Proposed Rule2025-23705
Guarding U.S. Medicare Against Rising Drug Costs (GUARD) Model
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Published
December 23, 2025
Issuing agencies
Health and Human Services DepartmentCenters for Medicare & Medicaid Services
Abstract
This proposed rule would implement the Guarding U.S. Medicare Against Rising Drug Costs (GUARD) Model to test a new Medicare payment model under section 1115A of the Social Security Act. The model proposes a test of 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.
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[Federal Register Volume 90, Number 244 (Tuesday, December 23, 2025)]
[Proposed Rules]
[Pages 60338-60429]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-23705]
[[Page 60337]]
Vol. 90
Tuesday,
No. 244
December 23, 2025
Part III
Department of Health and Human Services
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Centers for Medicare & Medicaid Services
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42 CFR Part 514
Guarding U.S. Medicare Against Rising Drug Costs (GUARD) Model;
Proposed Rule
Federal Register / Vol. 90 , No. 244 / Tuesday, December 23, 2025 /
Proposed Rules
[[Page 60338]]
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Centers for Medicare & Medicaid Services
42 CFR Part 514
[CMS-5546-P]
RIN 0938-AV74
Guarding U.S. Medicare Against Rising Drug Costs (GUARD) Model
AGENCY: Centers for Medicare & Medicaid Services (CMS), Department of
Health and Human Services (HHS).
ACTION: Proposed rule.
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SUMMARY: This proposed rule would implement the Guarding U.S. Medicare
Against Rising Drug Costs (GUARD) Model to test a new Medicare payment
model under section 1115A of the Social Security Act. The model
proposes a test of 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.
DATES: To be assured consideration, comments must be received at one of
the addresses provided below, by February 23, 2026.
ADDRESSES: In commenting, please refer to file code CMS-5546-P.
Comments, including mass comment submissions, must be submitted in
one of the following three ways (please choose only one of the ways
listed):
1. Electronically. You may submit electronic comments on this
regulation to <a href="http://www.regulations.gov">http://www.regulations.gov</a>. Follow the ``Submit a
comment'' instructions.
2. By regular mail. You may mail written comments to the following
address ONLY: Centers for Medicare & Medicaid Services, Department of
Health and Human Services, Attention: CMS-5546-P, P.O. Box 8013,
Baltimore, MD 21244-8013.
Please allow sufficient time for mailed comments to be received
before the close of the comment period.
3. By express or overnight mail. You may send written comments to
the following address ONLY: Centers for Medicare & Medicaid Services,
Department of Health and Human Services, Attention: CMS-5546-P, Mail
Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.
For information on viewing public comments, see the beginning of
the SUPPLEMENTARY INFORMATION Section.
FOR FURTHER INFORMATION CONTACT: Vinod Mitta, 667-290-8712 or
<a href="/cdn-cgi/l/email-protection#e3a4b6a2b1a78e8c87868fa3808e90cd8b8b90cd848c95"><span class="__cf_email__" data-cfemail="9bdccedac9dff6f4fffef7dbf8f6e8b5f3f3e8b5fcf4ed">[email protected]</span></a>.
SUPPLEMENTARY INFORMATION:
Information Included with Pic Comments: We encourage commenters to
include supporting facts, research, and evidence in their comments.
When doing so, commenters are encouraged to provide citations to the
published materials referenced, including active hyperlinks. Likewise,
commenters who reference materials which have not been published are
encouraged to upload relevant data collection instruments, data sets,
and detailed findings as a part of their comment. Providing such
citations and documentation will assist us in analyzing the comments.
Inspection of Public Comments: All comments received before the
close of the comment period are available for viewing by the public,
including any personally identifiable or confidential business
information that is included in a comment. We post all comments
received before the close of the comment period on the following
website as soon as possible after they have been received: <a href="http://www.regulations.gov">http://www.regulations.gov</a>. Follow the search instructions on that website to
view public comments. The Centers for Medicare & Medicaid Services
(CMS) will not post on <a href="http://Regulations.gov">Regulations.gov</a> public comments that make
threats to individuals or institutions or suggest that the commenter
will take actions to harm an individual. CMS continues to encourage
individuals not to submit duplicative comments. We will post acceptable
comments from multiple unique commenters even if the content is
identical or nearly identical to other comments.
Plain Language Summary: In accordance with 5 U.S.C. 553(b)(4), a
plain language summary of this rule may be found at <a href="https://www.regulations.gov/">https://www.regulations.gov/</a>.
I. Executive Summary
A. Background
Challenges related to the affordability of prescription drugs
adversely affect taxpayers by diverting funds that could be used to
improve health; such challenges also pose a direct concern for
patients, with 55 percent of adults reporting that they remain
concerned about medication affordability.<SUP>1 2</SUP> High drug costs
limit access to care and treatment, which in turn, can have cascading
consequences that lead to poor health for patients, increased medical
spending, and potentially avoidable expenditures for all payers,
including Medicare.\3\ Results from recent surveys show that many
Americans, including Medicare beneficiaries, face significant financial
burden of care that has resulted in skipping or rationing medication
due to cost.\4\
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\1\ Sparks, G., et al. (2024). Public Opinion on Prescription
Drugs and Their Prices. KFF. <a href="https://www.kff.org/health-costs/public-opinion-on-prescription-drugs-and-their-prices/">https://www.kff.org/health-costs/public-opinion-on-prescription-drugs-and-their-prices/</a> (Accessed: 10
December 2025).
\2\ Jones, E. & Noda, A. (2025). Drug Costs and Their Impact on
Care: Insights from Medicare Patients and Providers. The
Commonwealth Fund. <a href="https://www.commonwealthfund.org/publications/issue-briefs/2025/feb/drug-costs-impact-care-insights-medicare-patients-providers">https://www.commonwealthfund.org/publications/issue-briefs/2025/feb/drug-costs-impact-care-insights-medicare-patients-providers</a> (Accessed: 10 December 2025).
\3\ Nekui, F., et al. (2021). Cost-related Medication
Nonadherence and Its Risk Factors Among Medicare Beneficiaries.
Medical Care, 59(1):13-21. <a href="https://doi.org/10.1097/MLR.0000000000001458">https://doi.org/10.1097/MLR.0000000000001458</a>.
\4\ Arnold Ventures, Commonwealth Fund, & PerryUndem. (2025).
Drug Costs and Their Impact on Care. <a href="https://www.arnoldventures.org/stories/drug-costs-and-their-impact-on-care">https://www.arnoldventures.org/stories/drug-costs-and-their-impact-on-care</a> (Accessed: 10 December
2025).
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Financial toxicity, or the negative impact that the monetary burden
of medical care can have on patients' well-being, fiscal security, and
overall health,\5\ can be pronounced among the elderly population, most
of whom are covered by Medicare, and among patients where the cost of
treatment is high.\6\ One in four adults taking prescription drugs
report difficulty affording their medication, including 40 percent of
those with household income of less than $40,000 per year.\7\ A
separate survey conducted concluded that about four in 10 older adults
with Medicare reported problems accessing health care because of its
costs, and that 14 percent of Medicare beneficiaries said they skipped
taking or sometimes did not fill their prescription because of the
expense; this can have serious health-related consequences for Medicare
beneficiaries and may result in potentially avoidable costs for
Medicare.\8\
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\5\ Arastu A., et al. (2020). Assessment of Financial Toxicity
Among Older Adults with Advanced Cancer. JAMA Network Open,
3(12):e2025810. <a href="https://doi.org/10.1001/jamanetworkopen.2020.25810">https://doi.org/10.1001/jamanetworkopen.2020.25810</a>.
\6\ Narang, A.K. & Nicholas, L.H. (2016). Out-of-Pocket Spending
and Financial Burden Among Medicare Beneficiaries with Cancer. JAMA
Oncology, 3(6), 757. <a href="https://doi.org/10.1001/jamaoncol.2016.4865">https://doi.org/10.1001/jamaoncol.2016.4865</a>.
\7\ Sparks, G., et al. (2024). Public Opinion on Prescription
Drugs and Their Prices. KFF. <a href="https://www.kff.org/health-costs/public-opinion-on-prescription-drugs-and-their-prices/">https://www.kff.org/health-costs/public-opinion-on-prescription-drugs-and-their-prices/</a> (Accessed: 10
December 2025).
\8\ Leonard, F., et al. (2023). Medicare's Affordability
Problem: A Look at the Cost Burdens Faced by Older Enrollees. The
Commonwealth Fund. <a href="https://www.commonwealthfund.org/publications/issue-briefs/2023/sep/medicare-affordability-problem-cost-burdens-biennial">https://www.commonwealthfund.org/publications/issue-briefs/2023/sep/medicare-affordability-problem-cost-burdens-biennial</a> (Accessed: 10 December 2025).
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[[Page 60339]]
Medicare Part D prescription drug costs have been rising over time,
with total Part D gross drug spending increasing from $121 billion in
2014 to $276 billion in 2023, an increase of over 100 percent, as
reported by the Medicare Payment Advisory Commission (MedPAC).\9\ This
translates to an approximately 66 percent increase in average gross
spending for each beneficiary who used Part D drugs over that same
period ($3,267 in 2014 to $5,429 in 2023).\10\ The increase in Part D
gross drug spending is consistent with overall trends in U.S. drug
spending. A recent analysis shows that drug spending in the United
States increased from $600 billion in 2018 to $858 billion in 2023 for
all drugs (a 43 percent increase), regardless of payer source.\11\
Retail prescription drug prices are expected to continue to increase
over time, driven by a number of factors, including increases in the
use of prescription drugs as well as increases in drug prices over
time.\12\
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\9\ MedPAC. (2025). Health Care Spending and the Medicare
Program. <a href="https://www.medpac.gov/wp-content/uploads/2025/07/July2025_MedPAC_DataBook_SEC.pdf">https://www.medpac.gov/wp-content/uploads/2025/07/July2025_MedPAC_DataBook_SEC.pdf</a> (Accessed: 10 December 2025).
\10\ MedPAC. (2025). Health Care Spending and the Medicare
Program. <a href="https://www.medpac.gov/wp-content/uploads/2025/07/July2025_MedPAC_DataBook_SEC.pdf">https://www.medpac.gov/wp-content/uploads/2025/07/July2025_MedPAC_DataBook_SEC.pdf</a> (Accessed: 10 December 2025).
\11\ IQVIA. (2023). The use of medicines in the U.S. 2023.
<a href="https://www.iqvia.com/insights/the-iqvia-institute/reports-and-publications/reports/the-use-of-medicines-in-the-us-2023">https://www.iqvia.com/insights/the-iqvia-institute/reports-and-publications/reports/the-use-of-medicines-in-the-us-2023</a> (Accessed:
10 December 2025).
\12\ Poisal, J.A., et al. (2022). National Health Expenditure
Projections, 2021-30: Growth to Moderate as COVID-19 Impacts Wane.
Health Affairs, 41(4), 474-486. <a href="https://doi.org/10.1377/hlthaff.2022.00113">https://doi.org/10.1377/hlthaff.2022.00113</a>.
