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On December 23, 2025, CMS published two proposed rules intended to effectuate the Trump Administration’s stated policy goal of aligning U.S. pharmaceutical pricing to that of other developed countries using “most favored nation” principles. The proposed rules—Global Benchmark for Efficient Drug Pricing (“GLOBE”) (90 Fed. Reg. 60,244) in the case of Medicare Part B, and Guarding U.S. Medicare Against Rising Drug Costs (“GUARD”) (90 Fed. Reg. 60,338) in the case of Medicare Part D--invoke the agency’s Innovation Center payment and service model demonstration and waiver authority under Section 1115A of the Social Security Act (42 U.S.C. § 1315a) to establish additional pharmaceutical manufacturer rebate obligations to “supplement” the Medicare inflation rebates that manufacturers are required to pay under the Inflation Reduction Act (“IRA”). See 42 U.S.C. §§ 1395w-3a(i), 1395w-114b.
This post (i) provides a high-level overview of the proposals, (ii) notes potential issues relating to the underlying authority for them, and (iii) identifies some important near-term practical considerations associated with their potential implementation. It bears emphasis that the proposed rules are extremely detailed, and the basic concepts described herein are subject to many technical methodological adjustments which are beyond the scope of this notice.
Overview of the Proposals
By way of background, the IRA included two new Medicare rebate programs designed to require manufacturers to pay rebates to CMS when they increase the prices of their products faster than the rate of inflation. For Part B brand drugs, manufacturers must pay inflation rebates to the extent that their average sales prices (“ASPs”) increase faster than the rate of inflation. For Part D brand drugs, inflation rebates apply if a drug’s “annual manufacturer price”—essentially a twelve-month average version of the Medicaid average manufacturer price (“AMP”)—increases faster than the rate of inflation.
In general, the GLOBE and GUARD models would each require manufacturers to pay an incremental rebate amount, in addition to the inflation rebate they must pay under existing law, if a Medicare reference price for a specified period exceeds an international benchmark price for the product by an amount greater than the inflation rebate otherwise payable.
GLOBE and GUARD share a number of common elements:
Both are structured as 5-year demonstrations with an additional 2-year evaluation and financial reconciliation period.
Both are characterized as “mandatory” for manufacturers whose drugs qualify.
Both will apply in geographic areas randomized using zip code tabulation areas in a manner designed to include 25% of Medicare beneficiaries (model beneficiaries).
Both generally apply only to single source drugs and biologics (including authorized generics and unbranded biologics) in specified therapeutic areas (with differences in the therapeutic areas among the two programs). For GLOBE, the model will apply to seven USP therapeutic categories, excluding drugs with annual Part B spending below $100 million and drugs subject to CMS-negotiated maximum fair prices, and CMS has identified 62 specific “illustrative” drugs that may be subject to the model based on these criteria. In the case of GUARD, the program will cover 17 USP therapeutic classes, and drugs with annual spending below $69 million and drugs subject to CMS-negotiated maximum fair prices will be excluded.
Notably, neither proposal contains exemptions for drugs for which manufacturers have negotiated Medicaid MFN or direct-to-consumer pricing agreements with the Trump administration.
Both employ the same basic methods, described in greater detail below, for determining the international benchmark price against which U.S. prices will be compared.
To determine the international pricing benchmark, CMS will evaluate pricing data from OECD countries with a purchasing power parity-adjusted gross domestic product (“PPP-adjusted GDP”) at least 60% of that of the United States, where the country also has a minimum PPP-adjusted GDP of $400 billion. The proposed rules identify 19 countries meeting these standards: Australia, Austria, Belgium, Canada, Czech Republic, Denmark, France, Germany, Ireland, Israel, Italy, Japan, the Netherlands, Norway, South Korea, Spain, Sweden, Switzerland and the United Kingdom. Further, the international pricing benchmark used for comparison will be the greater amount produced under two possible methods:
Under Method I, CMS will evaluate publicly available data on drug prices within the specified countries, subject to adjustments, and identify the lowest adjusted country-level price available. The proposed rules identify several potential databases it may consider, including MIDAS, POLI, and NAVLIN, and describe a hierarchy governing the selection of specific data sources.
Under Method II, manufacturers may voluntarily elect to submit net pricing data (after manufacturer rebates and other discounts) from the specified countries, and CMS will calculate an average net price based on that data after adjustments.
In the case of Medicare Part B/GLOBE, the international benchmark will be subtracted from the Medicare ASP-based payment amount for the drug to determine the total GLOBE rebate amount. However, the rebate will be calculated and paid as an incremental amount in excess of any Medicare Part B inflation rebate for the period.
