What is the Medicare Part D Lower Cash Price Policy?

The Lower Cash Price Policy is an older rule that allowed Medicare beneficiaries who were in their Medicare drug plan's Initial Deductible Phase (where they are 100% responsible for their drug costs) to purchase discounted formulary medications from network pharmacies without using their Medicare Part D plan, submit their receipts to their Part D plan, and receive credit for their purchases toward meeting their out-of-pocket spending limit (TrOOP threshold or, starting in 2024, the RxMOOP).

Update: The "Lower Cash Price" policy has been incorporated into the Medicare Prescription Drug Benefit Manual, Chapter 14 and is now somewhat limited in effect. You can read more in our Frequently Asked Questions on this site

Update 2: Gag Orders - When you fill a prescription, you may need to specifically ask the pharmacist about the pharmacy's lower cash price for the formulary drug. Without asking, a pharmacist may be subject to "gag orders" and not obligated to tell you that their pharmacy offers a lower cash price as compared to your Medicare Part D plan's retail drug price. The Centers for Medicare and Medicaid Services (CMS) noted:

"Gag clauses are contracting terms and conditions that prevent pharmacies from telling customers about the availability of lower cash prices. Specifically, they prevent pharmacies from sharing with customers that their copay is more than the total cost of the drug and that they could pay less out-of-pocket by not using insurance."

As background...

The Lower Cash Price Policy was released in 2006 by the Centers for Medicaid Services (CMS) anticipating that some Medicare Part D beneficiaries would find lower-costing Medicare Part D drugs using pharmacy drug discount cards or other discount program during their Initial Deductible or Coverage Gap (Donut Hole) - update: The Coverage Gap was eliminated in 2025).

The Lower Cash Price policy established that Medicare beneficiaries could purchase medications at a lower pharmacy price without using their Medicare Part D prescription drug coverage (since their drug plan has a higher negotiated retail prices during a time when the beneficiary paid 100% of the cost). Then Medicare Part D plan members could submit their receipts for the non-Part D purchases, and if the medications were found on their plan's formulary, they would receive credit for the purchase toward their total out-of-pocket drug spending or TrOOP. Question: How is the Lower Cash Policy applied to your Medicare Part D prescription drug coverage?

If your Medicare Part D plan has both an Initial Deductible, then your plan will probably include something similar to the following information in your Evidence of Coverage document:

"In some cases, you [the Medicare plan beneficiary] should send copies of your receipts to us [the Medicare Part D plan] to help us track your out-of-pocket drug costs>

There are some situations when you should let us know about payments you have made for your drugs. In these cases, you are not asking us for payment [reimbursement]. Instead, you are telling us about your payments so that we can calculate your out-of-pocket costs [or TrOOP] correctly. This may help you to qualify for the Catastrophic Coverage Stage more quickly. [If you exit the Donut Hole and enter the Catastrophic Coverage phase, you may save more than 95% on the retail cost of your medications.]

Here are two situations when you should send us copies of receipts to let us know about payments you have made for your drugs:

1. When you buy the drug for a price that is lower than our price

Sometimes when you are in the Deductible Stage and Coverage Gap Stage you can buy your drug at a network pharmacy for a price that is lower than our price.

For example, a pharmacy might offer a special price on the drug. Or you may have a discount card that is outside our benefit that offers a lower price.
Unless special conditions apply, you must use a network pharmacy in these situations and your drug must be on our Drug List [or formulary].
Save your receipt and send a copy to us so that we can have your out-of-pocket expenses count toward qualifying you for the Catastrophic Coverage Stage. [Instructions of how to send us the receipts is usually included within this section.]
Please note: If you are in the Deductible Stage and Coverage Gap Stage, we may not pay for any share of these drug costs. But sending a copy of the receipt allows us to calculate your out-of-pocket costs correctly and may help you qualify for the Catastrophic Coverage Stage more quickly.

2. When you get a drug through a patient assistance program offered by a drug manufacturer

Some members are enrolled in a patient assistance program [PAP] offered by a drug manufacturer that is outside the plan benefits. If you get any drugs through a program offered by a drug manufacturer, you may pay a copayment to the patient assistance program.