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Existing research finds that the prices of drugs sold in the United
States are much higher than the prices of the same drugs sold in other
countries. One study finds that overall, the U.S. health care system
spends substantially more on outpatient drugs for older adults with
complex conditions, such as heart failure, diabetes, and chronic
obstructive pulmonary disease (COPD), who are mostly covered by
Medicare, than 11 other economically similar countries (including, for
example, Australia, France, Germany, Canada, and the United
Kingdom).\13\ The authors conclude that the United States is paying
substantially higher prices for certain components of health care,
including for drugs, than other countries.\14\ Another study finds that
prices for certain high expenditure single-source brand name
prescription drugs covered under Medicare Part D in 2018 were 3 to 4
times higher in the United States, even after accounting for estimated
manufacturer rebate amounts, compared to their prices in the United
Kingdom, Japan, and Canada.\15\ Among these countries, Japan and Canada
use international reference pricing to help determine drug prices
within the country.\16\ Analyses by IQVIA show that per capita
utilization of drugs is higher in certain regions and countries,
specifically, in Western European countries and Japan, compared to
North American countries, suggesting that utilization differences alone
are not the drivers of the observed price differences.\17\ The data
also shows that U.S. brand-name prescription drug prices exceed those
found in other Organization for Economic Co-operation and Development
(OECD) countries.<SUP>18 19</SUP>
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\13\ Figueroa, J.F., et al. (2021). International Comparison of
Health Spending and Utilization Among People with Complex
Multimorbidity. Health Services Research, 56(S3), 1317-1334. <a href="https://doi.org/10.1111/1475-6773.13708">https://doi.org/10.1111/1475-6773.13708</a>.
\14\ Figueroa, J.F., et al. (2021). International Comparison of
Health Spending and Utilization Among People with Complex
Multimorbidity. Health Services Research, 56(S3), 1317-1334. <a href="https://doi.org/10.1111/1475-6773.13708">https://doi.org/10.1111/1475-6773.13708</a>.
\15\ Kang, S., et al. (2019). Using External Reference Pricing
in Medicare Part D to Reduce Drug Price Differentials with Other
Countries. Health Affairs, 38(5), 804-811. <a href="https://doi.org/10.1377/hlthaff.2018.05207">https://doi.org/10.1377/hlthaff.2018.05207</a>.
\16\ Kang, S., et al. (2019). Using External Reference Pricing
in Medicare Part D to Reduce Drug Price Differentials with Other
Countries. Health Affairs, 38(5), 804-811. <a href="https://doi.org/10.1377/hlthaff.2018.05207">https://doi.org/10.1377/hlthaff.2018.05207</a>.
\17\ IQVIA. (2025). The Global Use of Medicines 2025: Outlook to
2029--Global Webinar. <a href="https://www.iqvia.com/-/media/iqvia/pdfs/events/presentation_global-meds-webinar_public.pdf">https://www.iqvia.com/-/media/iqvia/pdfs/events/presentation_global-meds-webinar_public.pdf</a> (Accessed: 10
December 2025).
\18\ Mulcahy, A.W., et al. (2024). International Prescription
Drug Price Comparisons: Estimates Using 2022 Data. Office of the
Assistant Secretary for Planning and Evaluation, U.S. Department of
Health and Human Services. <a href="https://aspe.hhs.gov/sites/default/files/documents/277371265a705c356c968977e87446ae/international-price-comparisons.pdf">https://aspe.hhs.gov/sites/default/files/documents/277371265a705c356c968977e87446ae/international-price-comparisons.pdf</a> (Accessed: 10 December 2025).
\19\ The Organization for Economic Cooperation and Development
(OECD) is a multilateral organization with 38 member countries.
Comparing the United States to other OECD countries that are similar
in economy, based on GDP and GDP per capita, allows for a more
appropriate comparison.--About the OECD, U.S. Mission to the
Organization for Economic Co-operation and Development, Available at
<a href="https://usoecd.usmission.gov/about-the-oecd/">https://usoecd.usmission.gov/about-the-oecd/</a>.
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The disparity between U.S. drug prices and prices in other
economically comparable countries may have several drivers, but a key
component is the substantial difference in the way prescription drug
prices are determined in the United States and other economically
comparable countries. Although there is wide variation in the way drug
prices are determined in economically comparable countries, in general,
many countries take a more centralized approach to drug pricing and/or
have greater involvement in determining prices for drugs than the
United States.\20\
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\20\ Syversen, I.D., et al. (2024). A Comparative Analysis of
International Drug Price Negotiation Frameworks: An interview study
of key stakeholders. Milbank Quarterly, 102(4), 1004-1031. <a href="https://doi.org/10.1111/1468-0009.12714">https://doi.org/10.1111/1468-0009.12714</a>.
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In the United States, prices are set by drug manufacturers for the
U.S. market and the incentives and payment mechanisms embedded within
the U.S. pharmaceutical drug supply chain are complex. Drug
manufacturers set a Wholesale Acquisition Cost (WAC), which is the
published catalog or ``list price'' for a drug product; this represents
the amount at which wholesalers are offered the drug product.\21\ The
manufacturer list price is not the ultimate net revenue realized by the
manufacturer as there are multiple discounts and price concessions to
stakeholders throughout the pharmaceutical drug supply chain; however,
it may have influence throughout the pharmaceutical drug supply chain.
Existing research shows that the list price of new brand-name drugs at
launch have been increasing over time, with one study finding that from
2008 to 2021, the mean launch price increased by 13 percent per year;
this increase was 11 percent per year for a subset of drugs for which
the researchers were able to account for manufacturer rebates and drug
characteristics.\22\
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\21\ Mulcahy, A.W. & Kareddy, V. (2021). Prescription Drug
Supply Chains: An Overview of Stakeholders and Relationships. Office
of the Assistant Secretary for Planning and Evaluation, U.S.
Department of Health and Human Services. <a href="https://aspe.hhs.gov/reports/prescription-drug-supply-chains">https://aspe.hhs.gov/reports/prescription-drug-supply-chains</a> (Accessed: 10 December
2025).
\22\ Rome, B.N., et al. (2022). Trends in Prescription Drug
Launch Prices, 2008-2021. JAMA, 327(21), 2145. <a href="https://doi.org/10.1001/jama.2022.5542">https://doi.org/10.1001/jama.2022.5542</a>.
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There are many factors that affect the amount that is ultimately
paid by stakeholders for a pharmaceutical drug after discounts,
rebates, and other price concessions are excluded (referred to as the
`net price'), including the degree to which the drug is subject to
market competition. In general (though there may be exceptions), drugs
that face more limited competition have higher net prices than drugs
that have greater market competition.<SUP>23 24 25</SUP> Among drugs
[[Page 60340]]
with competing therapies available, drug manufacturers have a
particular incentive to compete against each other for formulary
coverage by negotiating rebates with plan sponsors or their pharmacy
benefit managers (PBMs). Within Part D, this generally includes drugs
that are not in protected classes. (Centers for Medicare & Medicaid
Services (CMS) protected classes are drugs for which Part D sponsors
must include all or substantially all drugs within the classes on their
formularies, which means that manufacturers do not have the same
incentives to negotiate rebates or other price concession for these
drugs.) \26\ Ultimately, the negotiated rebates and other price
concessions result in a ``net'' price (that is, list price net of
rebates and other price concessions) for the drug that is lower than
the list price.\27\ Under the Part D program, this post point-of-sale
compensation is included in Direct and Indirect Remuneration (DIR) \28\
and is factored into CMS's calculation of final Medicare payments to
Part D plans.\29\ This, in turn, impacts Medicare costs under the
Medicare Prescription Drug Benefit program, also known as Part D, which
was created under the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 (Pub. L. 108-173, 117 Stat. 2066).\30\
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\23\ Government Accountability Office. (2023). Medicare Part D:
CMS Should Monitor Effects of Rebates on Plan Formularies and
Beneficiary Spending [GAO-23-105270]. <a href="https://www.gao.gov/assets/gao-23-105270.pdf">https://www.gao.gov/assets/gao-23-105270.pdf</a> (Accessed: 10 December 2025).
\24\ Hernandez, I., et al. (2020). Changes in List Prices, Net
Prices, and Discounts for Branded Drugs in the US, 2007-2018. JAMA,
323(9), 854. <a href="https://doi.org/10.1001/jama.2020.1012">https://doi.org/10.1001/jama.2020.1012</a>.
\25\ Mulcahy, A.W., et al. (2024). Prescription Drug Prices,
Rebates, and Insurance Premiums. RAND. <a href="https://www.rand.org/pubs/research_reports/RRA1820-3.html">https://www.rand.org/pubs/research_reports/RRA1820-3.html</a> (Accessed: 10 December 2025).
\26\ See section 1860D-4(b)(3)(G) of the Social Security Act.
The six protected classes are: immunosuppressant, (for prophylaxis
of organ transplant rejection), antidepressant, antipsychotic,
anticonvulsant, antiretroviral, and antineoplastic. See also,
Medicare Prescription Drug Benefit Manual Chapter 6--Part D Drugs
and Formulary Requirements, Centers for Medicare & Medicaid Services
(January 15, 2016) at Sec. 30.2.5, available at <a href="https://www.cms.gov/medicare/prescription-drug-coverage/prescriptiondrugcovcontra/downloads/part-d-benefits-manual-chapter-6.pdf">https://www.cms.gov/medicare/prescription-drug-coverage/prescriptiondrugcovcontra/downloads/part-d-benefits-manual-chapter-6.pdf</a> (Last accessed September 24, 2025).
\27\ Mulcahy, A.W. & Kareddy, V. (2021). Prescription Drug
Supply Chains: An Overview of Stakeholders and Relationships. Office
of the Assistant Secretary for Planning and Evaluation, U.S.
Department of Health and Human Services. <a href="https://aspe.hhs.gov/reports/prescription-drug-supply-chains">https://aspe.hhs.gov/reports/prescription-drug-supply-chains</a> (Accessed: 10 December
2025).
\28\ Fees, payments, or payment adjustments made after the
point-of-sale that change the cost of Part D covered drugs for Part
D sponsors or PBMs must be reported to CMS as Direct or Indirect
Remuneration (DIR).
\29\ Centers for Medicare & Medicaid Services. (2017). Medicare
Part D--Direct and Indirect Remuneration (DIR). U.S. Department of
Health and Human Services. <a href="https://www.cms.gov/newsroom/fact-sheets/medicare-part-d-direct-and-indirect-remuneration-dir">https://www.cms.gov/newsroom/fact-sheets/medicare-part-d-direct-and-indirect-remuneration-dir</a> (Accessed: 10
December 2025).
\30\ Medicare Prescription Drug, Improvement, and Modernization
Act of 2003, Public Law 108-173, 117 Stat. 2066 (2003). <a href="https://www.congress.gov/108/plaws/publ173/PLAW-108publ173.pdf">https://www.congress.gov/108/plaws/publ173/PLAW-108publ173.pdf</a> (Accessed: 10
December 2025).
