From modeling the first two negotiation cycles’ impact on Part D bid pricing, the addition of Part B drugs introduces coinsurance and supplemental coverage variables that prior cycles never had to address. Part D negotiations operated within a well-understood benefit design: deductible, initial coverage, coverage gap, and catastrophic phases, each with defined cost-sharing percentages and a $2,000 out-of-pocket maximum starting in 2025. Part B drugs operate under an entirely different financial architecture: 80/20 coinsurance with no annual out-of-pocket cap in Original Medicare, provider reimbursement tied to Average Sales Price (ASP) plus a 6% add-on, and supplemental coverage (Medigap or Medicare Advantage) absorbing the beneficiary’s 20% share. The actuarial implications run through every layer of the Medicare financing stack.
On January 27, 2026, CMS published the 15 drugs selected for Initial Price Applicability Year (IPAY) 2028, marking the third negotiation cycle under the Inflation Reduction Act’s Medicare Drug Price Negotiation Program. Negotiations with manufacturers will occur throughout 2026, with Maximum Fair Prices (MFPs) taking effect January 1, 2028. CMS also selected Tradjenta for the program’s first renegotiation, triggered by a change in the drug’s monopoly status (CMS).
The 15 Selected Drugs: Therapeutic Mix and Spending Concentration
The IPAY 2028 selection spans 15 drugs covering approximately $27 billion in total Medicare Part B and Part D spending, roughly 6% of combined Part B and Part D expenditures. Approximately 1.8 million Medicare beneficiaries used these drugs between November 2024 and October 2025 (CMS). The selection breaks down as follows:
| Drug (Brand) | Therapeutic Category | Primary Benefit | Medicare Spending ($ millions) |
|---|---|---|---|
| Trulicity (dulaglutide) | GLP-1 receptor agonist | Part D | $4,898 |
| Biktarvy (bictegravir/emtricitabine/TAF) | Antiretroviral | Part D | $3,904 |
| Orencia (abatacept) | Immunosuppressant | Part B | $2,450 |
| Cosentyx (secukinumab) | Immunomodulator | Part D | $2,327 |
| Erleada (apalutamide) | Oncology | Part D | $1,948 |
| Verzenio (abemaciclib) | CDK4/6 inhibitor (oncology) | Part D | $1,876 |
| Kisqali (ribociclib) | CDK4/6 inhibitor (oncology) | Part D | $1,744 |
| Xolair (omalizumab) | Anti-IgE monoclonal antibody | Part B | $1,692 |
| Rexulti (brexpiprazole) | Atypical antipsychotic | Part D | $1,580 |
| Entyvio (vedolizumab) | Immunosuppressant | Part B | $1,428 |
| Xeljanz/Xeljanz XR (tofacitinib) | JAK inhibitor | Part D | $1,174 |
| Lenvima (lenvatinib) | Oncology (kinase inhibitor) | Part D | $1,098 |
| Botox/Botox Cosmetic (onabotulinumtoxinA) | Neuromuscular | Part B | $978 |
| Cimzia (certolizumab pegol) | Immunosuppressant | Part B | $862 |
| Anoro Ellipta (umeclidinium/vilanterol) | COPD bronchodilator | Part D | $804 |
Several patterns stand out. First, immunosuppressants and immunomodulators dominate the list with six drugs, the most represented therapeutic category in any IPAY cycle. Within this group, Orencia, Cimzia, Cosentyx, and Xeljanz compete within overlapping autoimmune indications (rheumatoid arthritis, psoriatic arthritis, ankylosing spondylitis), creating an unprecedented scenario where four direct therapeutic competitors face simultaneous negotiation (Milliman). Second, CDK4/6 inhibitors Verzenio and Kisqali join Ibrance (selected in IPAY 2027), meaning all three major breast cancer CDK4/6 options will have negotiated prices by 2028. Third, the cost-per-patient trajectory is accelerating: 67% of IPAY 2028 drugs exceed $10,000 in annual per-patient cost, up from 53% in IPAY 2027 and 30% in IPAY 2026 (Milliman).
