1/8/2026 – First Circuit Reaffirms Rebate Pilot Pause; CMS Proposes Models Requiring Drug Manufacturers to Pay Additional Rebates on Medicare Drugs if the Net Prices Under the IRA Exceed Prices in Similar Countries

 

First Circuit Reasserts Rebate Pilot Pause

Last night, the First Circuit Court of Appeals (First Circuit) issued an order reaffirming that HRSA’s current iteration of the 340B rebate model pilot program is paused. In its order, the First Circuit states that it will resolve the merits of the appeal “without undue delay.” The Court ordered the parties to propose an expedited briefing schedule for the appeal by Monday at 1 pm.

In justifying its continuation of the rebate pilot pause, the First Circuit points to HRSA’s failure to consider different aspects of how the rebate pilot will affect covered entities and lack of injury from the stay. The First Circuit cites HRSA’s failure to consider hospitals’ reliance on upfront discounts or the significant costs that hospitals will incur under the rebate pilot. The Court reiterates that HRSA failed to provide a contemporaneous reasonable explanation for the rebate pilot.

The Court states that delaying the rebate pilot would only keep the status quo for the federal government rather than cause the government any injury and that manufacturers would primarily bear the cost of delaying the rebate pilot.

The drug manufacturers filed a separate appeal contesting the District Court’s denial of their ability to intervene in this litigation on behalf of the government. This case is currently awaiting a briefing schedule.

CMS Proposes Models Requiring Drug Manufacturers to Pay Additional Rebates on Medicare Drugs if IRA Prices Exceed Prices in Similar Countries

On December 23, 2025, CMS published two proposals that would require drug manufacturers to pay the Medicare Trust Fund an additional rebate if prices for certain Medicare Part B and Part D drugs exceed the prices that patients pay in other economically comparable countries. CMS proposes to implement the Global Benchmark for Efficient Drug Pricing (GLOBE) model, which targets Part B drugs, from October 1, 2026 through September 30, 2031. CMS proposes to implement the Guarding U.S. Medicare Against Rising Drug Costs (GUARD) model, which targets Medicare Part D drugs, from January 1, 2027 through December 31, 2031. The invoicing, collecting, and reconciling of rebates would last until 2033. Comments on both proposals are due by February 23, 2026.

The proposed models would test whether requiring manufacturers to pay an additional rebate if prices on certain drugs exceed the prices in other developed countries (most favored nation or MFN) reduces Medicare costs and preserves quality of care more effectively than only requiring the manufacturers to pay the Inflation Reduction Act (IRA) drug rebates. Neither of the proposed models would directly impact 340B pricing, but the manufacturers’ reactions to the market pressures could affect the 340B ceiling price.

The “average manufacturer price” (AMP) of a drug would decrease if the threat of additional rebates spur manufacturers to reduce the list price on their products, a trend that might already be emerging based on reports of several companies reducing the price of their sales to wholesalers. A reduced AMP would lead to a lower baseline from which to calculate the 340B ceiling price. The 340B ceiling price is calculated by taking the AMP of a drug and subtracting either a statutory percentage, or an amount based on the “best price” a manufacturer charges to any other purchaser. From that figure, the 340B ceiling price can be reduced further due to a Medicaid inflationary penalty if the manufacturer has increased the price of the drug faster than the rate of inflation. If manufacturers reduce the list prices of their drugs to avoid the models’ rebates, the 340B ceiling price could increase or decrease depending on whether the price reduction is large enough to result in the Medicaid inflationary penalty no longer being applied. Counterintuitively, when a drug’s 340B ceiling price is driven in large part by the inflationary rebate, the ceiling price is more likely to increase as the drug’s AMP decreases, reducing covered entities’ 340B savings.

Each model will be tested on a subset of IRA rebatable drugs (Select Drugs) that drug manufacturers are required to pay a rebate for if the prices for the drugs rise faster than inflation. The proposed models would require manufacturers to add an additional rebate to the IRA rebate if the rebate calculated using the model’s MFN-based rebate formula exceeds that under the existing statutory inflation rebate calculation. Ironically, CMS would not require manufacturers to pay the MFN rebate for drugs priced above international benchmarks as long as they keep the prices below the rate of inflation relative to the drugs’ launch price. The Select Drugs included in the models will not include the drugs that are selected for Medicare maximum fair price negotiations.

The models propose replacing the current domestic benchmark used to calculate manufacturer rebates with a benchmark derived from international pricing information. The models include an initial list of 19 reference countries that CMS will use to calculate rebate amounts. As described, the models do not contain any provision for the rebates to be shared with providers or dispensing entities; the rebates would accrue to the Medicare Trust Fund. Manufacturers would opt to have rebate amounts determined using either (1) available sources of international drug pricing information meeting CMS criteria or (2) international drug net pricing data that manufacturers may choose to submit to CMS.  CMS states that it prefers the second option.

The drugs eligible for the model would be drawn from specific therapeutic areas and would meet other criteria defined by CMS. CMS would implement the models in select geographic areas representing 25% of beneficiaries enrolled in a Part B or D plan. CMS will evaluate the models and their potential for nationwide expansion using specified measures, including patient cost sharing, stakeholder responses, drug access and utilization, and downstream effects on health services.

Both models exclude 340B claims and drugs subject to IRA maximum fair pricing from the rebate calculations. GLOBE excludes 340B claims based on the presence of a modifier, which is already required on all Part B claims. GUARD excludes 10% of claims as a reasonable prediction of 340B utilization, since CMS estimates that 10% of Part D claims involve 340B drugs. Covered entities will continue to receive the 340B ceiling price for the Select Drugs when purchased as covered outpatient drugs.

These pricing models come on the heels of CMS’s November 6, 2025 announcement of its Medicaid most favored nation pricing model, which allows state Medicaid programs to obtain supplemental rebates based on international pricing for certain drugs in exchange for meeting standardized coverage criteria. CMS will negotiate with each participating manufacturer on the coverage criteria, which will include utilization management criteria and a preferred drug list. CMS stated that it will share the coverage criteria with the state Medicaid agencies who can then decide whether to participate in the model. CMS announced that major manufacturers including AstraZeneca, EMD Serono, and Pfizer agreed to participate in this model. This model began on January 1, 2026, and is slated to last five years.

These models are another step in this administration’s initiative to implement widespread MFN pricing. In President Trump’s first term, CMS developed its Most Favored Nation (MFN) Model that set prices for 50 expensive Medicare Part B prices at an amount indexed to MFN pricing. Two federal courts blocked implementation of this model based mainly on the failure to follow notice and comment rulemaking requirements. In May, President Trump issued an Executive Order directing HHS to propose a rulemaking plan to impose MFN pricing, should drug manufacturers fail to make “significant progress” towards lowering drug prices to meet MFN pricing targets within 30 days from the issuance of the Executive Order. These proposed rules may be an attempt to fulfill the regulatory mandate in this Executive Order. In addition, the White House is set to launch TrumpRx any day now, which will allow manufacturers to offer discounted pricing directly to consumers.