Definition
Medicare Part D
Medicare Part D is the voluntary Medicare outpatient prescription drug benefit, delivered through private stand-alone drug plans and Medicare Advantage plans that contract with CMS and set their own formularies within federal rules.
2 min readReviewed September 14, 2026
Also known as: Medicare prescription drug coverage, Medicare drug plan, Part D plan, PDP
Key facts
- Created by
- Medicare Prescription Drug, Improvement, and Modernization Act of 2003
- Coverage began
- January 1, 2006
- Regulations
- 42 CFR Part 423
- Plan types
- Stand-alone prescription drug plans (PDPs) and MA-PD plans
- Out-of-pocket cap
- Annual cap on enrollee drug costs since 2025, indexed each year
What is Medicare Part D?
Before 2006, Original Medicare did not cover most outpatient prescription drugs. Part D added that coverage through private insurers and pharmacy benefit managers that compete for enrollees, rather than through a single government formulary.
Beneficiaries can enroll in a stand-alone prescription drug plan (PDP) alongside Original Medicare, or in a Medicare Advantage plan that includes drug coverage (MA-PD). Low-income beneficiaries can qualify for the Low-Income Subsidy, also called Extra Help, which reduces premiums and cost sharing.
How Part D works
Each plan builds a formulary, places drugs on cost-sharing tiers and can apply prior authorization, step therapy and quantity limits, subject to CMS review. Plans generally must cover at least two drugs in each therapeutic category and class, and all or substantially all drugs in six protected classes: anticonvulsants, antidepressants, antineoplastics, antipsychotics, antiretrovirals and immunosuppressants.
The Inflation Reduction Act of 2022 redesigned the benefit:
- Starting in 2025, the coverage gap phase ended and enrollee out-of-pocket drug costs are capped each year.
- Manufacturers pay discounts in the initial and catastrophic phases under the Manufacturer Discount Program.
- Plans took on more liability for catastrophic costs, and enrollees can spread out-of-pocket costs across the year through the Medicare Prescription Payment Plan.
- Medicare negotiates prices for selected high-spend drugs, with the first negotiated prices effective January 1, 2026.
Why Part D matters
Part D is a major channel for retail and specialty pharmacy drugs, so formulary placement, tiering and utilization management in large national plans directly affect product uptake. The redesign changed who pays in each phase, which shifts plan incentives around high-cost drugs and changes gross-to-net forecasts.
Part D also produces some of the richest public drug data. CMS releases prescriber-level files showing claims and costs by NPI and drug, plus drug spending dashboards. Commercial teams use these files to find prescribers of a therapy, and pricing analysts compare them with NADAC and Medicaid drug rebate data.