Part B Enters the Negotiation Framework: A Structural Shift
The five Part B drugs selected for IPAY 2028, representing Orencia, Entyvio, Xolair, Botox, and Cimzia, collectively account for approximately $7.4 billion in Medicare spending. This is a smaller share than the $19.6 billion from the ten Part D selections, but the actuarial complexity per dollar is substantially higher.
Part D drugs flow through a defined benefit structure. Beneficiaries pay a deductible ($590 in 2026), then 25% coinsurance in the initial coverage phase, followed by the $2,000 out-of-pocket maximum that caps annual exposure. Plan sponsors, manufacturers (through the Manufacturer Discount Program), and the federal reinsurance layer absorb costs above that threshold. Every stakeholder’s share is quantified by formula.
Part B drugs operate under a fundamentally different architecture. Medicare pays 80% of the Medicare-approved amount after the beneficiary meets a $257 annual deductible (2026). The beneficiary owes the remaining 20% coinsurance with no annual out-of-pocket cap in Original Medicare. For a Part B drug costing $50,000 annually, that 20% coinsurance translates to $10,000 in beneficiary liability, an amount that would be capped at $2,000 under Part D.
This structural gap drives three actuarial dynamics that did not exist in prior negotiation cycles:
1. Medigap Coinsurance Absorption
Approximately 12 million Medicare beneficiaries carry Medigap supplemental policies. Plans C, D, F, G, and N cover varying portions of Part B coinsurance. Medigap Plan G, the most popular plan since Plan F closed to new enrollees in 2020, covers 100% of Part B coinsurance after the deductible. When MFPs reduce the allowed amount for a Part B drug, the absolute dollar value of the 20% coinsurance falls proportionally. Medigap actuaries pricing Plan G must model the pass-through savings from negotiated Part B drug prices alongside the loss of premium adequacy if rates were set assuming pre-MFP cost levels.
Milliman’s analysis illustrates the magnitude of the shift with a theoretical scenario: a drug currently reimbursed at $1,000 ASP plus the 6% add-on payment ($1,060 total) that receives an MFP of $400. Post-negotiation, Medicare pays 80% of $424 ($339), and the beneficiary (or Medigap plan) owes 20% ($85). The Medigap plan’s per-claim liability drops from $212 to $85, a 60% reduction. Across a block of Medigap Plan G policyholders using the five Part B negotiated drugs, the aggregate coinsurance savings could be material for 2028 and 2029 rate filings.
2. Medicare Advantage Encounter Data and Bid Pricing
CMS confirmed that both fee-for-service claims and Medicare Advantage encounter data will be used to identify eligible Part B drugs for negotiation. This is significant because more than half of Medicare beneficiaries are enrolled in MA plans, and MA plans bundle Part B drug costs into their overall bid pricing rather than reimbursing on a per-claim fee-for-service basis.
Milliman flagged that Botox, which has the highest proportion of MA expenditures among the IPAY 2028 drugs, likely would not have been selected without the inclusion of MA data. For MA plan actuaries, the MFP introduction creates a repricing event within the Part B component of their bids. The bidding framework requires MA plans to estimate what it would cost to provide the Medicare-covered benefit. If Part B drug costs decline because of MFPs, the bid should reflect those lower costs, reducing the difference between the bid and the benchmark that funds supplemental benefits. The net effect depends on whether MFP savings flow primarily to the federal government (through lower benchmarks in future years) or to beneficiaries (through lower cost-sharing or richer supplemental benefits).
3. Provider Reimbursement Compression
Part B drugs are reimbursed at ASP plus 6% (effectively 4.3% after the 2% sequestration reduction). The 6% add-on is designed to cover overhead costs for acquiring, storing, and administering these drugs, many of which are physician-administered infusions requiring clinical supervision, cold-chain storage, and specialized mixing. When the MFP replaces ASP as the payment basis, the dollar value of the percentage add-on compresses proportionally.
