Where Does $275.6 Billion Go?

Medicare Part D is America's prescription drug benefit for seniors and people with disabilities. In 2023, it covered over 50 million beneficiaries and generated $275.6 billion in total drug costs. This article breaks down where that money goes, who pays for it, and what it means for the future of American healthcare.

What Is Medicare Part D?

Created by the Medicare Modernization Act of 2003 and launched in 2006, Medicare Part D provides outpatient prescription drug coverage to Medicare beneficiaries through private insurance plans. Unlike Parts A and B, which are administered directly by the federal government, Part D operates through a network of private plan sponsors — insurance companies that contract with Medicare to deliver the benefit.

Beneficiaries choose from dozens of Part D plans, each with different formularies (lists of covered drugs), premiums, copayments, and pharmacy networks. This market-based design was intended to promote competition and lower costs, though its effectiveness remains debated.

Following the Money

The $275.6 billion in total drug costs flows through a complex financial ecosystem. Understanding who pays — and how much — requires breaking down several layers:

Federal subsidies cover the largest share. The government provides direct subsidies to Part D plans, reinsurance payments for high-cost beneficiaries, and low-income subsidies that cover premiums and cost-sharing for qualifying enrollees. Together, federal spending on Part D exceeds $100 billion annually.

Beneficiary premiums and cost-sharing represent the next largest source. The average Part D premium is roughly $40-50 per month, but out-of-pocket costs for expensive medications can reach thousands. Before the Inflation Reduction Act's $2,000 annual cap (effective 2025), some beneficiaries faced $10,000+ in annual drug costs.

Plan sponsors bear risk for drug costs within defined bands. Plans profit when actual costs are lower than projected and lose money when costs exceed expectations. This creates incentives for formulary management, prior authorization, and generic substitution — tools that can both reduce waste and create access barriers.

Manufacturer rebates are the system's hidden wildcard. Drug makers pay substantial rebates to Part D plans and pharmacy benefit managers (PBMs), effectively reducing the net cost of many drugs by 20-50%. These rebates are confidential, making true net spending difficult to calculate from public data alone.

Where the Spending Goes

Medicare Part D spending concentrates in a few therapeutic areas. Anticoagulants, diabetes medications, and cancer drugs represent the largest spending categories. Cardiovascular medications, immunosuppressants, and respiratory drugs round out the top tier.

Chronic disease medications dominate because they're taken daily by millions of beneficiaries for years or decades. Even if each individual prescription isn't expensive, the aggregate cost of treating tens of millions of patients with chronic conditions creates enormous spending.

Specialty medications — typically defined as drugs costing more than $670 per month — represent a growing share of spending despite covering a relatively small number of patients. These drugs treat conditions like cancer, multiple sclerosis, rheumatoid arthritis, and hepatitis C. While they help fewer people, their per-patient costs can exceed $100,000 annually.

The Beneficiary Experience

For the average Medicare beneficiary, Part D is a critical lifeline. Seniors take an average of 4-5 prescription medications daily, and without Part D, many couldn't afford their treatments. The program has demonstrably improved medication adherence and health outcomes for millions of Americans.

But the benefit design has significant gaps. The infamous "donut hole" — a coverage gap where beneficiaries historically paid full price — has been gradually closed but still creates confusion. And even with coverage, copayments for expensive brand-name drugs can create financial hardship. The new $2,000 annual out-of-pocket cap is the most significant structural reform since the program's creation.

Geographic and Demographic Patterns

Part D spending isn't evenly distributed. Southern and Appalachian states show higher per-beneficiary spending, reflecting both population health differences and practice pattern variation. Urban areas with more specialists tend toward higher per-claim costs, while rural areas may show higher utilization of certain drug classes.

Dual-eligible beneficiaries — those qualifying for both Medicare and Medicaid — generate disproportionately high drug costs, as they tend to be sicker and take more medications. The low-income subsidy program that supports these beneficiaries is one of the largest components of Part D federal spending.

Policy Implications

The trajectory of Part D spending raises fundamental questions about sustainability. At current growth rates, Part D could consume over $400 billion annually within a decade. Several policy levers could affect this trajectory:

Price negotiation expansion under the Inflation Reduction Act is the most significant near-term change. If successful, it could establish a precedent for broader government involvement in drug pricing.

Biosimilar adoption remains below potential. While biosimilars offer 15-40% savings over reference biologics, uptake has been slow due to prescriber habits, patent litigation, and rebate structures that sometimes favor the more expensive original product.

Formulary reform could better align incentives, encouraging plans to favor cost-effective medications without creating access barriers for patients who genuinely need specific drugs.

Why Transparency Matters

OpenPrescriber exists because public data should be publicly accessible. CMS publishes Medicare Part D prescribing data annually, but the raw files are massive and technically challenging to use. By making this data searchable and analyzable, we aim to empower patients, journalists, researchers, and policymakers to ask better questions about how we spend $275.6 billion on prescription drugs.

Explore the data yourself — search for individual providers, browse by state or specialty, or review our risk scoring methodology to understand how we identify unusual prescribing patterns.