Save your receipt and send a copy to us so that we can have your out-of-pocket expenses count toward qualifying you for the Catastrophic Coverage Stage.
Please note: Because you are getting your drug through the patient assistance program and not through the plan’s benefits, we will not pay for any share of these drug costs. But sending a copy of the receipt allows us to calculate your out-of-pocket costs correctly and may help you qualify for the Catastrophic Coverage Stage more quickly.

Since you are not asking for payment in the two cases described above, these situations are not considered coverage decisions. Therefore, you cannot make an appeal if you disagree with our decision."

[Source: CMS Model 2016 ANOC and EOC document for PDPs] [highlights and emphasis added, update: the coverage gap was eliminated in 2025.] Previous updates and background:

The 2006 CMS "Lower Cash Price Policy" (found below) still appears to be in effect in 2010 as was noted by CMS: "With regard to our lower cash price policy, we have not altered this policy."

(See: https://www.gpo.gov/fdsys/pkg/FR-2010-04-15/pdf/2010-7966.pdf, Medicare Program; Policy and Technical Changes to the Medicare Advantage and the Medicare Prescription Drug Benefit Programs; Final Rule 75 Fed.Reg. 19677, 19727 (April 15, 2010)).

But newer Medicare guidance documents add more details regarding enhanced Medicare Part D plan designs and acknowledge the changes in the Medicare Part D prescription drug program today - especially when taking into account the Donut Hole Discount automatically given to brand name and generic medications purchased while in the Coverage Gap. Note: the coverage gap was eliminated in 2025.

You can read more about the development of this policy here:

Lower Cash Price Policy: 2010 Update - on this site and
Lower Cash Price Policy: 2013 Update - on this site
As reference, the following is the full text of the original CMS Lower Cash Price Policy dated October 11, 2006:

"The following question and answer on the lower cash price policy has been revised and updated in the Frequently Asked Questions Database on the CMS website at http://questions.cms.hhs.gov.

[Question]: What should an individual do if he or she is able to obtain a better price on a covered Part D drug at the point of sale than the negotiated price charged by his or her Part D plan if he/she is in the coverage gap or deductible phase of his or her benefit? Will that lower amount at the point of sale count toward the enrollee’s TrOOP balance?

[Answer]: Although we expect it to happen rarely, an individual may be able to obtain a lower price at a network pharmacy than that which his or her plan charges (the plan’s negotiated price) in any applicable coverage gap or deductible. This may be possible if the pharmacy is offering a “special” price or other discount for all customers, or if the beneficiary using a discount card, and the beneficiary is in any applicable coverage gap or deductible phase of his or her Part D benefit and is able to receive a better cash price for a covered Part D drug at a network pharmacy than the plan offers via its negotiated price. In this situation, he or she may purchase that covered Part D drug without using his or her Part D benefit or a supplemental card. The enrollee’s purchase price for the discounted drug will count toward total drug spend under his or her Part D benefit and TrOOP balance provided the Part D plan finds out about it.

The enrollee must take responsibility for submitting the appropriate documentation to his or her plan in order to have the amount count toward his or her total drug spend and TrOOP balances. FN1 Plans must accommodate the receipt of such information directly from enrollees and adjust total drug spend and TrOOP balances accordingly consistent with their established processes and clear instructions for enrollee paper claim submissions. These processes and instructions should be designed to distinguish between claims submitted for: (1) out-of-network coverage; (2) adjustment to TrOOP balances based on wraparound payments made by supplemental payers not previously submitted to the plan; (3) documentation submitted for a purchase made via a discount card or other special cash discount outside the Part D benefit in any applicable deductible or coverage gap phase of the benefit; and (4) documentation submitted for a nominal copayment assessed by a PAP sponsor operating outside the Part D benefit for assistance provided with covered Part D drug costs.