Milliman modeled a scenario where a drug’s payment drops from $1,060 (ASP of $1,000 plus 6%) to $424 (MFP of $400 plus 6%), a $636 per-claim reduction. The provider’s add-on payment falls from $60 to $24. Avalere estimates add-on payments could decrease by over $25 billion across the first ten negotiated Part B drugs, with oncology and immunology practices most exposed. This reimbursement compression raises the question of whether providers will shift site of care from hospital outpatient departments (where facility fees partially offset the add-on reduction) to lower-cost physician office or home infusion settings, or conversely, whether independent practices unable to absorb the margin loss will consolidate into hospital systems.
The Orphan Drug Exclusion: How H.R. 1 Reshapes Future Cycles
The One Big Beautiful Bill Act (OBBBA, H.R. 1), signed in July 2025, expanded the orphan drug exclusion in ways that materially altered the IPAY 2028 selection and will shape every future cycle. Understanding the mechanics is essential for actuaries modeling the program’s long-term fiscal trajectory.
Under the original IRA framework, a drug was exempt from negotiation if it had been approved by the FDA exclusively for one rare disease or condition (the “sole orphan” test). This exemption was relatively narrow. Many blockbuster drugs that hold orphan designations also carry non-orphan indications, making them eligible for negotiation.
H.R. 1 broadened the exclusion in two ways. First, it expanded the “pure orphan” exemption to cover drugs with multiple orphan designations, as long as all FDA-approved indications are for orphan conditions. A drug with five separate orphan approvals but no non-orphan approval is now permanently exempt. Second, for drugs that carry both orphan and non-orphan indications, H.R. 1 resets the negotiation eligibility clock. The countdown to selection now starts from the date of the first non-orphan approval rather than from the initial FDA approval. This delay can be substantial for drugs that received orphan approval years before their first non-orphan indication (Health Affairs Forefront).
The practical impact on IPAY 2028 is measurable. Without the H.R. 1 changes, Milliman estimates the eligible spending pool would have been approximately $39 billion rather than $27 billion, a 44% difference. Three of the highest-spending biologics were directly affected:
| Drug | Approximate Annual U.S. Sales | H.R. 1 Impact |
|---|---|---|
| Keytruda (pembrolizumab) | ~$17 billion | Eligibility delayed 12 months to February 2027 (orphan clock reset) |
| Opdivo (nivolumab) | ~$5 billion | Eligibility delayed 12 months to February 2027 (orphan clock reset) |
| Darzalex (daratumumab) | ~$6 billion | Permanently exempt (all approved indications are orphan) |
The Congressional Budget Office scored the expanded orphan drug exclusion at $8.8 billion in additional Medicare costs over ten years, an estimate CBO later revised upward by 80% from its original $4.9 billion projection as analysts identified additional drugs likely to qualify for the expanded exemption (KFF). For actuaries modeling the IRA negotiation program’s fiscal trajectory, the orphan drug exclusion introduces a moving target: manufacturers have a financial incentive to pursue additional orphan designations for existing drugs, potentially shielding more products from future negotiation cycles.
Four Immunosuppressants in a Single Cycle: Unprecedented Therapeutic Competition
From tracking prior IPAY lists, this is the first time CMS has selected four direct therapeutic competitors within a single negotiation cycle. Orencia, Cimzia, Cosentyx, and Xeljanz all treat overlapping autoimmune conditions, with rheumatoid arthritis as a shared indication. The American Action Forum characterized immunosuppressants/immunomodulators as the most represented therapeutic category, accounting for six of the 15 selected drugs (AAF).
The actuarial significance lies in how therapeutic competition interacts with the MFP negotiation framework. The IRA requires CMS to consider “therapeutic alternatives” as a factor in setting MFPs. When four competing drugs are negotiated simultaneously, CMS can use each drug’s price as leverage against the others, potentially driving deeper discounts than would emerge if each were negotiated in isolation across separate cycles. For manufacturers, the game theory is unfavorable: the first to concede a lower MFP sets a reference point that pressures the remaining competitors.