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Under the Part D program, drug price negotiations take place
between Part D plan sponsors (or their PBMs) and pharmaceutical
manufacturers. Until recently, the federal government has not been a
participant in the negotiations for drug prices.\31\ The Medicare
program does not currently use international reference pricing, which
broadly refers to the practice of taking pharmaceutical pricing data
from other economically comparable countries into account in
identifying domestic prices for drugs.\32\ The Inflation Reduction Act
of 2022 (IRA), Public Law 117-169, included a series of provisions,
including the Medicare Drug Price Negotiation Program, which authorizes
the Secretary of the Department of Health and Human Services (HHS)
(hereafter, ``the Secretary'') to negotiate the prices of certain
qualifying high expenditure single source drugs without generic or
biosimilar competition with manufacturers; however, the Medicare Drug
Price Negotiation Program does not consider the prices of drugs in
other economically similar countries \33\ in negotiating the maximum
fair price (MFP).
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\31\ The exception to this is drugs that are selected for the
Medicare Drug Price Negotiation Program, implemented by the
Inflation Reduction Act, which authorizes Medicare to directly
negotiate drug prices for certain high expenditure, single source
Medicare Part B or Part D drugs.
\32\ Tordrup, D., et al. (2020). Systematic Reviews for the
Update of the WHO Guideline on Country Pharmaceutical Pricing
Policies. World Health Organization (WHO). <a href="https://www.ncbi.nlm.nih.gov/books/NBK570141/pdf/Bookshelf_NBK570141.pdf">https://www.ncbi.nlm.nih.gov/books/NBK570141/pdf/Bookshelf_NBK570141.pdf</a>
(Accessed: 10 December 2025).
\33\ Inflation Reduction Act of 2022, Public Law 117-169, 136
Stat 1818. The IRA is codified in multiple titles of the U.S. Code.
The relevant sections of the Medicare Drug Price Negotiation Program
are found at 42 U.S.C. 1320f-1 through 1320f-7.
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B. Purpose
The prices of certain prescription drugs in the United States,
including those covered under Part D, remain high, which contributes to
increased costs under Part D. To address high spending under Part D,
CMS proposes the testing of a new mandatory model under section 1115A
of the Social Security Act (the Act), which authorizes the CMS' Center
for Medicare and Medicaid Innovation (hereafter, ``the CMS Innovation
Center'') to test innovative payment and service delivery models for
the purpose of evaluating whether they will reduce Medicare, Medicaid,
and Children's Health Insurance Program (CHIP) expenditures while
preserving or enhancing the quality of care furnished to the
beneficiaries of such programs. The IRA included the Part D Inflation
Rebate Program, which requires drug manufacturers to pay a rebate if
they raise their prices for certain drugs faster than the rate of
inflation. This rebate is paid to the Medicare Prescription Drug
Account in the Federal Supplementary Medical Insurance Trust Fund and
is calculated and invoiced by CMS. The CMS Innovation Center, under its
statutory authority, is proposing an innovative payment model that
would test an alternative approach to the IRA's Part D Inflation Rebate
Program that would change the calculation of the Part D drug inflation
rebates for certain Part D drugs and biological products for the
purpose of evaluating whether this approach would reduce program
expenditures while maintaining or enhancing quality of care for
beneficiaries. CMS proposes that the model's period of performance
would begin on January 1, 2027 and end on December 31, 2033 and the
payment period for the model would begin on January 1, 2027 and end on
December 31, 2035.
C. Summary of Major Provisions
The proposed Guarding U.S. Medicare Against Rising Drug Costs
(GUARD) Model would test changes to the Part D Inflation Rebate
Program, specifically testing whether an alternative calculation for
the Part D inflation rebate calculation for certain drugs and
biological products would reduce program spending for Medicare and
taxpayers while preserving or enhancing the quality of care furnished
to Medicare beneficiaries. The proposed model includes the following
major provisions:
<bullet> The GUARD Model would include a subset of Part D rebatable
drugs that are included in the Part D Inflation Rebate Program.
Specifically, the GUARD Model would include sole-source drugs and sole-
source biological products that are in the following specific
therapeutic categories: Analgesics; Anticonvulsants; Antidepressants;
Antimigraine Agents; Antineoplastics; Antipsychotics; Antivirals;
Bipolar Agents; Blood Glucose Regulators; Cardiovascular Agents;
Central Nervous System Agents; Gastrointestinal Agents; Genetic or
Enzyme or Protein Disorder: Replacement or Modifiers or Treatment;
Immunological Agents; Metabolic Bone Disease Agents; Ophthalmic Agents;
and Respiratory Tract/Pulmonary Agents. The GUARD Model would exclude:
(1) generics and biosimilar biological products; (2) sole-source drugs
or sole-source biological products with annual application-level \34\
total gross covered
[[Page 60341]]
drug costs below the GUARD minimum spend threshold; and (3) drugs that
are subject to a negotiated MFP, during the price applicability period.
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\34\ Application-level refers to the New Drug Application (NDA)
or Biologics License application (BLA) associated with each GUARD
Model drug. This means the total gross covered prescription drug
costs for all Part D rebatable NDC-9s associated with the same
application (NDA or BLA) as the GUARD Model drug.
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<bullet> Manufacturers of Part D rebatable drugs, as defined in
section 1927(k)(5) of the Act and 42 CFR 428.20, that receive a Part D
inflation rebate report that includes a GUARD Model drug during an
applicable period that overlaps with the GUARD Model performance period
would be required to participate in the GUARD Model.
<bullet> The GUARD Model would select reference countries that are
economically comparable to the United States by implementing the
following criteria: the country must be included as an OECD country;
must have a minimum of 60 percent of the United States's purchasing
power parity (PPP)-adjusted per capita gross domestic product (GDP),
and must have a minimum $400 billion (PPP)-adjusted aggregate GDP. The
reference countries that meet these criteria and are therefore proposed
to be selected for the model are the following: 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.
<bullet> CMS proposes to test two approaches to calculating the
GUARD Model international benchmark: the default international
benchmark (also referred to as Method I) and the updated international
benchmark (also referred to as Method II).
<bullet> For each GUARD Model drug for which data on international
drug pricing in reference countries is available, CMS would calculate
the GUARD Model default international benchmark. The GUARD Model
default international benchmark for each GUARD Model drug would be
identified as the lowest country-level average price among the set of
average prices for each reference country, adjusted by the country-
specific GDP based on PPP (hereafter, ``GDP (PPP)'') adjuster, where an
international product that is part of a GUARD Model drug's set of
international analogs is sold.<SUP>35 36</SUP>
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\35\ To be a part of the set of international analogs, an
international product must have an active ingredient, route of
administration, dosage form, and strength that aligns with that of
the GUARD Model drug.
\36\ Individual countries differ in the regulatory processes and
standards governing approval of drugs and biological products. Use
of international drug prices in the proposed GUARD Model should not
be interpreted to connote FDA approval or to otherwise describe any
scientific or regulatory relationship between U.S.-approved and non-
U.S.-approved products.
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<bullet> CMS would provide manufacturers with the option to submit
international drug net pricing \37\ data for the set of reference
countries where international products that are part of a GUARD Model
drug's set of international analogs are sold, including the across-
country average net price. This submitted across-country average net
price accounts for country-specific differences using a GDP (PPP)
adjuster; if the data submitted is determined to be an applicable
submission, it would become the GUARD Model updated international
benchmark.
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\37\ Where net pricing refers to drug prices exclusive of any
discounts, rebates, or price concessions offered by manufacturers.
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<bullet> CMS would determine a GUARD Model applicable international
benchmark for each GUARD Model drug that would be the greater of the
GUARD Model default international benchmark and the GUARD Model updated
international benchmark, unless there is only a GUARD Model default
international benchmark. If there is only a GUARD Model default
international benchmark, it would become the GUARD Model applicable
international benchmark.
<bullet> CMS would use this information to test an alternative
inflation rebate payment calculation to determine whether manufacturers
owe a GUARD Model rebate payment. The alternative inflation rebate
calculation tested under the GUARD Model would compare a Medicare net
price against the GUARD Model applicable international benchmark.
<bullet> The GUARD Model would require manufacturers to pay a GUARD
Model rebate payment if the Medicare net price is greater than the
GUARD Model applicable international benchmark for a GUARD Model drug.
The Medicare net price would be calculated by subtracting manufacturer
rebates (obtained from DIR) and discounts (under the Manufacturer
Discount Program) from the WAC of the GUARD Model drug.
<bullet> The total GUARD Model rebate amount would be equal to the
product of the per unit GUARD Model rebate amount for a GUARD Model
drug for the performance year and the total number of units of the
GUARD Model drug dispensed under Part D and covered by Part D plan
sponsors in the GUARD Model geographic areas for the performance year.
<bullet> When the per unit GUARD Model rebate exceeds the per unit
Part D inflation rebate amount, CMS would waive the rebate amount
described in section 1860D-14B(b) of the Act and instead apply the
GUARD Model rebate amount. The GUARD Model rebate payment would be
deposited into the Medicare Prescription Drug Account in the Federal
Supplementary Medical Insurance Trust Fund.
<bullet> The GUARD Model evaluation would examine the main outcome,
Medicare net spending, as well as additional outcomes of the GUARD
Model, including the ways in which Part D plan benefits may change for
GUARD Model drugs and whether and to what extent there are impacts on
beneficiary cost sharing for GUARD Model drugs.
We also propose to waive program requirements that are necessary
solely for the purposes of testing the GUARD Model. We propose to issue
these waivers using our waiver authority under section 1115A(d)(1) of
the Act. Specifically, we propose to waive the provisions in section
1860D-14B(b)(1) of the Act, which are the Medicare Part D inflation
rebate calculation provisions; and, we propose to waive the provisions
in section 1860D-14B(a)(1) of the Act, which describes the timing
requirements for manufacturer rebates reports issued by CMS. Each of
the proposed waivers is discussed in detail in section IV.R. this
proposed rule.
D. Summary of Costs and Benefits
[[Page 60342]]
[GRAPHIC] [TIFF OMITTED] TP23DE25.000
II. Background
Prescription drug prices in the United States have been increasing
over time, and the prices of certain drugs sold in the United States
are substantially higher than prices in economically comparable
countries. High prescription drug prices in the United States influence
Part D spending, which has also increased over time (as we discuss
later in this section).
A. Prescription Drug Prices in the United States
Medicare prescription drug costs have been rising over time, with
total Part D gross drug spending increasing from $121 billion in 2014
to $276 billion in 2023, an increase of nearly 10 percent annually.\38\
In 2024, Part D drug spending represented a large portion (about 40
percent) \39\ of overall gross drug spending in the United States. The
increase in Part D gross drug spending is consistent with overall
trends in U.S. drug spending, which are rising over time. Gross drug
spending has increased from $600 billion in 2018 to $858 billion in
2023 for all drugs, regardless of payer source.\40\ Net drug spending
increased by 11.4 percent in 2024 (from $437.1 billion in 2023 to $487
billion in 2024), more than double the increase from the previous year
(4.9 percent growth in 2023, from $416.8 billion in 2022 to $437.1
billion in 2023).\41\ These increases are driven by many factors; the
way the United States pays for prescription drugs and the complex
pharmaceutical drug supply chain also play a role.
