Two new Medicare payment models proposed by the Centers for Medicare and Medicaid Services (CMS) would require drug manufacturers to pay a rebate to Medicare whenever the price of a covered drug exceeds an international benchmark price.
Medicare Part B Proposal
CMS’s Center for Medicare and Medicaid Innovation announced the proposed Global Benchmark for Efficient Drug Pricing (GLOBE) model for drugs covered under Medicare Part B (i.e., primarily those administered in or directly obtained from outpatient physicians’ offices) on December 19 and described it in more detail in a December 23 Notice of Proposed Rulemaking. The proposed rule calls for a limited application of “most-favored-nation” drug pricing, a policy meant to bring domestic drug prices down and make them comparable with those of peer countries. The GLOBE model was announced alongside a separate program for Medicare Part D prescription drug plans, which is discussed further below.
The proposed GLOBE model is a modification of the existing Medicare Prescription Drug Inflation Rebate Program, a component of the 2022 Inflation Reduction Act requiring manufacturers to pay rebates to Medicare when the prices of selected drugs increase faster than overall inflation. Rebates under this program are calculated each fiscal quarter by comparing the average price paid for a covered drug against an inflation-adjusted price and charging manufacturers the difference. Manufacturer participation in the GLOBE model would be mandatory, but drugs already subject to negotiation under the Medicare Drug Price Negotiation Program would not be included in the model.
The GLOBE model would implement an alternative to this calculation in which the average price paid for a covered drug is instead compared against an international benchmark price. The international benchmark price for a drug would be determined based on the drug’s prices in economically comparable countries, defined as those with an annual gross domestic product that is at least $400 billion and at least 60% of that of the United States, adjusted for inflation.
CMS proposes two methods of calculating the benchmark. In one, CMS would estimate international prices using its own sources. Alternatively, manufacturers could voluntarily disclose their international prices. The latter method would be designed to yield lower rebates, giving manufacturers an incentive for price transparency.
For Medicare Part B beneficiaries, the GLOBE model would reduce out-of-pocket costs by changing coinsurance for covered drugs based on the international benchmark price rather than the domestic price paid by Medicare, whenever the domestic price is higher. The proposed rule also anticipates that resulting Medicare savings will enable reductions in Part B premiums.
The GLOBE model would apply to currently unspecified geographic areas, selected to represent about 25% of Medicare Part B enrollees. It would be limited to a selection of drugs already covered under Medicare Part B. The model would go into effect October 1 and remain in effect for five years. Details are subject to change, and the notice of proposed rulemaking will remain open for public comment until February 23.
Medicare Part D Proposal
Also on December 19, CMS announced the Guarding U.S. Medicare Against Rising Drug Costs (GUARD) model for a broad selection of drugs covered under Medicare Part D (i.e., prescription drugs purchased through a pharmacy). This model, also effective for five years and limited to 25% of applicable Medicare beneficiaries, is described in detail in its own December 23 Notice of Proposed Rulemaking, which also will be open for public comment until February 23.
While following a rebate structure similar to that of the GLOBE model, the GUARD model lacks a direct mechanism to reduce cost sharing for beneficiaries. On the contrary, the proposed rule notes that manufacturers may react by negotiating higher prices for drugs covered under the Medicare Drug Price Negotiation Program, potentially increasing point-of-sale costs for some beneficiaries and driving Part D premium increases.
Policy Debate
CMS says most-favored nation drug pricing has the potential to reduce out-of-pocket costs for Americans and save Medicare billions of dollars. The agency previously announced a proposed payment model for Medicaid that also is based on most-favored nation drug pricing.
Critics in the pharmaceutical industry argue that most-favored-nation drug pricing will lead to reduced investment in research and domestic manufacturing. In addition to echoing some industry concerns, policy experts warn that most-favored-nation pricing could lead to increased international prices while failing to address the structural issues driving high domestic drug prices.
Following the announcement of the GLOBE and GUARD models, Pharmaceutical Research and Manufacturers of America, or PhRMA, a professional association representing biopharmaceutical research companies, issued a statement opposing both, arguing that they would “increase costs for America’s seniors” and “siphon billions from U.S. medicine R&D [research and development].”
The proposed rules acknowledge uncertainty about whether manufacturers may respond to the models by adjusting pricing across other payers or changing payment strategies for covered drugs, and the potential for downstream effects on Medicare Advantage and Part D benefits. CMS invites public comment on these and other concerns and proposes to monitor for anticipated changes in industry behavior as part of ongoing model evaluation.
CMS has provided estimates of the savings from these models, with the acknowledgement that they are based on broad assumptions about industry response. The agency estimates that, over the life of the GLOBE model, it will result in net savings of $11.9 billion for Medicare and an additional $1 billion for Medicaid, and it will reduce Medicare beneficiaries’ overall out-of-pocket spending by $6.2 billion. CMS estimates that the GUARD model will result in net savings to Medicare of $14.1 billion, while potentially increasing beneficiaries’ costs by $3.6 billion.