In the case of Medicare Part D/GUARD, the international benchmark amount will be subtracted from the Medicare net price for the drug, which is calculated as the drug’s wholesale acquisition cost, less Part D direct and indirect remuneration, less manufacturer payments under the Medicare Part D manufacturer discount program. An additional GUARD rebate will be payable on utilization of GUARD model beneficiaries if and to the extent such difference exceeds the inflation rebate that the manufacturer would otherwise pay under existing law. It is not clear to us whether GUARD rebate could be payable if the drug is not subject to a Part D inflation rebate
Notably, like the existing inflation rebates, the GLOBE and GUARD rebates would be payable to CMS, rather than to Part D plan sponsors or to Medicare Advantage organizations providing coverage of Part B drugs. However, in the case of the GLOBE model, CMS will implement proportionate coinsurance adjustments for patients similar to those under the Medicare Part B inflation rebate program.
Invocation of Innovation Center Demonstration Authority
CMS has invoked the demonstration and waiver authority of § 1115A(b) (42 U.S.C. § 1315a(b)), which allows CMS, through the Center for Medicare & Medicaid Innovation (“Innovation Center”), to “test payment and service delivery models” to assess their effect on program expenditures and quality of care.
To that end, as described above, CMS has incorporated structural elements and limitations in scope, geography, products and the like to support its characterization of the new programs as payment model “demonstrations” or “evaluations.” With that said, the substance of the model principle arguably bears only a tenuous similarity to the types of “payment” and “delivery” models listed as examples under § 1115A(b), and moreover, the question to be evaluated—whether the imposition of an additional mandatory rebate obligation on manufacturers will reduce program expenditures—is seemingly tautological.
In those respects, the models might produce legal challenges from industry or individual manufacturers. While Section 1115A contains seemingly broad provisions precluding judicial review with respect to the substantive elements of Innovation Center models, at least three federal courts ruled in favor of entities that challenged the first Trump Administration’s attempt to implement an MFN-based “International Price Index” model pursuant to Section 1115A. See Ass’n of Community Cancer Centers v. Azar, No. CCB-20-3531 (D. Md. Dec. 23, 2020); Cal. Life Sciences Ass’n v. Center for Medicare & Medicaid Servs., No. 20-cv-08603-VC (N.D. Cal. Dec. 28, 2020); Regeneron Pharmaceuticals, Inc. v. United States Dept. of Health & Human Servs., No. 20-CV-10488 (S.D.N.Y. Dec. 30, 2020).
Those challenges focused on Administrative Procedure Act (“APA”) notice-and-comment violations, claims that the model exceeded the agency’s authority, and separation of powers claims. The district courts upheld the procedural APA claims in each case – in one case noting that the review preclusion provisions of Section 1115A did not extend to procedural rulemaking violations.
Additional bases for challenge to these models may exist under the “major questions” doctrine employed by the Supreme Court to prevent agencies from tackling public policy questions that Congress has not yet addressed; or they could be challenged as revenue-raising programs that should have been brought up as statutes in the House of Representatives under the Origination Clause of Article I Section 7 of the Constitution. Given the publication of the proposed rule, it is unclear whether APA-based challenges will be available, and whether non-APA challenges may prevail.
Near-Term Potential Issues for Consideration
Aside from the potential for manufacturer or industry challenges to the demonstration, it bears emphasis that the proposed models would go into effect relatively soon despite the rulemaking process. GLOBE would apply beginning in October 2026 based on second quarter 2026 pricing data, and GUARD would take effect in January 2027 based on annual data. As a result, there are several near-term areas for manufacturer focus:
First, of course, is potential development and submission of comments in response to the proposed rules.
Second, manufacturers should assess their products and pricing practices now to evaluate potential impacts if the rules are finalized, as well as US and international pricing actions that might mitigate potential rebate impacts.
Third, manufacturers should carefully assess the potential risks that the models may entail with respect to existing, or under-negotiation, licensing and related commercialization partnerships. For example, it is not uncommon for early stage companies to enter into arrangements where one commercialization partner holds U.S. commercial rights, and another holds those rights in other countries. Notably, both of the proposed rules reject potential “exemptions” or other adjustments for U.S. manufacturers where a different party is responsible for non-U.S. pricing under a licensing arrangement. In short, the proposed rule may necessitate the design (or invocation) of risk mitigation contract terms such as termination rights, limits or coordination of pricing authority subject to competition rules, or adjustments to economic terms based on material changes.
Comments on the proposed rules are due on February 23, 2026.
Reed Smith will continue to follow developments with regard to drug pricing and Medicare and Medicaid. If you have any questions about these models or any other aspect of Federal drug pricing, please feel free to contact the authors or the health care lawyers at Reed Smith.