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\38\ MedPAC. (2025). Health Care Spending and the Medicare
program. <a href="https://www.medpac.gov/wp-content/uploads/2025/07/July2025_MedPAC_DataBook_SEC.pdf">https://www.medpac.gov/wp-content/uploads/2025/07/July2025_MedPAC_DataBook_SEC.pdf</a> (Accessed: 10 December 2025).
\39\ IQVIA. (2025). Understanding the Use of Medicines in the
U.S. 2025. <a href="https://www.iqvia.com/insights/the-iqvia-institute/reports-and-publications/reports/understanding-the-use-of-medicines-in-the-us-2025">https://www.iqvia.com/insights/the-iqvia-institute/reports-and-publications/reports/understanding-the-use-of-medicines-in-the-us-2025</a> (Accessed: 10 December 2025).
\40\ IQVIA. (2023). The Use of Medicines in the U.S. 2023.
<a href="https://www.iqvia.com/insights/the-iqvia-institute/reports-and-publications/reports/the-use-of-medicines-in-the-us-2023">https://www.iqvia.com/insights/the-iqvia-institute/reports-and-publications/reports/the-use-of-medicines-in-the-us-2023</a> (Accessed:
10 December 2025).
\41\ IQVIA. (2025). Understanding the Use of Medicines in the
U.S. 2025. <a href="https://www.iqvia.com/insights/the-iqvia-institute/reports-and-publications/reports/understanding-the-use-of-medicines-in-the-us-2025">https://www.iqvia.com/insights/the-iqvia-institute/reports-and-publications/reports/understanding-the-use-of-medicines-in-the-us-2025</a> (Accessed: 10 December 2025).
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Existing research shows that the prices of drugs in the United
States are much higher than prices for the same drugs sold in other
countries and this gap is increasing over time.<SUP>42 43</SUP> In
2024, the United States accounted for less than 5 percent of the
world's population (4.22) \44\ and about 15 percent (14.9) of the
world's real gross domestic product (GDP),\45\ but U.S. gross spending
on drugs accounted for over half of the world's gross spending on drugs
(53.2 percent) \46\ and only about 10 percent of the volume sold.\47\
Among countries in the Organization for Economic Cooperation and
Development (OECD), in 2024, the United States accounted for about 63
percent of spending on prescription drugs, but only 22 percent of the
volume.\48\
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\42\ Kang, S., et al. (2019). Using External Reference Pricing
in Medicare Part D to Reduce Drug Price Differentials with Other
Countries. Health Affairs, 38(5), 804-811. <a href="https://doi.org/10.1377/hlthaff.2018.05207">https://doi.org/10.1377/hlthaff.2018.05207</a>.
\43\ Mulcahy, A.W., et al. (2024). International Prescription
Drug Price Comparisons: Estimates Using 2022 Data. Office of the
Assistant Secretary for Planning and Evaluation, U.S. Department of
Health and Human Services. <a href="https://aspe.hhs.gov/sites/default/files/documents/277371265a705c356c968977e87446ae/international-price-comparisons.pdf">https://aspe.hhs.gov/sites/default/files/documents/277371265a705c356c968977e87446ae/international-price-comparisons.pdf</a> (Accessed: 10 December 2025).
\44\ Data from the U.S. Census Bureau: the U.S. and World
Population Clock (Population Clock) and the International Database
(International Database). The U.S. and world population in 2024
according to the U.S. Census Bureau's U.S. and World Population
Clock was about 340 million and 8 billion which results in the U.S.
population being 4.22% of the world population in 2024.
\45\ Data from the CIA World Factbook's real GDP at purchasing
power parity (PPP) exchange rates (Real GDP (purchasing power
parity) Comparison--The World Factbook). For 2024, the US. and world
GDP in real GDP at PPP (2021 U.S. dollars) according to the CIA
World Factbook was 25.7 and 172.4 trillion which results in the U.S.
GDP being is 14.89% of the world GDP.
\46\ Mikulic, M. (2025). Market Share of the Leading Global
Pharmaceutical Markets 2024. Statista. https://www.statista.com/
statistics/245473/market-share-of-the-leading-10-global-
pharmaceutical-markets/
#:~:text=The%20United%20States%20was%20the,including%20only%20the%20h
ospital%20market (Accessed: 10 December 2025).
\47\ Author analysis based on IQVIA MIDAS[supreg] annual volume
sales data using the kilogram measure January to December 2024
reflecting estimates of real-world activity. Copyright IQVIA. All
rights reserved. The statements, findings, conclusions, views, and
opinions contained and expressed in this research article are based
in part on data obtained under license from the following IQVIA
information service(s): IQVIA MIDAS. Copyright IQVIA. All Rights
Reserved. The statements, findings, conclusions, views and opinions
contained and expressed herein are not necessarily those of IQVIA or
any of its affiliated or subsidiary entities.
\48\ Author analysis based on IQVIA MIDAS annual sales data
using the estimated sales and kilogram measures from January to
December 2024 reflecting estimated of real-world activity. Copyright
IQVIA. All rights reserved.
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Research from Office of Assistant Secretary for Planning and
Evaluation (ASPE) and the RAND Corporation provides comparative data on
U.S. prescription drug prices relative to other OECD member countries.
These studies examine prescription drug pricing patterns and present
findings on how U.S. prescription drug costs compare to international
benchmarks. ASPE's
[[Page 60343]]
research indicated that U.S. prescription drug prices exceeded those of
non-U.S. OECD countries combined in 2018. Specifically, U.S. gross
prices for brand-name drugs were 344 percent of prices in non-U.S.
countries.\49\ The study also found that unbranded generic drugs had
lower U.S. prices compared to the prices in other OECD countries. A
2024 report revealed an even larger gap, U.S. gross prices for certain
drugs are higher than other countries. Specifically, for brand-name
originator drugs,\50\ U.S. prices are approximately 422 percent of
prices in economically comparable countries or at least 322 percent if
adjusted for rebates in the United States (but not in other
countries).\51\ The same study showed the United States paid less for
unbranded generic drugs; specifically, U.S. prices for these drugs
represent approximately 67 percent of the OECD countries combined. This
indicates that pricing patterns vary between brand-name originator
drugs and generic drugs in the U.S. market. This body of research also
suggests that U.S. drug prices for brand-name originator drugs are
growing faster than drug prices in other countries.
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\49\ Mulcahy, A., et al. (2021). International Prescription Drug
Price Comparisons: Current Empirical Estimates and Comparisons with
Previous Studies. RAND. <a href="https://www.rand.org/pubs/research_reports/RR2956.html">https://www.rand.org/pubs/research_reports/RR2956.html</a> (Accessed: 16 December 2025).
\50\ The 2024 ASPE report defines brand-name originators as
``the original drugs developed and licensed or approved via 351(a)
or a New Drug Application (NDA) pathway.'' The authors of the study
are solely responsible for how brand-name originator drugs were
defined for the study.
\51\ Mulcahy, A.W., et al. (2024). International Prescription
Drug Price Comparisons: Estimates Using 2022 Data. Office of the
Assistant Secretary for Planning and Evaluation, U.S. Department of
Health and Human Services. <a href="https://aspe.hhs.gov/sites/default/files/documents/277371265a705c356c968977e87446ae/international-price-comparisons.pdf">https://aspe.hhs.gov/sites/default/files/documents/277371265a705c356c968977e87446ae/international-price-comparisons.pdf</a> (Accessed: 10 December 2025).
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The widening gap over time between U.S. drug prices and prices in
other economically comparable countries for certain types of drugs
exist for many reasons. However, one component is the substantial
difference in the way the United States and other economically
comparable countries approach prescription drug pricing. Although there
is wide variation in the way economically comparable countries
determine prices, in general, many countries take a more centralized
approach to drug pricing and may have greater involvement in
establishing prices for drugs than the United States.\52\
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\52\ Syversen, I.D., et al. (2024). A Comparative Analysis of
International Drug Price Negotiation Frameworks: An interview study
of key stakeholders. Milbank Quarterly, 102(4), 1004-1031. <a href="https://doi.org/10.1111/1468-0009.12714">https://doi.org/10.1111/1468-0009.12714</a>.
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The U.S. market and the incentives and payment mechanisms embedded
within the U.S. pharmaceutical drug supply chain are complex. Drug
manufacturers set the list price, also known as the Wholesale
Acquisition Cost (WAC), which serves as the initial anchor price for a
drug throughout the complex pharmaceutical drug supply chain market in
the United States.\53\ The pharmaceutical drug supply chain consists of
many stakeholders, each with differing, potentially complex roles.
Stakeholders include drug manufacturers, drug wholesalers, pharmacies,
group purchasing organizations (GPOs), payers (that is, insurance
plans, including Part D plans), and pharmacy benefit managers
(PBMs).\54\ When payers, including Medicare Advantage organizations
offering Part D prescription drug coverage and standalone Part D plans,
reimburse the pharmacy for a drug, the reimbursement is based on a
negotiated payment amount for the drug plus a dispensing fee. Payers,
including Part D plan sponsors, often contract with PBMs, which
administer the outpatient pharmacy benefit and negotiate rebates with
manufacturers. For drugs in competitive therapeutic classes, PBMs often
negotiate with manufacturers to receive rebates in exchange for
preferred formulary placement. These rebates, which are not typically
applied at point-of-sale, ultimately reduce the net price of the drug
faced by the payer. Under the Part D program, the post point-of-sale
compensation is included in direct and indirect remuneration (DIR), and
it is factored into the Centers for Medicare & Medicaid Services (CMS)
calculation of final Medicare payments to Part D plans.\55\ This, in
turn, impacts Medicare costs, including premiums, under the Part D
program.
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\53\ Mulcahy, A.W. & Kareddy, V. (2021). Prescription Drug
Supply Chains: An Overview of Stakeholders and Relationships. Office
of the Assistant Secretary for Planning and Evaluation, U.S.
Department of Health and Human Services. <a href="https://aspe.hhs.gov/reports/prescription-drug-supply-chains">https://aspe.hhs.gov/reports/prescription-drug-supply-chains</a> (Accessed: 10 December
2025).
\54\ Mulcahy, A.W. & Kareddy, V. (2021). Prescription Drug
Supply Chains: An Overview of Stakeholders and Relationships. Office
of the Assistant Secretary for Planning and Evaluation, U.S.
Department of Health and Human Services. <a href="https://aspe.hhs.gov/reports/prescription-drug-supply-chains">https://aspe.hhs.gov/reports/prescription-drug-supply-chains</a> (Accessed: 10 December
2025).
\55\ Centers for Medicare & Medicaid Services. (2017). Medicare
Part D--Direct and Indirect Remuneration (DIR). U.S. Department of
Health and Human Services. <a href="https://www.cms.gov/newsroom/fact-sheets/medicare-part-d-direct-and-indirect-remuneration-dir">https://www.cms.gov/newsroom/fact-sheets/medicare-part-d-direct-and-indirect-remuneration-dir</a> (Accessed: 10
December 2025).
