An Honest Perspective with Spencer Solomon, SVP Payer Strategy & Contracting
The Medicare Advantage program (MA) has faced sustained turbulence in recent years. The Centers for Medicare and Medicaid Services’ rollout of Version 28 of the risk adjustment model, unexpected spikes in utilization, and adjustments to Stars cutpoints have all created headwinds, leaving insurers and providers working to stabilize their footing.
A continued shift in the MA landscape
On January 1, 2025, sweeping changes to Medicare Part D under the Inflation Reduction Act of 2022 (IRA) reshaped how drug costs and risk are shared across MA plans. The reforms significantly increase MAPD plans’ share of drug costs and elevate the role of Part D risk adjustment in determining chronic illness profiles and projected utilization — even as recent updates to the RxHCC model and normalization factors are expected to put downward pressure on scores.
For physician groups and other provider organizations that assume full financial risk for their MAPD members, these changes present new operational and financial implications. Most risk-bearing provider organizations lack in-house actuarial resources to proactively model the IRA’s financial impacts and must instead rely on their plan partners’ ability and willingness to respond in a way that protects their interests.
The historical challenge of pharmacy risk for providers
Even in more stable years, taking risk for pharmacy costs has always been complex for providers.1 Many of the levers that drive Part D utilization, including plan formularies, manufacturer rebates, and drug discounts, are largely outside of providers’ control. Insurers also benefit from the protection of federal risk corridors to mitigate potential losses in Part D — a safeguard that providers don’t share.
The changes introduced by the IRA amplify these challenges. Pharmacy costs now account for a greater share of MAPD plan funding and volatility. For some provider organizations, the shift could turn pharmacy risk from a secondary consideration into a major driver of margin variability.
What’s changing in Part D — and why it matters
The law’s updates to Part D aren’t minor — they fundamentally alter the cost structure for MAPD plans and their provider partners. Understanding these changes is the first step to anticipating the downstream effects and determining how to respond.
Change #1: Eliminating the donut hole, capping out-of-pocket costs, and increasing plan liability
The coverage gap (donut hole), which required members to pay the full cost of prescriptions until catastrophic coverage was applied, was eliminated, and a $2,000 cap was imposed on member out-of-pocket costs for prescription drugs. At the same time, insurers’ liability for drug costs in excess of this new threshold rose sharply from 15% to 60%.2
What this means: MAPD plans have tried to address this shift and projected uptick in pharmacy claims through Part D bid adjustments, leading CMS to increase subsidies allocated to pay these costs. Whether these adjustments will be sufficient to cover actual expenses remains to be seen. If they are not, providers sharing Part D risk will bear the shortfall. Notably, insurers did not have the same ability to mitigate their Part D liability for MA plans offered to employer groups (EGWPs), as those plans’ pharmacy rates are negotiated directly with employers rather than through bids to CMS. This leaves providers with EGWP Part D risk uniquely exposed.
Change #2: Risk-adjustment methodology modified and maximum fair price set
CMS has modified the Part D risk-adjustment methodology, created distinct normalization factors for MAPD vs. standalone Part D plans, and set a maximum fair price for select drugs.3 For non-low-income MAPD members, these changes are expected to reduce Part D risk scores by approximately 12-14%.4
Additionally, new polypharmacy and concurrent opioid use measures will impact plans’ overall Star ratings beginning in 2027.
What this means: These changes are expected to translate to higher Medical Loss Ratios (MLRs) in the short term, as the Part D basic premium and direct subsidy increase while greater weight is placed on Part D risk adjustment.5 With Part D now comprising a larger percentage of total MAPD plan revenue and expenses, its influence on overall financial performance for both plans and risk-bearing providers will grow. Even providers not directly at risk for Part D could feel the impact as insurers reallocate Part C rebate revenue to offset rising pharmacy costs, diluting the funding available for Part C non-pharmacy expenses. These changes compound the already-limited ability of providers to manage major drivers of pharmacy expense, including changes to the plan’s formulary, utilization management protocols, and drug discounts and manufacturer rebates.
Part D risk considerations, alternatives, and mitigation strategies
Provider organizations considering taking on Part D financial risk must evaluate that risk in light of their patient population, contract terms, and ability to influence pharmacy spend. These factors, along with viable alternatives and contractual safeguards, can help providers manage exposure while still aligning with plan partners.
Special considerations
Provider organizations should weigh the following factors before assuming Part D risk:
- Higher catastrophic-phase costs: MAPD plans now bear 60% liability for this high-cost phase, where brand and specialty medications are commonly filled.
- Rebate-driven formulary design: Plans may prefer some high-cost drugs with favorable rebates or discounts over generics, limiting the effectiveness of a generics-first strategy.
