Medicare Part D
Medicare Part D is the outpatient prescription drug benefit, delivered through private plans that contract with CMS, either as stand-alone drug plans or bundled inside Medicare Advantage. Beneficiaries pay premiums and cost sharing set by their plan. Starting in 2025 a hard annual out-of-pocket cap replaced the old coverage-gap "donut hole."
- Coverage type
- Outpatient prescription drugs
- Delivered by
- Private plans (PDP or bundled in MA)
- Out-of-pocket cap
- Annual cap since 2025 (verify current figure)
- Coverage rules
- Plan formulary tiers and utilization management
What does Medicare Part D cover?
Part D is the outpatient prescription drug benefit. Unlike Part A and Part B, there is no government-run Part D; coverage comes entirely through private plans that contract with CMS. A beneficiary either adds a stand-alone prescription drug plan (PDP) to Original Medicare or gets drug coverage bundled inside a Medicare Advantage plan.
Each plan publishes a formulary that sorts covered drugs into tiers with different copays and applies utilization management such as prior authorization, step therapy, and quantity limits.
How is Part D cost sharing structured?
The benefit historically moved through phases: deductible, initial coverage, the coverage gap ("donut hole"), and catastrophic coverage. The Inflation Reduction Act reshaped this. Beginning in 2025, Part D has a hard annual out-of-pocket maximum; once the beneficiary hits it, the plan covers covered drugs at 100 percent for the rest of the year.
Why does the Part B vs Part D distinction matter?
Example: a patient's biologic infusion administered in the clinic bills under Part B; the same patient's self-injected pen from the pharmacy bills under Part D. If a billing team sends a Part B office-administered drug to a Part D plan, it denies, and the reverse wastes days chasing the wrong payer.
- Office-administered and infused drugs generally fall under Part B.
- Self-administered pharmacy prescriptions generally fall under Part D.
- Confirm the plan's formulary and any prior authorization before dispensing high-cost drugs.
Frequently asked questions
The donut hole was a coverage-gap phase where beneficiaries paid a larger share of drug costs after initial coverage but before catastrophic coverage. The Inflation Reduction Act phased it out; beginning in 2025 Part D has a hard annual out-of-pocket maximum, after which the plan covers 100 percent of covered drugs for the rest of the year.
It depends on how the drug is administered. Drugs given in a physician office or infused, like chemotherapy, are usually Part B. Self-administered outpatient prescriptions filled at a pharmacy are usually Part D. The same molecule can fall under either depending on setting, which drives frequent billing errors.
No. Part D is optional and delivered through private plans, either a stand-alone prescription drug plan added to Original Medicare or bundled inside a Medicare Advantage plan. Beneficiaries who go without creditable drug coverage and enroll later face a lifelong late-enrollment penalty added to their premium.
Sources & further reading
Reviewed by the ImmediCare Solutions RCM team
Certified billers and coders handling claims across 50+ specialties nationwide. This entry is reviewed against current payer policy and CMS rules. Last review: Jul 5, 2026.
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