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B. The Medicare Prescription Drug Benefit (Medicare Part D)
The Medicare Voluntary Prescription Drug Benefit Program, also
known as Part D, is a federal prescription drug coverage program
established under Title XVIII, Part D of the Social Security Act
(hereafter, ``the Act'') (sections 1860D-1 through 1860D-43 of the
Act), as added by section 101 of the Medicare Prescription Drug,
Improvement, and Modernization Act of 2003 (MMA); the program provides
outpatient prescription drug coverage to Medicare beneficiaries.\56\
Section 1860D-15 of the Act specifies the payment methodology for Part
D plan sponsors, including direct subsidy payments, reinsurance, and
risk corridor payments, as well as beneficiary premiums. The program is
administered by private insurers through either standalone prescription
drug plans (PDPs) or Medicare Advantage prescription drug (MA-PD)
plans.\57\ The prices of prescription drugs covered by a Part D plan
are negotiated between the plan sponsor or its PBM and pharmaceutical
drug manufacturers.\58\
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\56\ Medicare Prescription Drug, Improvement, and Modernization
Act of 2003, Public Law 108-173, 117 Stat. 2066 (2003). <a href="https://www.congress.gov/108/plaws/publ173/PLAW-108publ173.pdf">https://www.congress.gov/108/plaws/publ173/PLAW-108publ173.pdf</a> (Accessed: 10
December 2025).
\57\ MA-PD plans offer both medical and prescription benefits
(Medicare Part D) through Medicare Part C. Standalone PDP plans
offer only Part D coverage.
\58\ The exception to this is drugs that are selected for the
Medicare Drug Price Negotiation Program, implemented by the
Inflation Reduction Act, which authorizes Medicare to directly
negotiate drug prices for certain high expenditure, single source
Medicare Part B or Part D drugs.
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Under the program, Medicare typically subsidizes a portion of the
Part D basic benefit costs for enrollees through reinsurance and direct
subsidy payments made to Part D plans, and provides additional premium
and cost sharing subsidies for low-income enrollees through the low-
income subsidy (LIS) program.\59\ Beneficiaries who voluntarily enroll
in a Part D plan typically pay a monthly premium, and depending on
their specific plan and drug utilization, may have to pay an annual
deductible, copayments, and coinsurance.
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\59\ MedPAC. (2024). Part D Payment System. <a href="https://www.medpac.gov/wp-content/uploads/2024/10/MedPAC_Payment_Basics_24_PartD_FINAL_SEC.pdf">https://www.medpac.gov/wp-content/uploads/2024/10/MedPAC_Payment_Basics_24_PartD_FINAL_SEC.pdf</a> (Accessed: 10 December
2025).
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The Inflation Reduction Act of 2022 (IRA), Public Law 117-169, made
several additions and amendments to the Act that affected the structure
of the defined standard Part D drug benefit. Currently, the Part D
defined standard benefit consists of three phases that enrollees go
through depending on their use and cost of drugs: the deductible phase,
the initial coverage phase, and the catastrophic coverage phase. Plans
are responsible for setting the specific
[[Page 60344]]
deductible, up to a maximum of $615 in 2026.\60\ In the 2026 defined
standard benefit, enrollees are responsible for 25 percent of drug
costs until their true out-of-pocket (TrOOP) spending reaches $2,100,
after which they enter the catastrophic coverage phase. Once enrollees
reach the catastrophic coverage phase, they are not responsible for any
further out-of-pocket payments for a covered Part D drug. The
deductible and $2,100 annual out-of-pocket cap in effect for 2026 will
be adjusted each year based on the annual percentage increase in
average expenditures for covered Part D drugs among Part D eligible
individuals in the United States.\61\ In the defined standard benefit
initial coverage phase, manufacturers are typically responsible for 10
percent of costs for certain brand drugs and biologics under the
Manufacturer Discount Program and Part D plans are typically
responsible for 65 percent.\62\ In the catastrophic coverage phase,
Part D plans are typically responsible for 60 percent of drug costs,
drug manufacturers are typically responsible for 20 percent, and
Medicare pays the remaining 20 percent for brand-name drugs and
biologics.\63\
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\60\ <a href="http://Medicare.gov">Medicare.gov</a>. (n.d.). Medicare Part D Costs. Centers for
Medicare and Medicaid Services (CMS), U.S Department of Health and
Human Services. <a href="https://www.medicare.gov/health-drug-plans/part-d/basics/costs">https://www.medicare.gov/health-drug-plans/part-d/basics/costs</a> (Accessed: 10 December 2025).
\61\ Centers for Medicare & Medicaid Services. (2025). Final CY
2026 Part D Redesign Program Instructions. U.S. Department of Health
and Human Services. <a href="https://www.cms.gov/newsroom/fact-sheets/final-cy-2026-part-d-redesign-program-instructions">https://www.cms.gov/newsroom/fact-sheets/final-cy-2026-part-d-redesign-program-instructions</a> (Accessed: 10 December
2025).
\62\ Under the Manufacturer Discount Program, there is a multi-
year phase-in period for applicable discounts for certain
manufacturers' applicable drugs. See section 1860D-14C(g)(4) of the
Act.
\63\ This is the Part D standard benefit for brand-name drugs
and biologics. There are some differences in the Part D standard
benefit for generic drugs.
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Under section 1860D-2(a)(1) of the Act, each Part D plan is
required to offer either the defined standard benefit, as described
previously, or an alternative coverage structure that is actuarially
equivalent to the defined standard benefit. In addition, under section
1860D-2(a)(2) of the Act, Part D plan sponsors may offer enhanced or
supplemental benefits. Analysis of the landscape files available on
<a href="http://CMS.gov">CMS.gov</a> reveal that for 2026, 49 percent of standalone Part D plan
offerings include enhanced benefits and 98 percent of MA-PD plans have
enhanced benefits.\64\ This flexibility allows Part D plans to compete
for enrollees based on the benefit design and premiums. It also leads
to differences between plans' specific design (for example, whether
they require a deductible and, if so, the deductible amount); coverage
(for example, the specific drugs covered and tier placement of covered
drugs); beneficiary cost sharing (for example, whether a drug is
subject to coinsurance or copayment); and other components. Each plan
maintains its own formulary, consistent with Medicare formulary
requirements in 42 CFR 423.120(b)(2) and 423.272(b)(2). CMS evaluates
formularies based on requirements, including sufficiency of categories
and classes, tier placement, and utilization management restrictions.
These requirements include, for example, that each plan must cover at
least two drugs within each therapeutic category and class and
generally, all drugs within the six protected classes
(immunosuppressants, antidepressants, antipsychotics, anticonvulsants,
antiretrovirals, and antineoplastics) \65\ as well as selected drugs
under the Medicare Drug Price Negotiation Program for which a
negotiated maximum fair price (MFP) is in effect. The Medicare Payment
Advisory Commission (MedPAC) has reported that in 2023, Part D covered
54.9 million enrollees, of which about 14 million were enrolled in LIS;
\66\ Part D enrollees had total gross spending of about $276 billion,
which translates to about $5,429 per Part D enrollee who used a Part D
covered drug.\67\ Previous research by ASPE has found that in 2019,
about 5.7 million Medicare beneficiaries did not have prescription drug
coverage.\68\
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\64\ Centers for Medicare & Medicaid Services. (2025).
Prescription Drug Coverage (Part D). U.S. Department of Health and
Human Services. <a href="https://www.cms.gov/medicare/coverage/prescription-drug-coverage">https://www.cms.gov/medicare/coverage/prescription-drug-coverage</a> (Accessed: 10 December 2025).
\65\ See also: Medicare Prescription Drug Benefit Manual Chapter
6--Part D Drugs and Formulary Requirements, Centers for Medicare &
Medicaid Services (January 15, 2016) at Sec. 30.2, Available at
<a href="https://www.cms.gov/medicare/prescription-drug-coverage/prescriptiondrugcovcontra/downloads/part-d-benefits-manual-chapter-6.pdf">https://www.cms.gov/medicare/prescription-drug-coverage/prescriptiondrugcovcontra/downloads/part-d-benefits-manual-chapter-6.pdf</a> (Last accessed September 24, 2025).
\66\ For eligible enrollees whose income and resources are
limited, the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 established Extra Help (a subsidy) for
prescription drugs, which provides financial assistance for
prescription drugs (premiums, deductibles, and co-payments). Under
the IRA, beginning in 2024, the LIS program is expanded to
individuals with limited financial resources and incomes up to 150
percent of the Federal Poverty Limit (FPL).
\67\ MedPAC. (2025). Health Care Spending and the Medicare
program. <a href="https://www.medpac.gov/wp-content/uploads/2025/07/July2025_MedPAC_DataBook_SEC.pdf">https://www.medpac.gov/wp-content/uploads/2025/07/July2025_MedPAC_DataBook_SEC.pdf</a> (Accessed: 10 December 2025).
\68\ Tarazi, W., et al. (2022). Medicare Beneficiary Enrollment
Trends and Demographic Characteristics. Office of the Assistant
Secretary for Planning and Evaluation, U.S. Department of Health and
Human Services. <a href="https://aspe.hhs.gov/sites/default/files/documents/b9ac26a13b4fdf30c16c24e79df0c99c/medicare-beneficiary-enrollment-ib.pdf">https://aspe.hhs.gov/sites/default/files/documents/b9ac26a13b4fdf30c16c24e79df0c99c/medicare-beneficiary-enrollment-ib.pdf</a> (Accessed: 10 December 2025).
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To offer the Part D benefit, under section 1860D-11(b) of the Act,
each Part D plan sponsor must submit an annual bid to CMS for each plan
it intends to offer, including the plan's benefit design, service area,
and the sponsor's actuarial estimate of the expected cost of covering
the standard benefit for an average enrollee.\69\ These bids, which are
due to CMS annually in June, use actuarial methods to project gross
drug costs at the point of sale and subtract expected manufacturer
rebates, other price concessions, and other components to estimate the
net plan liability. As part of the process of bid development, Part D
plan sponsors consider the price of a drug, the estimated rebate
payments and price concessions from various entities, including
pharmacies and drug manufacturers, and other factors. Manufacturer
rebates represent the majority of these rebates received by Part D
plans and substantially reduce Part D plans' net drug costs.\70\ Part D
plan bids are used to calculate the Part D National Average Monthly Bid
Amount (NAMBA) and derive the base beneficiary premium (BBP) amount.
Although the BBP does not represent the actual premiums paid by Part D
enrollees, which is dependent on individual Part D plan offerings, this
estimate influences the average level of enrollee premiums across the
Part D plan market. Typically, Medicare subsidizes 74.5 percent of the
average cost of basic benefits in the form of direct subsidies and
reinsurance. However in 2025, MedPAC reports that the Medicare subsidy
increased to about 83 percent of the average cost of basic benefits due
to the IRA's premium cap that institutes a 6 percent cap on annual
increases in the BBP.\71\
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\69\ MedPAC. (2024). Part D Payment System. <a href="https://www.medpac.gov/wp-content/uploads/2024/10/MedPAC_Payment_Basics_24_PartD_FINAL_SEC.pdf">https://www.medpac.gov/wp-content/uploads/2024/10/MedPAC_Payment_Basics_24_PartD_FINAL_SEC.pdf</a> (Accessed: 10 December
2025).