For health plan actuaries, the simultaneous negotiation of four autoimmune therapies creates a formulary management opportunity. Currently, several of these drugs have limited Part D formulary coverage. Milliman noted that no standalone Part D plans cover Orencia or Cimzia, and Entyvio is covered for only 3% of PDP lives. If MFPs make these drugs substantially cheaper, plan sponsors may expand formulary access, shifting utilization patterns that health actuaries must incorporate into 2028 and 2029 trend assumptions.
Part D Out-of-Pocket Cap Mutes Some Beneficiary Savings
A counterintuitive dynamic emerged from the first two negotiation cycles that carries directly into IPAY 2028: for the highest-cost Part D drugs, negotiated prices may have a muted impact on beneficiary out-of-pocket costs because the $2,000 annual maximum (effective in 2025 under the IRA Part D redesign) already caps exposure regardless of the drug’s list price.
Consider a Medicare beneficiary taking Biktarvy, an antiretroviral with annual costs exceeding $40,000. Under the redesigned Part D benefit, that beneficiary reaches the $2,000 out-of-pocket maximum early in the benefit year regardless of whether Biktarvy’s price is negotiated down by 20% or 50%. The savings from MFPs flow primarily to plan sponsors (through lower plan liability in the initial coverage and catastrophic phases) and to the federal government (through reduced reinsurance payments), not to the beneficiary.
The American Action Forum estimated potential annual savings from the IPAY 2028 cycle at $5.9 billion to $11.9 billion, depending on the discount percentage achieved. Using historical benchmarks, the IPAY 2026 cycle achieved roughly 22% net savings, while IPAY 2027 achieved approximately 36%. If IPAY 2028 follows the escalating trend, mid-scenario savings of $9.7 billion (36% discount) are plausible (AAF).
Part B drugs, however, lack this out-of-pocket ceiling. Every dollar reduction in the MFP for a Part B drug directly reduces the beneficiary’s 20% coinsurance liability (or the Medigap plan’s). This asymmetry means the five Part B selections, while representing a smaller spending pool than the ten Part D drugs, may deliver proportionally larger per-beneficiary savings for enrollees in Original Medicare without supplemental coverage.
Oncology Infusion Economics and Site-of-Care Implications
Four oncology drugs made the IPAY 2028 list: Erleada, Verzenio, Kisqali, and Lenvima. While these are primarily Part D oral therapies, the precedent set by Part B drug negotiation extends to physician-administered oncology infusions in future cycles. Keytruda and Opdivo, both PD-1 checkpoint inhibitors administered intravenously in oncology settings, had their negotiation eligibility delayed by H.R. 1 but remain on track for IPAY 2029.
The provider reimbursement compression described above is especially acute in oncology. Hospital outpatient departments (HOPDs) and physician offices are the primary sites for infusion services, and the ASP-plus-6% payment model is a significant revenue source for oncology practices. Avalere’s analysis projected that oncologists could face more than $12 billion in cumulative reimbursement losses through 2032 from Part B negotiation across all eligible oncology drugs.
For health plan actuaries modeling network adequacy and site-of-care steering, the reimbursement compression creates competing dynamics. If independent oncology practices lose margin on negotiated Part B drugs, consolidation into hospital systems could accelerate, potentially increasing facility fees that offset some of the per-drug savings. Alternatively, MA plans with narrow networks could direct patients to lower-cost infusion sites (including home infusion for certain biologics), capturing the full MFP savings without the HOPD markup. The net actuarial effect depends on how quickly site-of-care mix responds to the changed reimbursement landscape.
Dual-Eligible Dynamics and Manufacturer Best Price Cascading
Milliman’s analysis highlighted a frequently overlooked interaction between Part B MFPs and the Medicaid Drug Rebate Program (MDRP). When an MFP is set below the current ASP for a Part B drug, it may establish a new “best price” for Medicaid rebate calculations. Under the MDRP, manufacturers owe Medicaid a rebate based on the difference between Average Manufacturer Price (AMP) and best price. If the MFP becomes the new best price floor, Medicaid rebates increase proportionally for dual-eligible beneficiaries who receive Part B drugs.
