Administration uses conflated policies to gain voluntary drug pricing/tariff waiver agreements.
The Centers for Medicare and Medicaid Services (CMS) issued two proposed rules for implementing “Most Favored Nation” (MFN) drug pricing models. These federal mandatory pilots or demonstration programs, targeting Medicare Part B and Part D respectively, would test a new international pricing benchmark that would require companies to pay rebates to the government if their prices exceed those levels. CMS will accept comments on the proposed rules for 60 days (February 23rd) from their publication date in the Federal Register.
The proposed CMS demos rollout coincides with the upcoming launch of TrumpRx in January, that is expected to implement direct-to-consumer (DTC) drug purchasing by partnering with drug companies to sell drugs directly to patients at discounted cash prices, bypassing insurance.
Why is this important to healthcare marketers? These proposed MFN rules, if they withstand any legal challenges, could place further downward pressure on drug pricing that may impact how marketing campaigns are launched or sustained, or are repositioned in light of direct-to-consumer purchasing platforms and promoting price discounts on specific Rx drugs. There are also important exemptions to the proposed international pricing demos that agencies and companies should be aware that are noted below.
Rx Price Discounting/Tariff Waiver Agreements
The proposed rules follow the White House announcement of nine new voluntary Rx price discounting/tariff waiver deals – signed by Amgen, Boehringer Ingelheim, Bristol Myers Squibb, Genentech, Gilead, GSK, Merck, Novartis and Sanofi – that generally align with the previous agreements signed with AstraZeneca, Eli Lilly, EMD Serono (Merck), Novo Nordisk and Pfizer. However, as reported by multiple outlets and premised by CHC since the national security tariffs and MFN announcements in April and May, the pharmaceutical companies that have signed the discounting/waiver agreements with the Administration will be exempt from the proposed Medicare pricing demos and any imposed tariffs for at least the next three years.
Only AbbVie, Johnson & Johnson and Regeneron reportedly have not entered into price discounting/waiver agreements from the 17 large drug companies that received a letter from the Administration in September demanding that they cut cash pay prices, give better deals to government programs, and invest in US-based manufacturing, In general, the proposed demos would require mandatory participation for all pharmaceutical manufacturers of Medicare Part B and Part D drugs.
Because these agreements are private, specific details on the discounting to federal health programs have not been shared publicly, so it is not known the exact financial impact on companies. However earlier this week, Pfizer said in its 2026 forecast that the agreement with the White House would “compress” its sales and margins next year, but it would not say by how much. The impact on the marketplace of drug manufacturer expansion in the DTC purchasing platforms – to date largely utilized by telemarketing compounding pharmacies such as Hims/Hers and Rho – is also a new business sector development that has yet to be quantified.
Emergency Reciprocal and National Security Tariffs Continue to Loom
To date, this Administration has attempted to leverage various policy mechanisms to leverage voluntary agreements from pharmaceutical manufacturers, including proposed national security tariffs under Section 232 of the Trade Expansion Act that has elicited over $840 billion in US on-shoring drug manufacturing commitments, as well as the emergency bilateral reciprocal tariffs on imported drugs as part of the International Economic Powers Act (IEEPA). Healthcare marketers should note that the Supreme Court is currently reviewing the Administration’s authority to utilize the global emergency reciprocal tariffs. Should the IEEPA authority invoked by the White House be struck down, it is anticipated that a national security tariff proposed rule will be formally advanced.
GLOBE Model Proposed Rule
As anticipated from the OMB filing, the first proposed rule would implement a new Medicare payment model called the Global Benchmark for Efficient Drug Pricing (GLOBE) Model that would test an alternative calculation for manufacturer rebates under the Medicare Part B drugs, classified as single-source drugs and sole-source biological products. Inflation Rebate Program that uses a benchmark derived from international pricing information instead of the current domestic benchmark. The benchmark would be based on either manufacturer-reported international pricing information or available information to CMS for economically similar countries.
If implemented, these drug pricing demos would likely create significant pressure on drug manufacturers’ gross-to-net revenue and may affect downstream international drug access. Pharmaceutical companies should assess how MFN pricing may impact their portfolios, model potential revenue implications, consider alternative commercial strategies, and monitor ongoing regulatory and legal developments.
Similar MFN pilots or rulemakings have been attempted by previous Obama and Trump Administrations that were either withdrawn due to pressure from Congress or overturned in the courts. These proposed pilots may face drug industry legal challenges, similar to those encountered under the first Trump Administration’s MFN proposals – the Most Favored Nation Model and the International Pricing Index (IPI) Model – both of which were ultimately halted by the courts. It should be noted that both proposals were largely struck down for violating the Administrative Procedure Act (APA). The new proposed rules are more sophisticated and limited in their approach, targeting 25% of the Medicare population, which could make them somewhat more resistant to legal challenges.
GUARD Model Proposed Rule
The second proposed rule would implement the Guarding U.S. Medicare Against Rising Drug Costs Model, also called the GUARD Model. The proposed rule would test an alternative payment method for calculating inflation rebates for certain Part D drugs and biological products. The proposed GUARD Model would test whether changing the calculation of the Part D inflation rebate would reduce costs for the Medicare program while preserving or enhancing quality of care for Part D enrollees.
Voluntary Medicaid GENEROUS Model
As previously reported in November, CMS announced a voluntary initiative called the GENEROUS Model (GENErating cost Reductions fOr U.S. Medicaid Model) to introduce the option of MFN pricing to the Medicaid program. Under the Model, a drug manufacturer may voluntarily offer supplemental rebates to participating state Medicaid programs for a manufacturer’s covered outpatient drugs (CODs). The rebates are intended to provide an MFN price to participating state Medicaid programs. CMS is accepting manufacturer applications to participate in the model until March 31, 2026.
Continue to watch for further updates on the Adminsitration’s conflated policies to leverage price discounting and onshoring of drug manufacturing in the US, as well as proposals to ban Rx advertising by HHS and FDA. For further information, please contact Jim Potter, CHC Executive Director at [email protected].