\70\ MedPAC. (2023). Assessing postsale rebates for prescription
drugs in Medicare Part D, Report to the Congress: Medicare and the
Health Care Delivery System. <a href="https://www.medpac.gov/wp-content/uploads/2023/06/Jun23_Ch2_MedPAC_Report_To_Congress_SEC.pdf">https://www.medpac.gov/wp-content/uploads/2023/06/Jun23_Ch2_MedPAC_Report_To_Congress_SEC.pdf</a>
(Accessed: 10 December 2025).
\71\ MedPAC. (2025). Chapter 4: Part D Outlook, Medicare Payment
Advisory Commission. <a href="https://www.medpac.gov/wp-content/uploads/2025/06/Jun25_Ch4_MedPAC_Report_To_Congress_SEC.pdf">https://www.medpac.gov/wp-content/uploads/2025/06/Jun25_Ch4_MedPAC_Report_To_Congress_SEC.pdf</a> (Accessed: 10
December 2025).
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C. Recent Drug Pricing Policy Reforms
The IRA's amendments to Part D of Title XVIII of the Act included
provisions that change the Part D benefit. As part of these changes,
the IRA included several provisions that directly changed manufacturer
liability under the Part D program.
[[Page 60345]]
Section 11102(a) of the IRA added new section 1860D-14B of the Act,
which establishes requirements for drug manufacturers to pay inflation
rebates for certain Part D drugs. Specifically, pharmaceutical drug
manufacturers that increase the price for a Part D rebatable drug
faster than the rate of inflation (as measured by changes in the
Consumer Price Index for all Urban Consumers, CPI-U), as described in
section 1860D-14B of the Act, are required to pay Part D drug inflation
rebates to the Medicare Prescription Drug Account in the Federal
Supplementary Medical Insurance Trust Fund for each 12-month applicable
period.
Under these provisions, a ``Part D rebatable drug'' is defined as a
drug or biological described at section 1860D-14B(g)(1)(C) of the Act
and is: (1) a drug approved under a New Drug Application (NDA) under
section 505(c) of the Federal Food, Drug, and Cosmetic (FD&C) Act (21
U.S.C. 301 et seq.); (2) a drug approved under an Abbreviated New Drug
Application (ANDA) under section 505(j) of the FD&C Act that meets the
criteria in section 1860D-14B(g)(1)(C)(ii) of the Act; or (3) a
biological licensed under section 351 of the Public Health Service
(PHS) Act (42 U.S.C. 201 et seq.). In general, the statute excludes
multi-source generic drugs from the definition of a Part D rebatable
drug and limits generics that may be Part D rebatable drugs to sole-
source generics--that is, generic drugs for which (1) the reference
listed drug approved under section 505(c) of FD&C Act, including any
``authorized generic drug'' (as that term is defined in section
505(t)(3) of the FD&C Act), is not being marketed, as identified in the
Food and Drug Administration's (FDA's) National Drug Code (NDC)
Directory; (2) there is no other drug approved under section 505(j) of
the FD&C Act that is rated as therapeutically equivalent and that is
being marketed, as identified in FDA's NDC Directory; (3) the
manufacturer is not a ``first applicant'' during the 180-day
exclusivity period; and (4) the manufacturer is not a ``first approved
applicant'' for a competitive generics therapy. The Part D Inflation
Rebate Program also excludes drugs or biological products with an
average annual total cost under Part D of less than $100 per individual
using such drug or biological product for the first applicable period;
this amount is adjusted by percentage changes in the CPI-U annually
thereafter.
The Part D inflation rebate calculation examines year-over-year
changes to determine whether an inflation rebate is owed for a Part D
rebatable drug. Specifically, the Part D inflation rebates are
calculated, as reported under section 1927(b)(3) of the Act \72\ and
further clarified in a December 2023 guidance,\73\ for each Part D
rebatable drug by establishing a historical benchmark price and
comparing this price against the price for an applicable 12-month
period. The inflation rebate amounts are based on the difference
between the drug's volume weighted annual average manufacturer price
(AnMP) in a given 12-month applicable period and the inflation-adjusted
volume weighted annual average manufacturer price of the benchmark
period. This means if the Part D rebatable drug's AnMP in an applicable
period exceeds the drug's inflation adjusted payment amount, an
inflation rebate amount would be due. The average manufacturer price
(AMP) represents the average price paid to the manufacturer for the
drug in the United States by wholesalers.
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\72\ Social Security Act, Payment for Covered Outpatient Drugs
(section 1927 of the Act, 42 U.S.C. 1396r-8). <a href="https://www.ssa.gov/OP_Home/ssact/title19/1927.htm">https://www.ssa.gov/OP_Home/ssact/title19/1927.htm</a> (Accessed: 10 December 2025).
\73\ Centers for Medicare & Medicaid Services. (2023). Medicare
Part D Drug Inflation Rebates Paid by Manufacturers: Revised
Guidance, Implementation of Section 1860D-14B of the Social Security
Act. U.S. Department of Health and Human Services. <a href="https://www.cms.gov/files/document/medicare-part-d-inflation-rebate-program-revised-guidance.pdf">https://www.cms.gov/files/document/medicare-part-d-inflation-rebate-program-revised-guidance.pdf</a> (Accessed: 10 December 2025).
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The statute defines an ``applicable period'' to mean a 12-month
period beginning with October 1 of a year (beginning with October 1,
2022). As such, October 1, 2022 was the beginning of the first 12-month
period for which drug manufacturers will be required to pay rebates to
Medicare if a Part D rebatable drug's price increases faster than the
rate of inflation over the 12-month period. December 31, 2025 is the
date by which CMS is required to begin invoicing pharmaceutical drug
manufacturers for the Part D inflation rebates they owed Medicare for
the 12-month applicable periods that began on October 1, 2022 and
October 1, 2023.\74\ For subsequent applicable periods, CMS must
invoice pharmaceutical drug manufacturers for any Part D inflation
rebates they owe Medicare by no later than 9 months after the end of
the applicable period.
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\74\ Centers for Medicare & Medicaid Services. (2024). Fact
Sheet: Medicare Prescription Drug Inflation Rebate Program Policies
in the Calendar Year 2025 Physician Fee Schedule Final Rule. U.S.
Department of Health and Human Services. <a href="https://www.cms.gov/files/document/medicare-prescription-drug-inflation-rebate-program-final-fact-sheet.pdf">https://www.cms.gov/files/document/medicare-prescription-drug-inflation-rebate-program-final-fact-sheet.pdf</a> (Accessed: 10 December 2025).
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Section 11201 of the IRA, as codified in sections 1860D-14C and
1860D-43 of the Act, established a new Manufacturer Discount Program,
which became effective January 1, 2025. The Manufacturer Discount
Program replaced the Medicare Coverage Gap Discount Program (CGDP),
which was enacted into law in section 3301 of the Patient Protection
and Affordable Care Act (Pub. L. 111-148), as amended by section 1101
of the Health Care and Education Reconciliation Act (HCERA) of 2010
(Pub. L. 111-152) (referred to collectively as the Affordable Care Act)
and codified in sections 1860D-14A and 1860D-43 of the Act. Effective
January 1, 2011, the CGDP made manufacturer discounts for brand name
drugs and biologic products (with biosimilars included starting in
2019) available to applicable beneficiaries at the point of sale. The
CGDP provided non-low-income subsidy beneficiaries in the coverage gap
phase of the Part D benefit, a 50 percent discount on the negotiated
price of the drug at point of sale. For an applicable drug to be
covered under Part D, the manufacturer had to sign a manufacturer
agreement with the Secretary.
Section 53116 of the Bipartisan Budget Act of 2018 (BBA) (Pub. L.
115-123), changed the CGDP amount from 50 to 70 percent for applicable
beneficiaries beginning in 2019. The BBA also reduced beneficiary cost
sharing in the coverage gap phase to 25 percent in 2019 and subsequent
years. The CGDP was sunset effective December 31, 2024, and the new
Manufacturer Discount Program became effective January 1, 2025. The
Manufacturer Discount Program differs from the CGDP in several
important ways. First, the Manufacturer Discount Program discount is
applied to applicable drugs dispensed to beneficiaries who receive a
low-income subsidy as well as those who do not. Also, discounts are
applied in the initial coverage and catastrophic phase of the benefit
at 10 and 20 percent, respectively. The IRA outlined a method to
identify certain specified manufacturers and specified small
manufacturers, as defined in statute, and set forth a multiyear phase-
in period to phase-in the full discount percentages for these
manufacturers. Finally, unlike the CGDP, Manufacturer Discount Program
discounts do not count towards a beneficiary's TrOOP \75\ costs
(meaning that manufacturer payments made under the Manufacturer
Discount Program will not accrue to a beneficiary's incurred costs).
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\75\ See sections 1860D-2(b)(4)(C)(iii) and (E) of the Social
Security Act).
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The IRA also established the Medicare Drug Price Negotiation
Program, codified in sections 1191 through 1198
[[Page 60346]]
of the Act, which gave the Secretary authority to negotiate a MFP for
certain high expenditure, single source drugs and biologics without
generic or biosimilar competition with participating drug
manufacturers. The program began with a set of drugs covered under Part
D and expands over time to include drugs payable under Part B that meet
the criteria. On August 29, 2023, CMS published the list of 10 drugs
covered under Part D selected for initial price applicability year
2026; the negotiated MFPs for these drugs will go into effect on
January 1, 2026.\76\ The second set of 15 drugs covered under Part D
that were selected for negotiation for 2027 were announced on January
17, 2025, and the MFPs, if agreed upon by the manufacturers and CMS,
for these drugs are expected to go into effect on January 1, 2027.\77\
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\76\ Centers for Medicare & Medicaid Services. (2024). Medicare
Drug Price Negotiation Program: Negotiated Prices for Initial Price
Applicability Year 2026. U.S. Department of Health and Human
Services. <a href="https://www.cms.gov/newsroom/fact-sheets/medicare-drug-price-negotiation-program-negotiated-prices-initial-price-applicability-year-2026">https://www.cms.gov/newsroom/fact-sheets/medicare-drug-price-negotiation-program-negotiated-prices-initial-price-applicability-year-2026</a> (Accessed: 10 December 2025).
\77\ Centers for Medicare & Medicaid Services. (2015). HHS
Announces 15 Additional Drugs Selected for Medicare Drug Price
Negotiations in Continued Effort to Lower Prescription Drug Costs
for Seniors. U.S. Department of Health and Human Services. <a href="https://www.cms.gov/newsroom/press-releases/hhs-announces-15-additional-drugs-selected-medicare-drug-price-negotiations-continued-effort-lower">https://www.cms.gov/newsroom/press-releases/hhs-announces-15-additional-drugs-selected-medicare-drug-price-negotiations-continued-effort-lower</a> (Accessed: 10 December 2025).
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D. High Drug Costs Under Part D
Although the provisions under the IRA included a series of changes
to the Part D benefit, including allowing Medicare to negotiate for
certain drugs, they do not fully address the issue of high drug
spending in the Part D program. High drug prices affect Part D
spending, particularly for certain types of drugs (for example, single-
source brand-name drugs), and influence overall program spending.