This cascading effect means manufacturers face compounding margin pressure: lower Medicare Part B revenue from the MFP itself, plus higher Medicaid rebate obligations triggered by the new best price. For the four immunosuppressants where therapeutic competition may drive especially aggressive MFPs, the dual-eligible rebate cascade could reduce manufacturer net revenue by more than the MFP discount alone suggests. Health plan actuaries modeling dual-eligible special needs plans (D-SNPs) should account for the downstream formulary and utilization effects as manufacturers potentially adjust rebate negotiations across their entire portfolio in response.
The Program’s Expanding Scale: Cycle-Over-Cycle Trajectory
Stepping back from the drug-level details, the program’s growth trajectory signals a structural shift in Medicare drug pricing that actuaries cannot treat as incremental.
| Cycle | IPAY | Drugs Selected | Benefits Covered | Total Spending | Estimated Net Savings |
|---|---|---|---|---|---|
| First | 2026 | 10 | Part D only | ~$50B | ~$6B (22% discount) |
| Second | 2027 | 15 | Part D only | ~$46B | ~$8.5B (36% discount) |
| Third | 2028 | 15 + 1 renegotiation | Part D + Part B | ~$27B | $5.9B-$11.9B (projected) |
| Fourth+ | 2029+ | 20 per year | Part D + Part B | TBD | TBD |
Starting with IPAY 2029, CMS will select 20 drugs per year, up from 15. The addition of Part B drugs expands the eligible pool to include high-cost oncology infusions, ophthalmology injectables, and other physician-administered therapies that collectively represent tens of billions in annual Medicare spending. CBO’s ten-year estimate of $98.5 billion in program-wide savings may prove conservative if negotiated discounts continue to escalate as they have across the first three cycles.
Practical Implications for Actuarial Work Streams
Medigap pricing actuaries should begin modeling Part B drug cost reductions into 2028 rate filings now, even before MFPs are published. The five selected Part B drugs have identifiable claim volumes in Medigap experience data, and scenario analysis around MFP discount ranges (20% to 50% based on prior cycle outcomes) can bracket the coinsurance savings. ASOP No. 8 (Regulatory Filings for Health Benefits, Accident and Health Insurance, and Entities Providing Health Benefits) requires actuaries to reflect anticipated changes in benefit costs.
Medicare Advantage bid actuaries face a repricing event for the Part B component of their 2028 bids. The June 2027 bid submission will need to reflect MFP-adjusted costs for the five Part B drugs, the ten Part D drugs (incorporated through the Part D bid), and the renegotiated Tradjenta price. CMS’s decision to include MA encounter data in drug selection adds a feedback loop: higher MA utilization of a Part B drug increases its likelihood of selection, which then reduces its cost in future MA bids.
Part D plan actuaries will incorporate IPAY 2028 MFPs into their CY 2028 bid calculations, layering on top of the ten IPAY 2026 and 15 IPAY 2027 drugs already at negotiated prices. The cumulative effect of 40 negotiated drugs (plus renegotiations) on plan-level drug trend, manufacturer rebate expectations, and catastrophic phase liability requires a systematic repricing rather than incremental adjustments to existing trend factors.
Consulting actuaries advising pharmaceutical manufacturers should model the orphan drug exclusion’s strategic implications. Manufacturers with drugs approaching negotiation eligibility have a quantifiable incentive to pursue additional orphan designations. The $8.8 billion CBO score of the expanded exclusion represents the expected value of strategic orphan filings across the industry. Individual manufacturer decisions about whether to invest in orphan indication trials may hinge on the actuarial comparison between the R&D cost and the MFP revenue reduction avoided.
Why This Matters
The IRA’s third negotiation cycle is not simply a larger version of the first two. The addition of Part B drugs fundamentally changes the actuarial modeling required across Medigap, Medicare Advantage, and provider reimbursement. The coinsurance savings for Medigap plans, the bid repricing for MA plans, the add-on payment compression for providers, and the dual-eligible rebate cascade create interconnected effects that cannot be modeled in isolation.
