The Centers for Medicare and Medicaid Services (CMS) explains that,
"[Total or] True out-of-pocket (TrOOP) costs are the expenses that count toward a person’s Medicare drug plan out-of-pocket threshold. TrOOP costs determine when a person’s catastrophic coverage portion of their Medicare Part D prescription drug plan will begin." We often say that TrOOP is the Donut Hole exit point.
In other words, TrOOP defines when you exit the Donut Hole or Coverage Gap and enter into the Catastrophic Coverage phase of your Medicare Part D prescription drug plan. See chart of TrOOP limit for each plan year.
Your drug purchases only count toward TrOOP when they meet these conditions:
Your generic or brand-name drugs are on your Medicare Part D prescription drug plan’s formulary or drug list or
Your prescriptions were not on your plan's formulary, but you are allowed to count the coverage costs toward true out-of-pocket costs because you requested a coverage determination (formulary exception) that was granted by your Medicare plan and your non-formulary drugs are now covered by your plan - And
Your medications were purchased at one of your Medicare plan's network pharmacies.
Or your Medications were purchased at an out-of-network pharmacy in accordance with
the plan’s out-of-network policy (for instance, this was an emergency
fill and no network pharmacy was available and you submitted the
prescription to your Medicare Part D plan).
CMS also provides the following:
What payments count toward TrOOP costs?
The annual initial deductible, that is, the amount a person pays for their Medicare Part D covered prescriptions before their Medicare Part D drug plan begins to pay. Most Medicare Part D plans have an initial deductible and begin with coverage after the deductible is met. So, if your Medicare Part D plan has an initial deductible, you pay 100% of the cost of your medications -- up to your initial deductible limit -- and then your Medicare Part D plan begins to pay along with your co-insurance or co-payment. What you pay during the initial deductible phase counts toward your TrOOP.
Your cost-sharing costs, that is, the amount a person pays for each Medicare Part D plan covered prescription drug after their drug plan begins to pay (i.e., your co-payments or coinsurance). So if you have a $30 co-payment for a particular medication that is covered by your Part D prescription drug plan, you get TrOOP credit for the $30. If someone else, like a friend or family member, makes the payment for you (say, $30 in this example), then this amount is also counted toward TrOOP. So if your medication has a retail cost of $100, and your coverage cost is $30, your Medicare plan pays the other $70, and you get the $30 counted toward TrOOP.
Any payments a person makes during their plan’s coverage gap, if the plan has a coverage gap (for instance, the Pharmaceutical industry is paying 70% of your brand-name drug cost while you are in the Donut Hole and this 70% of retail cost is counted toward your TrOOP or Donut Hole exit point. For example, if you purchase a formulary brand-name Medicare
Part drug in the 2019 Coverage Gap or Donut Hole - you will get the Donut Hole
discount of 75% (you pay 25%) and get credit for 95% of the retail cost toward
TrOOP. Using the example from above, if your brand-name
formulary drug has a negotiated retail cost of $100, you will pay $25 (25% of the
retail price) and $70 (or 70%) will be paid by the Pharmaceutical Industry (the additional 5% will be paid by your Medicare Part D plan, but does not count toward TrOOP). So you pay
$25, but you will receive $95 (95%) credit toward your TrOOP.
Any payments for drugs made by any of the following programs or organizations on your behalf:
Any money a person enrolled in the Medicare drug plan uses from their Medical Savings Account (MSA), Health Savings Account (HSA), or Flexible Spending Account (FSA).
Most Charities (unless they’re established, run, or controlled by the person’s current or former employer or union or by a drug manufacturer’s Patient Assistance Program (PAP) operating outside Part D)
Qualified State Pharmaceutical Assistance Programs (SPAPs)
The cost-sharing portion paid by a Medicare drug plan (for example, for a $100 medication, you pay $20 and your plan pays $80, only the $20 counts toward your TrOOP),
Your monthly Medicare plan premiums,
Drugs purchased outside the United States and its territories (for instance, drugs purchased in Mexico),
Drugs not covered on the Medicare Part D plan formulary or drug list,
Drugs covered by the plan that are excluded by Medicare law - for instance, drugs for hair growth that are covered by your plan as a supplemental or bonus drug do not count toward TrOOP (see Excluded Medicare Part Drugs),
Over-the-counter drugs or vitamins (even if they are required by your Medicare Part D plan as part of Step Therapy),
Finally, CMS notes: Payments don’t count toward a person’s TrOOP costs if they’re made by (or reimbursed to the person enrolled in a Medicare drug plan by) any of these:
Group health plans such as the Federal Employees Health Benefit Program (FEHBP) or employer or union retiree coverage
Government-funded health programs such as Medicaid, TRICARE, Workers’ Compensation, the Department of Veterans Affairs (VA), Federally Qualified Health Centers (FQHCs), Rural Health Clinics (RHCs), the Children’s Health Insurance Program (CHIP), and black lung benefits
Other third-party groups with a legal obligation to pay for the person’s drug costs
Patient Assistance Programs (PAPs) operating outside the Part D benefit
Other types of insurance
Please note: You must let your Medicare drug plan know if you are receiving coverage from one or more of the third parties listed above that pay a part of your out-of-pocket costs for prescription drugs.
(CMS source as of 02/22/2016: https://www.cms.gov/Outreach-and-Education/Outreach/Partnerships/downloads/11223-P.pdf) [emphasis, updates, and examples added]