Moreover, enrollees may ration their prescription drugs due to cost,
which can have serious health-related consequences for Medicare
enrollees and may result in avoidable costs for Medicare.\78\
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\78\ Leonard, F., et al. (2023). Medicare's Affordability
Problem: A Look at the Cost Burdens Faced by Older Enrollees. The
Commonwealth Fund. <a href="https://www.commonwealthfund.org/publications/issue-briefs/2023/sep/medicare-affordability-problem-cost-burdens-biennial">https://www.commonwealthfund.org/publications/issue-briefs/2023/sep/medicare-affordability-problem-cost-burdens-biennial</a> (Accessed: 10 December 2025).
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Part D gross drug spending has risen over time (from $348 gross
drug spending per month per LIS enrollee in 2010 to $765 gross drug
spending per month per LIS enrollee in 2023 and $163 per month per non-
LIS enrollee in 2010 to $309 per month per non-LIS enrollee in
2023).\79\ Analyses show that Part D gross spending is concentrated
among certain types of drugs, particularly certain types of brand name
drugs such as specialty drugs. One study examined trends in total gross
drug spending under Part D between 2012 to 2021 specifically for drugs
with the top 1 percent, 5 percent, and 10 percent of spending. Findings
showed that gross drug costs increased by 103 percent from 2012 to
2021, driven both by increases in the number of prescriptions as well
as increases in prices for existing drugs. Drugs in the top 1 percent
of spending in Part D accounted for an increasing share of total gross
drug costs over time, increasing from 31.4 percent to 41.1 percent from
2012 to 2021. Spending specifically for specialty drugs increased by
over 500 percent over the study period and accounted for 71.1 percent
of total gross drug costs in 2021, even though specialty drugs
accounted for 6.2 percent of prescriptions in 2021.\80\
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\79\ MedPAC. (2025). Health Care Spending and the Medicare
program. <a href="https://www.medpac.gov/wp-content/uploads/2025/07/July2025_MedPAC_DataBook_SEC.pdf">https://www.medpac.gov/wp-content/uploads/2025/07/July2025_MedPAC_DataBook_SEC.pdf</a> (Accessed: 10 December 2025).
\80\ Niu, S., et al. (2024). Concentration of spending and share
of specialty drug spending in Medicare Part D over a 10-year period.
Journal of Managed Care & Specialty Pharmacy, 30(12), 1355-1363.
<a href="https://doi.org/10.18553/jmcp.2024.30.12.1355">https://doi.org/10.18553/jmcp.2024.30.12.1355</a>.
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In 2023, MedPAC reported that Medicare gross spending on brand-name
drugs was about $171.2 billion and spending on biologics was about $60
billion, collectively representing about 84 percent of the total gross
drug spending.\81\ Generic drugs represented the remaining 15 percent
of spending.\82\ Additionally, although there were more prescriptions
filled for generic drugs (about 82 percent across the top 15
therapeutic classes, including diabetic therapy, antineoplastics,
anticoagulants, asthma/chronic obstructive pulmonary disease (COPD)
agents, and others in 2023), the majority of gross spending (91
percent) was for brand-name products within these therapeutic
classes.\83\
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\81\ MedPAC. (2025). Health Care Spending and the Medicare
program. <a href="https://www.medpac.gov/wp-content/uploads/2025/07/July2025_MedPAC_DataBook_SEC.pdf">https://www.medpac.gov/wp-content/uploads/2025/07/July2025_MedPAC_DataBook_SEC.pdf</a> (Accessed: 10 December 2025).
\82\ MedPAC. (2025). Health Care Spending and the Medicare
program. <a href="https://www.medpac.gov/wp-content/uploads/2025/07/July2025_MedPAC_DataBook_SEC.pdf">https://www.medpac.gov/wp-content/uploads/2025/07/July2025_MedPAC_DataBook_SEC.pdf</a> (Accessed: 10 December 2025).
\83\ MedPAC. (2025). Health Care Spending and the Medicare
program. <a href="https://www.medpac.gov/wp-content/uploads/2025/07/July2025_MedPAC_DataBook_SEC.pdf">https://www.medpac.gov/wp-content/uploads/2025/07/July2025_MedPAC_DataBook_SEC.pdf</a> (Accessed: 10 December 2025.
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Enrollee out-of-pocket costs for drugs covered under Part D vary
based on several factors. Research by ASPE finds that in 2022, Part D
enrollees who do not receive LIS had greater average out-of-pocket
costs than their LIS enrollee counterparts ($464 per non-LIS enrollee
vs. $52 per LIS enrollee); these differences are particularly
pronounced for enrollees who reached the catastrophic coverage phase of
the Part D benefit ($3,093 per non-LIS enrollee vs. $87 per LIS
enrollee). ASPE analysis also finds that, prior to the IRA's out-of-
pocket cap going into effect, among enrollees who reached the
catastrophic coverage phase of the Part D benefit, annual out-of-pocket
prescription drug costs were highest for enrollees with certain health
conditions (such as enrollees with cystic fibrosis, metabolic and
immune disorders, certain types of cancers, and those who have
undergone major organ transplant) and those who take certain types of
medications. For example, enrollees who took certain brand name single
source drugs used to treat cancers had significantly higher out-of-
pocket costs than the average Part D enrollee.\84\
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\84\ Sayed, B.A., et al. (2024). Inflation Reduction Act
Research Series, Medicare Part D Enrollee Out-Of-Pocket Spending:
Recent Trends and Projected Impacts of the Inflation Reduction Act.
Office of the Assistant Secretary for Planning and Evaluation, U.S.
Department of Health and Human Services. <a href="https://aspe.hhs.gov/reports/medicare-part-d-enrollee-out-pocket-spending">https://aspe.hhs.gov/reports/medicare-part-d-enrollee-out-pocket-spending</a> (Accessed: 10
December 2025).
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The IRA caps enrollees' out-of-pocket costs for prescription drugs
at $2,100 in 2026 (and this cap is adjusted annually based on the
annual percentage increase in average expenditures for covered Part D
drugs in the United States for Part D eligible individuals in the
previous year), which reduces the out-of-pocket costs for certain Part
D enrollees who take expensive medications covered under the Part D
program. However, although the provision has gone into effect, there
remain concerns about the affordability of prescription drugs covered
under Part D. Specifically, there is concern that Part D plan sponsors
are shifting from a fixed copayment model for high-cost brand-name
drugs to a coinsurance-based model, where the enrollee pays a
percentage of the price at the point-of-sale in the pharmacy,
potentially exposing Part D enrollees who take certain drugs to higher
costs.\85\ Additionally, CMS analysis of the Medicare Current
Beneficiary Survey (MCBS) finds that nine percent of Medicare
beneficiaries reported that they decided not to fill a prescription in
[[Page 60347]]
2025 due to cost.\86\ All of this suggests that Part D enrollees with
certain health conditions and particularly those who take certain
brand-name drugs or biologics may still experience high out-of-pocket
spending.
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\85\ Trish, E. & Blaylock, B. (2025). Shifting Cost-Sharing
Burden to Beneficiaries in Medicare Part D. U.S.C. Schaeffer Center
White Paper Series. White Paper No. 2025-06. <a href="https://schaeffer.usc.edu/research/cost-sharing-burden-medicare-part-d/">https://schaeffer.usc.edu/research/cost-sharing-burden-medicare-part-d/</a>
(Accessed: 10 December 2025).
\86\ Internal CMS analysis of Medicare Current Beneficiary
Survey data collected May-July 2025 (Office of Enterprise Data and
Analytics).
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In addition to out-of-pocket costs for their prescription drugs,
enrollees also pay monthly premiums for their Part D coverage, which
may impact whether a Medicare beneficiary elects to enroll in a Part D
plan. Previous ASPE research finds that in 2019, about 5.7 million
Medicare beneficiaries did not have any prescription drug coverage.\87\
From 2024 to 2025, MedPAC found a decrease in the average premiums paid
by enrollees, from $27 to $23. This decline is largely attributed to
the IRA's 6 percent cap on base beneficiary premiums, which remains in
effect through 2029 and to the voluntary Part D Premium Stabilization
Demonstration. This demonstration, which began in 2024 for calendar
year 2025, is testing an approach to stabilize the year-over-year
changes in premiums for standalone PDPs during the implementation of
the Part D redesign.\88\ MedPAC analysis shows that average monthly
premiums are higher for standalone PDPs than MA-PD plans. This is
driven in part by the additional tools and flexibilities available to
MA-PD plans (for example, MA-PD sponsors that submit MA bids that are
below the applicable benchmark can use MA rebates to reduce Part D
premiums) compared to PDPs.\89\
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\87\ Tarazi, W., et al. (2022). Medicare Beneficiary Enrollment
Trends and Demographic Characteristics. Office of the Assistant
Secretary for Planning and Evaluation, U.S. Department of Health and
Human Services. <a href="https://aspe.hhs.gov/sites/default/files/documents/b9ac26a13b4fdf30c16c24e79df0c99c/medicare-beneficiary-enrollment-ib.pdf">https://aspe.hhs.gov/sites/default/files/documents/b9ac26a13b4fdf30c16c24e79df0c99c/medicare-beneficiary-enrollment-ib.pdf</a> (Accessed: 10 December 2025).
\88\ Centers for Medicare & Medicaid Services. (2025). 2026
Medicare Part D Bid Information and Part D Premium Stabilization
Demonstration Parameters. U.S. Department of Health and Human
Services. <a href="https://www.cms.gov/newsroom/fact-sheets/2026-medicare-part-d-bid-information-and-part-d-premium-stabilization-demonstration-parameters">https://www.cms.gov/newsroom/fact-sheets/2026-medicare-part-d-bid-information-and-part-d-premium-stabilization-demonstration-parameters</a> (Accessed: 10 December 2025).
\89\ Suzuki, S., et al. (2025). Structural differences between
the Part D PDP and MA-PD markets. MedPAC. <a href="https://www.medpac.gov/wp-content/uploads/2025/04/Tab-D-Structural-issues-in-Part-D-April-2025.pdf">https://www.medpac.gov/wp-content/uploads/2025/04/Tab-D-Structural-issues-in-Part-D-April-2025.pdf</a> (Accessed: 10 December 2025).