The orphan drug exclusion introduces a policy variable that will reshape the eligible drug pool for every future cycle. Keytruda alone represents $17 billion in annual sales; its delayed entry into negotiation (now projected for IPAY 2029) means actuaries modeling the program’s fiscal trajectory must track orphan designation filings alongside traditional drug pipeline data. The pattern of escalating cost-per-patient thresholds (30% to 53% to 67% of drugs exceeding $10,000) signals that CMS is systematically working through the highest-cost tier of the Medicare drug formulary.
For health plan actuaries, the actionable takeaway is straightforward: the 2028 negotiation cycle requires explicit modeling, not trend factor adjustments. Part B coinsurance, MA encounter data feedback, provider reimbursement compression, and orphan drug eligibility shifts each introduce variables that must be quantified independently and then layered into an integrated view of Medicare drug spending.
Further Reading
- CMS 2027 Medicare Advantage Rate Reversal: What 2.48% Means for Plan Actuaries - The MA payment rate environment that interacts with Part B drug cost repricing in 2028 MA-PD bid construction.
- CMS Star Ratings Shift to 65% Clinical Weight in 2027 - How the Star Ratings overhaul compounds bid uncertainty alongside drug negotiation impacts for MA plans near quality bonus thresholds.
- Medicare Part D Plan Bids Exceed CBO Forecasts by $500 Billion - The Part D spending gap that negotiated prices are designed to address, with context on how IPAY 2028 MFPs interact with the structural bid overshoot.
- GLP-1 Trend Factors Are Reshaping Employer Health Plan Pricing - Trulicity, the highest-spending IPAY 2028 selection, sits at the center of the GLP-1 pricing challenge across both Medicare and commercial markets.
- Medicare Advantage Plan Exits Force 3 Million to Switch in 2026 - MA plan exit dynamics that compound with drug negotiation repricing to reshape the competitive landscape for 2028 bid submissions.
Sources
- CMS: Announces Selection of Drugs for Third Cycle of Medicare Drug Price Negotiation Program, Including First-Ever Part B Drugs - The 15 selected drugs, $27 billion spending figure, 1.8 million beneficiaries, and Tradjenta renegotiation.
- Milliman: 4 Key Takeaways from the Third Round of Drugs Selected for Medicare Drug Price Negotiation - Cost-per-patient thresholds (67% above $10,000), immunosuppressant therapeutic competition, and manufacturer participation dynamics.
- Milliman: Medicare Drug Price Negotiation: New Dynamics as the Tide Turns to Part B - ASP add-on compression modeling, $39 billion counterfactual spending pool, MA encounter data inclusion, Medicaid best price cascade, and formulary coverage gaps.
- Health Affairs Forefront: Analyzing the Drugs Selected for the 2028 Medicare Drug Price Negotiation Cycle - Therapeutic category analysis, protected class dynamics, and policy context.
- American Action Forum: CMS’ Third IRA Negotiation List: Selections, Signals, and Potential Savings - Savings scenarios ($5.9B to $11.9B), implementation timeline, and therapeutic category breakdown.
- KFF: Key Facts About Medicare Drug Price Negotiation - Program-wide context, CBO $98.5 billion ten-year savings estimate, and orphan drug exclusion CBO scoring ($8.8 billion).
- Health Affairs Forefront: Blockbusters and Loopholes: Expanding Exemptions in Medicare Drug Price Negotiations - H.R. 1 orphan drug exclusion mechanics, Keytruda/Opdivo/Darzalex eligibility delays, and manufacturer strategic incentives.
- CMS: IPAY 2028 Final Guidance Fact Sheet - Negotiation timeline, manufacturer participation requirements, and MFP publication schedule.
- Brookings Institution: Analyzing the Expansion of the Medicare Drug Price Negotiation Program to Part B - Operational challenges, data requirements, and supply chain implications of Part B inclusion.
- Avalere: CMS Announces the Third Round of Medicare Drug Price Negotiation - Provider reimbursement impact estimates, $25 billion add-on payment reduction, and oncology practice exposure analysis.