- Lack of federal risk corridor protection: Plan risk for Part D expenses is limited through CMS risk corridors; however, providers do not have these same protections and may risk subsidizing Part D costs in excess of corridor limits.
- Cohort cost variability: Pharmacy costs can differ substantially by patient group, making plan-wide experience misleading for smaller attributed populations.
Alternatives to full Part D risk
MAPD plans are facing pressure from Star Ratings and Part D risk scores, creating an incentive to shift more risk to providers. However, a wholesale offloading of Part D risk to providers is not the only way to give them skin in the game. These contractual alternatives can balance accountability with manageable exposure:
- Include an upside-only shared savings opportunity driven by Part D performance.
- Create stand-alone financial incentives tied to Part D risk adjustment factors and RxHCC capture and accuracy.
- Implement a provider and payer joint committee to manage utilization and adherence to the plan’s formulary, quantity limits, and prior authorization requirements.
Strategies to mitigate Part D risk exposure
Provider organizations can mitigate excessive exposure to Part D losses by proactively deploying strategies that limit risk and strengthen pharmacy performance.
- Confirm membership scale. Before accepting Part D risk, providers should confirm they have a sufficiently large and representative share of attributed membership. Smaller cohorts are more volatile; CMS deems a Part D population “credible” at 4,667 members.
- Secure safeguard of CMS risk corridors. Contracts should explicitly ensure providers benefit from federal risk corridor protections available to MAPD plans. Without this safeguard, providers may unintentionally subsidize a plan’s excess losses.
- Separate Part C and Part D reconciliations. Revenue and expenses for each Part should be tracked independently, ideally through separate pools with distinct financial targets. This prevents losses from blended MLRs that underfund pharmacy costs.
- Create a process to address unanticipated adverse experience. As the IRA has shown, regulatory action and other external factors can upend the economic expectations of both plans and providers. Thus, risk contracts should outline a process to address future adverse changes, including visibility into the plan’s expected year-over-year financial outlook and the opportunity to re-evaluate funding targets as needed.
- Cap the share of Part D risk. Capping provider exposure at or below 50% maintains an incentive to perform: providers still have reason to manage pharmacy utilization, while plans remain responsible for pricing their Part D benefits appropriately.
- Include downside protections. Safeguards such as deficit caps, per-member expenditure limits, or defined risk corridors help reduce volatility and ensure Part D exposure remains within manageable bounds.
Why the 4,667-member benchmark matters
CMS considers a Part D population “credible” for risk adjustment purposes at 4,667 members. Below this size, pharmacy cost experience can swing widely due to a small number of high-cost claims, increasing volatility and making risk-based contracting far more unpredictable.6
Preparing now for a high-stakes 2025 and beyond
The IRA has reshaped the Part D landscape. For providers sharing in pharmacy risk, it’s a structural shift that could meaningfully alter margins and strategic decision-making.
The right path forward is not necessarily to avoid Part D risk altogether, but to approach it with clear-eyed strategy and strong execution. By negotiating contractual protections, stress-testing pharmacy financial models, aligning incentives with plan partners, and ensuring operational readiness, risk-bearing providers can turn structural change into an opportunity for alignment and sustainable performance.
Sources
1 Kramer, Emma et al., Taking on Medicare Part D Risk: Provider Perspective, Milliman White Paper (2019. https://www.milliman.com/en/insight/taking-on-medicare-part-d-risk-provider-perspective.
2 Cubanski, Juliette et al., Changes to Medicare Part D in 2024 and 2025 Under the Inflation Reduction Act and How Enrollees Will Benefit, Kaiser Family Foundation. April 20, 2023. https://www.kff.org/medicare/issue-brief/changes-to-medicare-part-d-in-2024-and-2025-under-the-inflation-reduction-act-and-how-enrollees-will-benefit/.
3 CMS.gov, Fact Sheet: 2026 Medicare Advantage and Part D Rate Announcement. April 7, 2025. https://www.cms.gov/newsroom/fact-sheets/2026-medicare-advantage-and-part-d-rate-announcement.
4 Petroske, Jason et al., Adjusting the Script: Unpacking the Proposed 2026 Medicare Part D Risk Adjustment Model Changes, Milliman White Paper. March 10, 2025.. https://www.milliman.com/en/insight/adjusting-the-script-2026-medicare-part-d-risk-adjustment.
5 Pierce, Kevin et al., Emerging Medicare Advantage and Part D Trends from 2024 Financial Statements, Milliman White Paper. May 12, 2025. https://www.milliman.com/en/insight/emerging-medicare-advantage-part-d-2024-financial.
6 Conway, Brooks et al., Accepting Medicare Part D Risk: Seven Questions to Ask as a Provider, OliverWyman. 2022. https://www.oliverwyman.com/our-expertise/insights/2022/jun/accepting-medicare-part-d-risk.html.