We note that this policy does not apply in any phase of an enrollee’s Part D benefit in which he or she is liable for any less than 100 percent cost-sharing. In other words, it does not apply outside of any applicable coverage gap or deductible phase of his or her benefit. We have limited the policy’s applicability in order to ensure that enrollees: (1) do not unwittingly forego plan funded coverage, which in most cases will be the lowest price available given the price concessions built into the plan’s negotiated prices; (2) have the benefit of plan drug utilization review and other safety edits that can only be provided if the plan adjudicates the claim; and (3) proceed through the benefit as quickly as possible in order to reach catastrophic coverage. It is unlikely that this policy is likely to be a significant source of savings for most enrollees, particularly since, if an enrollee fails to submit even one claim for a purchase made under the circumstances explained above, it is almost certain he or she will ultimately spend more than he or she would have under his or her plan’s negotiated prices.

We also note that organizations or entities offering discount card or other discounted price arrangements must comply with all relevant fraud and abuse laws, including, when applicable, the Federal anti-kickback statute and the civil monetary penalty prohibiting inducements to beneficiaries. The HHS Office of the Inspector General (OIG) enforces Federal fraud and abuse statutes, and all questions regarding the compliance of specific arrangements with these statutes should be referred to the OIG. Please contact Alissa DeBoy at (410) 786-6041 if you have any questions about this guidance.

FN1 We note that in cases where a pharmacy offers a lower price to its customers throughout a benefit year, this would not constitute a "lower cash price" situation that is the subject of this guidance. For example, Walmart recently introduced a program offering a reduced price for certain generics to its customers. The low Walmart price on these specific generic drugs is considered Walmart’s “usual and customary” price, and is not considered a one-time "lower cash" price. Part D sponsors consider this lower amount to be “usual and customary” and will reimburse Walmart on the basis of this price. To illustrate, suppose a Plan's usual negotiated price for a specific drug is $10 with a beneficiary copay of 25% for a generic drug. Suppose Walmart offers the same generic drug throughout the benefit for $4. The Plan considers the $4 to take the place of the $10 negotiated price. The $4 is not considered a lower cash price, because it is not a one-time special price. The Plan will adjudicate Walmart’s claim for $4 and the beneficiary will pay only a $1 copay, rather than a $2.50 copay. This means that both the Plan and the beneficiary are benefiting from the Walmart “usual and customary” price, and the discounted Walmart price of the drug is actually offered within the Plan’s Part D benefit design. Therefore, the beneficiary can access this discount at any point in the benefit year, the claim will be adjudicated through the Plan's systems, and the beneficiary will not need to send documentation to the plan to have the lower cash price count toward TrOOP." [highlighted emphasis added, the coverage gap was eliminated in 2025.]

Source include:
Centers for Medicaid and Medicare Services

https://www.cms.gov/Medicare/Prescription-Drug-Coverage/PrescriptionDrugCovContra/Downloads/QADiscountsandTrOOP_100606.pdf or
https://www.cms.gov/medicare/prescription-drug-coverage/prescriptiondrugcovcontra
/hpms-guidance-history-items/cms1187793
United States v. Safeway, Inc. (12/03/2018)

https://casetext.com/case/united-states-v-safeway-inc-3
https://www.supremecourt.gov/DocketPDF/22/22-111/228749/
20220623160654324_2022-6-23%20Extension%20Appendix.pdf
Centers for Medicare & Medicaid Services, Chapter 14—Coordination of
Benefits, in Medicare Prescription Drug Benefit Manual 19 n.1 (2006),
https://perma.cc/MW6AH4P6
https://www.federalregister.gov/documents/2009/10/22/E9-24756/medicare-program-policy
-and-technical-changes-to-the-medicare-advantage-and-the-medicare

See also:
May 17, 2018 Letter from Seema Verma, Administrator, Centers for Medicare & Medicaid Services "Unacceptable Pharmacy Gag Clauses" https://www.cms.gov/Newsroom/MediaReleaseDatabase/ Press-releases/Other-Content-Types/2018-05-17.pdf

May 29, 2018 National Public Radio (NPR) article: "To Lower Your Medicare Drug Costs, Ask Your Pharmacist For The Cash Price" https://www.npr.org/ sections/health-shots/2018/05/29/ 614556060/to-lower-your-medicare- drug-costs-ask-your-pharmacist- for-the-cash-price