The Inflation Reduction Act of 2022 (IRA) established the Medicare Prescription Payment Plan (M3P) beginning in 2025. Two parts of draft guidance were issued – Part One in August of 2024 and Part 2 in mid-February of 2025. In late February 2025, the Centers for Medicare and Medicaid Services (CMS) released Final Part One guidance.
The final guidance summarized modifications, clarifications, and public comments received in response to the part one draft guidance. The draft guidance underwent minimal modifications. The most significant change addressed the Likely to Benefit threshold.
Here are the key modifications and clarifications in the Medicare Prescription Payment Plan Part 1 Final Guidance.
Likely to Benefit Threshold
The M3P includes specific member communication provisions. For example, the M3P requires plan sponsors to identify members likely to benefit from the program and encourage them to enroll. That includes:
- Sponsors must send the Likely to Benefit Notice to identified members no later than the end of open enrollment. Plan sponsors must review claims history from the first three quarters to determine those members likely to benefit based on defined criteria. Then, they must mail or email – based on the enrollee’s preference, a Likely to Benefit Notice. They may also include the CMS-developed M3P educational product that CMS will release later in 2024.
- Sponsors must also ensure the pharmacy provides the Likely to Benefit Notice to those who meet the threshold at the point of sale.
In the initial Part 1 draft guidance, CMS indicated the threshold criteria would likely be between $400 and $700 spent per prescription or day.
What the Final Guidance Says:
The final guidance sets the POS threshold for out-of-pocket costs at $600 for a single prescription. The rationale: This approach led to a very high likelihood (about 98%) of identified members benefitting from the M3P program compared to other thresholds.
Cash Payment
In the draft guidance, CMS encouraged plan sponsors to offer multiple payment types, specifically mentioning electronic funds transfers – like automatic charges to a bank, credit card, or debit card account – cash or check.
What the Final Guidance Says
The final guidance removes the mention of cash. The rationale: Concerns about mail theft and the desire to maintain consistency with acceptable payment for Part D premiums led to the removal of cash as a payment type.
Additional Information
Though it didn’t necessarily depart from the draft guidance the following additions and clarifications are worth noting:
Financial Reconciliation Process
CMS added more information about the financial reconciliation process, indicating that participants should not pay more than their out-of-pocket costs incurred and that sponsors should create standard processes should a member pay more than their balance.
Additionally, sponsors should ensure that members don’t incur additional changes – like an overdraft fee – resulting from a plan sponsor’s billing error. If a billing error results in an undercharge, the plan sponsor can correct the billing mistake and collect any outstanding balance.
Automatic Re-election in the M3P Program
During the comment period, CMS indicated that several commenters recommended that participation automatically renew year-over-year. Others requested CMS not enable automatic re-election. As a result, CMS plans to release more information about automatic re-election into the M3P program in future guidance.
Grace Periods Across Plan Years
The draft guidance indicated that sponsors must provide individuals with a grace period lasting at least two months when an individual has failed to make a payment by the due date. The final guidance clarified that the grace period must carry into the next calendar year if non-payment occurs at the end of a calendar year.
Participants terminated because they failed to pay within the grace period may not enroll in subsequent years if they have outstanding balances. However, if a participant has an unpaid balance and is still within the grace period, they should be allowed to enroll in future years. If they fail to pay the amount due within the grace period, the sponsor can terminate their participation in the program.
Good Cause Reinstatements
The draft guidance indicated that plan sponsors must reinstate terminated participants if “the individual demonstrates good cause for failure to pay the program billed amount within the grace period and pays all overdue amounts billed.” However, it failed to offer “good cause” examples.
The final guidance offers several “good causes” that may qualify:
- A serious illness, hospitalization, or institutionalization of the participant or their authorized representative
- A prolonged, non-chronic illness, a serious complication to a chronic condition, or quick deterioration in the health of the participant, a spouse, another person in the same household, a caregiver, or the participant’s authorized representative
- The recent death of a spouse, immediate family member, household member, caregiver, or authorized representative
- Having their home severely damaged by a fire, natural disaster, or other unseen event
- An extreme weather-related, public safety or declared Federal or state-level emergency
- Or, an error by the Federal government that caused the M3P payment to be incorrect or late and caused M3P disenrollment
Opt-in Exclusions
According to the draft guidance, a plan sponsor can prevent individuals from opting into the M3P program in subsequent years if they have an unpaid balance.
The draft guidance offered further clarification should an individual switch plans. Plan sponsors can only preclude individuals from enrolling in subsequent years if they owe a balance to that plan sponsor. Other plan sponsors cannot preclude those individuals from enrolling in the M3P program.
Pharmacy Fees
The draft guidance indicated that “Any additional transaction fees or other costs pharmacies incur from processing claims under the Medicare Prescription Payment Plan or otherwise related to such program are considered allowable pharmacy costs associated with the dispensing of a covered Part D drug that may be paid through applicable dispensing fees.”
To further clarify, CMS indicated in the final guidance that plan sponsors can’t impose fees on pharmacies and that pharmacies aren’t responsible for participant balances nor collecting unpaid balances from participants.
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