Part D gross costs PMPM when comparing January through September 2023 and 2024. This phenomenon of flat trends is very unlikely to continue into 2025, as the changes to POS discounts were a one-time shift, and the current pharmacy reimbursement levels may be the new normal for the foreseeable future. Additionally, the Part D benefit becomes incrementally richer with a $2,000 MOOP in 2025 and the ability for beneficiaries to “smooth” their cost sharing under the Medicare Prescription Payment Plan. With these reduced financial barriers, improved prescription drug adherence, as well as increased new therapy starts, could further drive Part D utilization upward and increase gross costs as a result in 2025 and beyond.

In our next article, we intend to reflect the full year of 2024 data, to further examine the impact the Part D benefit design change had on utilization patterns in Q4 2024.

Data & methodology

Data underpinning this whitepaper was provided by Milliman Medicare Market Intelligence (MedIntel). The MedIntel platform is built upon CMS’s 100% Research Identifiable Files (RIF), highly enriched with supplementary data assets and curated to address the needs of all Medicare stakeholders (plan sponsors, PBMs, manufacturers, providers, etc.). Data is refreshed with as little as two weeks of lag, offering subscribers near real-time insights to support their business needs. We relied on RIF data from January 2023 through September 2024, including claim costs from 100% of beneficiaries enrolled in Medicare Part D.

Qualifications

Guidelines issued by the American Academy of Actuaries require actuaries to include their professional qualifications in all actuarial communications. The authors are members of the American Academy of Actuaries and meet the qualification standards for rending the actuarial opinions contained herein.

¹ The full text of the CMS CY2023 Final Rule is available at https://www.federalregister.gov/documents/2022/05/09/2022-09375/medicare-program-contract-year-2023-policy-and-technical-changes-to-the-medicare-advantage-and.

² Utilization shown on a 30-day equivalent prescription basis. Specialty is defined using the Centers for Medicare and Medicaid Services (CMS) definition of $950 per 30-day supply for a given drug.

³ The out-of-pocket (OOP) threshold was $8,000 in 2024, but both patient costs and manufacturer payments through the Coverage Gap Discount Program accumulated to this threshold. Assuming a defined standard benefit and the CMS estimated total covered Part D spending at OOP threshold for applicable beneficiaries of $12,447.11, total patient OOP costs for non-low-income beneficiaries reaching the threshold would be $3,520.