The federal drug pricing landscape continues to undergo significant transformation as executive branch agencies advance an ambitious suite of regulatory and model testing initiatives intended to lower the costs associated with the Medicare and Medicaid programs. In response to ongoing concerns about rising out-of-pocket costs, increasing pressure to align US prices with those paid internationally, and the continued implementation of the Inflation Reduction Act (IRA), federal agencies are reshaping how prescription drugs are priced, reimbursed, and negotiated in federally financed programs.
The current policy environment reflects a growing emphasis on benchmarking drug prices to those in peer nations, referred to as “most favored nation” (MFN) benchmarks, and accelerating actions that require or encourage manufacturers to offer lower net prices. Health Management Associates (HMA), is tracking these developments in the public payer space, replicating Centers for Medicare & Medicaid Services (CMS) payment methodologies, and modeling alternative policies to assist life science companies, payers, and other stakeholders.
In this article, we review the administration’s recent efforts to reduce Medicare and Medicaid spending on drugs and biologics, including confidential manufacturer negotiations and three new models that together could reshape pricing dynamics across federal programs.
Executive Branch Negotiations Seek to Drive Access to MFN Discounts
In 2025, the administration issued an Executive Order directing federal agencies to pursue strategies to establish MFN pricing, linking US prices for certain drugs to the lowest (or second lowest) adjusted net prices among a targeted set of peer countries. Following the order, federal officials sent letters to 17 major pharmaceutical and biotechnology manufacturers, urging them to negotiate agreements that would voluntarily align prices with MFN-based benchmarks.
To date, 14 manufacturers have signed agreements, though full details remain confidential. These agreements are understood to accomplish the following:
- Provide state Medicaid programs with access to MFNbased discounts
- Require that new drugs be launched in the United States at MFNaligned prices
- Offer certain drugs at discounted directtoconsumer prices through a forthcoming “TrumpRx” program, expected to launch later this year
Reports suggest that manufacturers entering these MFN-related arrangements may receive exemptions from several federal actions, including the Center for Medicare and Medicaid Innovation (Innovation Center) demonstration models described below and certain tariff-related policies.
MFNLinked Models Designed to Lower Drug Costs Across Medicare and Medicaid
Along with the negotiation efforts, the CMS Innovation Center has proposed three models that would test MFNbased pricing through structured rebate mechanisms. Each model targets different segments of the market while testing how international benchmarks could be integrated into federal drug payment policy.
New Models Test Alternatives to Inflation Rebates
Announced in December 2025, the Global Benchmark for Efficient Drug Pricing (GLOBE) Model and the Guarding US Medicare Against Rising Drug Costs (GUARD) Model are designed to test alternative approaches to the Inflation Reduction Act’s (IRA) inflation penalty policies. CMS plans to test the models’ potential for market driven price reductions if manufacturers choose to lower list prices instead of paying MFN-based rebates.
Key features of the GLOBE Model are as follows:
- Applies to 25 percent of Medicare fee-for-service (FFS) beneficiaries using certain Part B drugs
- Beginning in October 2026, becomes mandatory for select drugs and targets highspending, physicianadministered Part B categories, excluding products already subject to IRA negotiations, generics, biosimilars, and certain lowspend products
- No changes to physician and hospital reimbursement, although beneficiaries expected to see reduced cost sharing
The GUARD Model will similarly test whether applying MFN-based rebates to Medicare Part D drugs will lower Medicare costs. Key aspects of this model include:
- Fiveyear model that would start January 1, 2027
- Target therapeutic categories with more than $69 million in annual Part D spending
- No impact on plan bids and beneficiary cost sharing
These models rely on pricing data from 19 countries. Manufacturers that voluntarily submit net price information would trigger quarterly benchmark updates; otherwise, CMS will use a fixed list price based benchmark for the entire pilot period.
CMS is seeking comments on whether additional categories, for example cell and gene therapies, should be excluded from GLOBE. GUARD is also open for comment through February 23, 2026.
GENErating cost Reductions fOr US Medicaid (GENEROUS) Model
The GENEROUS model, expected to begin in 2026, creates a voluntary pathway for state Medicaid programs and manufacturers to enter supplemental rebate agreements tied to MFNaligned prices. MFN pricing under this model is based on the second lowest net price in G7 countries plus Denmark and Switzerland. GENEROUS is also expected to align with pricing commitments negotiated through the administration’s manufacturer agreements.
Key Considerations and Potential Impacts
The combined effect of federal negotiations and Innovation Center models could be substantial, though outcomes will depend on manufacturer participation, benchmark stability, and operational feasibility. Key considerations include:
- State Medicaid savings, especially the extent to which MFN‑linked rebates exceed existing supplemental rebates
- Reduced Medicare beneficiary cost sharing for Part B included in GLOBE
- Shifts in manufacturer pricing strategies, including potential changes to US launch prices
- Interactions with the IRA, particularly Part D redesign and Part B inflation penalties
Connect with Us
HMA experts continue to track the federal drug pricing landscape closely as comments, operational details, and implementation timelines evolve across these initiatives. Our team replicates CMS payment methodologies and models alternative policies using the most current Medicare FFS and Medicare Advantage (100%) claims data.
For more information and questions about the policies described in this article, please contact our experts below.
