The Medicare Coverage Gap Discount Program required drug manufacturers to give Medicare Part D beneficiaries discounts on brand-name prescription drugs when their spending fell into the “coverage gap,” sometimes called the donut hole. Established by law in 2011, the program ran through December 31, 2024, and has since been replaced by a new structure called the Manufacturer Discount Program as part of broader Part D changes under the Inflation Reduction Act.
How the Coverage Gap Worked
Medicare Part D drug coverage moved through four phases in 2024: the deductible, initial coverage, the coverage gap, and catastrophic coverage. Once your total drug costs for the year hit the initial coverage limit, you entered the coverage gap. In this phase, you were responsible for a larger share of your drug costs than during the initial coverage period.
The Coverage Gap Discount Program softened that blow for brand-name drugs. Manufacturers were required to provide a discount on their brand-name medications at the pharmacy counter, automatically reducing what you paid. You didn’t need to apply, file a claim, or do anything extra. The discount showed up at the point of sale when your pharmacist processed the prescription. For paper claims or out-of-network purchases, your Part D plan handled the reimbursement on your behalf.
Who Qualified and Who Didn’t
If you had a standard Medicare Part D plan and your spending put you in the coverage gap, the discount applied automatically to eligible brand-name drugs. There was no separate enrollment. However, beneficiaries receiving “Extra Help” (the Low Income Subsidy program) already had their coverage gap costs covered through that program, so the manufacturer discount worked differently for them.
On the manufacturer side, participation wasn’t optional if a company wanted its drugs covered by Part D. Pharmaceutical companies had to sign a formal agreement with CMS, committing to reimburse Part D plans for every discount provided on their behalf. They were required to pay each Part D plan sponsor within 38 calendar days of receiving an invoice, and to maintain detailed records of all transactions for at least 10 years.
Brand-Name vs. Generic Drugs
The discount program applied specifically to brand-name drugs. Generic medications had a different cost-sharing structure in the coverage gap, typically with a set coinsurance percentage paid by the beneficiary but no manufacturer discount. This created an interesting quirk: in some cases, a brand-name drug with the manufacturer discount applied could actually cost a patient less out of pocket than a generic alternative, giving both patients and plans a financial reason to choose the brand-name version even when a generic existed.
Why the Manufacturer Discount Mattered for TrOOP
One of the most important features of the old program was how it affected your path through the coverage gap. Medicare tracks something called True Out-of-Pocket costs (TrOOP), which is the running total that determines when you move from the coverage gap into catastrophic coverage, where your costs drop significantly. Under the Coverage Gap Discount Program, the manufacturer’s discount counted toward your TrOOP total. That meant each discounted purchase pushed you closer to the catastrophic threshold faster than your actual out-of-pocket spending alone would have. In 2024, that catastrophic threshold was $8,000 in TrOOP costs.
What Changed in 2025
The Inflation Reduction Act of 2022 overhauled Part D’s benefit structure, and the Coverage Gap Discount Program ended on December 31, 2024. In its place, CMS launched the Manufacturer Discount Program, which operates under different rules. The most significant change for beneficiaries is simpler: starting in 2025, annual out-of-pocket spending on Part D drugs is capped at $2,000, regardless of which phase of coverage you’re in. That’s a dramatic drop from the previous $8,000 catastrophic threshold.
Under the new Manufacturer Discount Program, drug companies still must sign agreements with CMS for their products to be covered by Part D plans. Discounts are still applied at the point of sale, following the same process that was already in place. But the structure of who pays what, and at which phase of coverage, has shifted. Notably, manufacturer discounts under the new program do not count toward TrOOP, which changes the math for how quickly beneficiaries reach the spending cap.
For most people on Medicare Part D, the practical effect of these changes is lower maximum spending. If you previously hit the coverage gap and faced steep costs on brand-name medications, the $2,000 annual cap now limits your total exposure. The manufacturer discounts still happen behind the scenes, but the cap means you’re protected from high costs whether or not you understand the exact mechanics of which phase you’re in.
How the New Program Affects Your Costs
The shift has trade-offs beyond individual out-of-pocket spending. According to analysis from the Kaiser Family Foundation, the $2,000 cap means lower costs for enrollees who take expensive medications, but higher overall costs for Part D plans. To manage this, CMS created a premium stabilization demonstration designed to prevent large premium spikes as plans absorb more of the financial burden. Some enrollees may see modest premium increases as a result, though the out-of-pocket savings for people with high drug costs are expected to far outweigh any premium changes.
If you’re currently enrolled in a Part D plan, you don’t need to take any action related to the transition from the old discount program to the new one. The changes apply automatically to all Part D plans. Your explanation of benefits statements will reflect the new cost-sharing structure, and your pharmacy will process claims under the updated rules without any extra steps on your part.