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E. Rationale and Need for GUARD Model Test
Within the United States, the prices of certain types of drugs have
been increasing over time, which impacts spending in Part D and
affordability of Part D coverage for Medicare beneficiaries. Brand-name
drugs and biologics, in particular, represent a large portion of Part D
spending in spite of the fact that generic drugs have a higher volume
of use.<SUP>90 91</SUP> The IRA addresses certain high drug costs under
Part D. However, the IRA provisions--specifically the Drug Price
Negotiation Program--focuses on a small set of drugs and only after
they are available in the market for a period of time. The current Part
D Inflation Rebate Program requires manufacturers to pay a rebate for
certain drugs based on price changes over time within the United
States. While this approach is useful for curbing post-launch increases
in drug prices, the Part D Inflation Rebate Program does not address
the high launch prices of drugs, which continue to increase over time
and contribute to high Medicare drug spending. One way to address high
Part D spending is to test a change in the IRA's Part D inflation
rebate calculation by using a benchmark that takes into account drug
pricing information from economically comparable countries. The
benchmark could then be subtracted from a net price that uses the
manufacturer's starting point for negotiations (for example, the
publicly available list price); manufacturer rebates and discounts
could be netted from this figure (to give credit to manufacturers for
rebates that have been paid). This approach is different from the
current Part D Inflation Rebate Program, which compares each applicable
drug's current year price (based on the applicability period as
described previously in this Section of the proposed rule) to the
inflation adjusted benchmark period price, and in so doing, evaluates
changes in prices within the United States over time.\92\
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\90\ Trish, E. & Blaylock, B. (2025). Shifting Cost-Sharing
Burden to Beneficiaries in Medicare Part D. U.S.C. Schaeffer Center
White Paper Series. White Paper No. 2025-06. <a href="https://schaeffer.usc.edu/research/cost-sharing-burden-medicare-part-d/">https://schaeffer.usc.edu/research/cost-sharing-burden-medicare-part-d/</a>
(Accessed: 10 December 2025).
\91\ MedPAC. (2025). Health Care Spending and the Medicare
program. <a href="https://www.medpac.gov/wp-content/uploads/2025/07/July2025_MedPAC_DataBook_SEC.pdf">https://www.medpac.gov/wp-content/uploads/2025/07/July2025_MedPAC_DataBook_SEC.pdf</a> (Accessed: 10 December 2025).
\92\ In addition, unlike the Medicare Drug Price Negotiation
Program, which has requirements for the number of years a drug has
been on the market before it is eligible to be selected for
negotiation, under the GUARD Model, if a drug meets the criteria, it
would be included and potentially be subject to a rebate regardless
of how long it has been on the market.
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Under the CMS Innovation Center's statutory authority under section
1115A of the Act, we propose to address this key issue of persistent
high domestic Medicare drug spending for certain drugs and biologics
through the GUARD Model, which tests changes to the Part D inflation
rebate provision by implementing an innovative alternative payment
method for the purpose of reducing Medicare drug spending and
preserving or improving quality of care for Part D enrollees.
III. Summary Provisions Proposed in the Guard Model
The proposed GUARD Model would test changes to the Part D Inflation
Rebate Program, specifically testing whether an alternative for the
Part D inflation rebate calculation for certain drugs and biological
products would reduce program spending for Medicare and taxpayers while
preserving or enhancing the quality of care furnished to Medicare
beneficiaries. The proposed model includes the following major
provisions:
<bullet> The GUARD Model would include a subset of Part D rebatable
drugs that are included in the Part D Inflation Rebate Program.
Specifically, the GUARD Model would include sole-source drugs and sole-
source biological products that are in the following specific
therapeutic categories: Analgesics; Anticonvulsants; Antidepressants;
Antimigraine Agents; Antineoplastics; Antipsychotics; Antivirals;
Bipolar Agents; Blood Glucose Regulators; Cardiovascular Agents;
Central Nervous System Agents; Gastrointestinal Agents; Genetic or
Enzyme or Protein Disorder: Replacement or Modifiers or Treatment;
Immunological Agents; Metabolic Bone Disease Agents; Ophthalmic Agents;
and Respiratory Tract/Pulmonary Agents. The GUARD Model would exclude
(1) generics and biosimilar biological products; (2) sole-source drugs
or sole-source biological products with annual application-level \93\
total gross covered drug costs below the GUARD minimum spend threshold;
and (3) drugs that are subject to a maximum fair price (MFP), during
the price applicability period. For a more detailed discussion, see
section IV.B. of this proposed rule.
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\93\ Application-level refers to the New Drug Application (NDA)
or Biologics License application (BLA) associated with each GUARD
Model drug. This means the total gross covered prescription drug
costs for all Part D rebatable NDC-9s associated with the same
application (NDA or BLA) as the GUARD Model drug.
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<bullet> The Centers for Medicare & Medicaid Services (CMS)
proposes in section IV.D. of this proposed rule that manufacturers of
``Part D rebatable drugs,'' as defined in section 1927(k)(5) of the Act
and 42 CFR 428.20, that receive a Part D inflation rebate report that
includes a GUARD Model drug for an applicable period that overlaps with
the GUARD Model performance period
[[Page 60348]]
would be required to participate in the GUARD Model.
<bullet> CMS proposes in section IV.E. of this proposed rule that
the GUARD Model would select reference countries that are economically
comparable to the United States. Reference countries must meet the
following criteria: they must be a part of the Organization for
Economic Cooperation and Development (OECD), have a minimum of 60
percent of the United States's purchasing power parity (PPP)-adjusted
per capita gross domestic product (GDP), and a minimum $400 billion
(PPP)-adjusted aggregate GDP. The reference countries that meet these
criteria and are therefore proposed to be selected for the model are
the following: 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.
<bullet> As part of the GUARD Model, CMS proposes to test two
approaches to calculating the GUARD Model international benchmark: the
default international benchmark (also referred to as the Method I
benchmark) and the updated international benchmark (also referred to as
the Method II benchmark).
<bullet> For each GUARD Model drug for which data on international
drug pricing in reference countries are available, CMS would calculate
the GUARD Model default international benchmark. The GUARD Model
default international benchmark for each GUARD Model drug would be
identified as the lowest country-level average price among the set of
average prices for each reference country, adjusted by the country-
specific GDP based on PPP (hereafter, ``GDP (PPP)'') adjuster, where an
international product that is part of a GUARD Model drug's set of
international analogs \94\ is sold. Please see section IV.G. of the
proposed rule.
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\94\ To be a part of the set of international analogs, an
international product must have an active ingredient, route of
administration, dosage form, and strength that aligns with that of
the GUARD Model drug.
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<bullet> CMS would provide manufacturers with the option to submit
international drug net pricing data for the set of reference countries
where international products that are part of a GUARD Model drug's set
of international analogs are sold, including the across-country average
net price. This submitted across-country average net price accounts for
country-specific differences using a GDP (PPP) adjuster; if the data
submitted is determined to be an applicable submission, it would become
the GUARD Model updated international benchmark. Please see section
IV.F. of this proposed rule.
<bullet> CMS would determine a GUARD Model applicable international
benchmark for each GUARD Model drug that would be the greater of the
GUARD Model default international benchmark and the GUARD Model updated
international benchmark, unless there is only a GUARD Model default
international benchmark. If there is only a GUARD Model default
international benchmark, it would become the applicable international
benchmark. Please see section IV.G. of this proposed rule.
<bullet> CMS would use this information to test an alternative
inflation rebate payment calculation to determine whether manufacturers
owe a GUARD Model rebate payment. The alternative inflation rebate
calculation tested under the GUARD Model would compare a Medicare net
price against the applicable international benchmark. Please see
section IV.H. of this proposed rule.
<bullet> The GUARD Model would require manufacturers to pay a GUARD
Model rebate payment if the Medicare net price is greater than the
GUARD Model applicable international benchmark for a GUARD Model drug.
The Medicare net price would be calculated by subtracting manufacturer
rebates (obtained from direct and indirect remuneration (DIR)) and
discounts (under the Manufacturer Discount Program) from the wholesale
acquisition cost (WAC) of the GUARD Model drug. Please see section
IV.H. of this proposed rule.
<bullet> The total GUARD Model rebate amount would be equal to the
product of the per unit GUARD Model rebate amount for such GUARD Model
drug for the performance year and the total number of units of the
GUARD Model drug dispensed under Part D and covered by Part D plan
sponsors in the GUARD Model geographic areas for the performance year.
Please see section IV.H. of this proposed rule.
<bullet> When the per unit GUARD Model rebate exceeds the per unit
Part D inflation rebate amount, CMS would waive the rebate amount
described in section 1860D-14B(b) of the Act and instead apply the
GUARD Model rebate amount. The GUARD Model rebate payment would be
deposited into the Medicare Prescription Drug Account in the Federal
Supplementary Medical Insurance Trust Fund.
<bullet> The evaluation would examine the main outcome, Medicare
net spending, as well as additional outcomes of the GUARD Model,
including the ways in which Part D plan benefits may change for GUARD
Model drugs and whether and to what extent there are impacts on
beneficiary cost sharing for GUARD Model drugs.
IV. Detailed Description of Provisions in the Proposed Guard Model
In this Section, CMS proposes our policies for testing and
implementing the GUARD Model, including model-specific definitions and
the general framework for implementation of the GUARD Model. The
proposed model-specific terms are described in applicable Sections of
this proposed rule. We propose to codify these model-specific terms at
proposed 42 CFR part 514. In addition, for purposes of this proposed
rule and the proposed GUARD Model, we propose that the following terms
would have the same meaning as set forth in 42 CFR 428.20: ``applicable
period''; ``Consumer Price Index for All Urban Consumers'' (CPI-U);
``applicable threshold''; ``average manufacturer price'' (AMP);
``manufacturer''; ``national drug code'' (NDC) ; ``Part D rebatable
drug''; and ``unit.'' We also propose that ``covered Part D drug'' has
the same meaning as set forth in 42 CFR 423.100, and ``line extension''
has the same meaning as set forth in 42 CFR 428.200.
The remaining sections of this proposed rule are organized as
follows: In section IV.A. of this proposed rule, we describe the
proposed model performance and test period. In section IV.B. of this
proposed rule, we present the Part D covered drugs that would be
included in the GUARD Model. In section IV.C. of this proposed rule, we
present the model test design, geographic selection, and beneficiary
population that would be included in the GUARD Model. In section IV.D.
of this proposed rule, we present the GUARD Model participants,
including the requirement that participation is mandatory as well as
requirements for participants during the GUARD Model performance period
and after the ending of the performance period. In section IV.E. of
this proposed rule, we present the existing international drug pricing
data that CMS proposes to use to generate the GUARD Model default
international benchmark as well as CMS' proposed data sources and
methods to identify the reference countries for the GUARD Model. In
section IV.F. of this proposed rule, we present the option for
manufacturers to submit international drug net pricing data, if they
choose to do so; the requirements for such data submission; and the
process to elect this option if preferred for the purpose of
determining the updated international benchmark. In section IV.G. of
this proposed rule, we
[[Page 60349]]
present the proposal to determine the GUARD Model applicable
international benchmark based on the set of reference countries,
including the default international benchmark and the updated
international benchmark (which only applies if the manufacturer elects
to submit international drug net pricing data, and it is deemed
applicable by CMS). In section IV.H. of this proposed rule, we propose
the methods to determine the GUARD Model rebate payment, including the
data inputs and the calculation steps for the GUARD rebate payment
amount. Section IV.I. of this proposed rule presents the proposals for
reports of rebate amounts and timing of reports for GUARD Model
participants. In section IV.J. of this proposed rule, we present the
proposed reconciliation process for a GUARD rebate payment and the
suggestion of error process. In section IV.K. of this proposed rule, we
present the enforcement mechanisms that would be used to ensure
manufacturer payment of rebates are paid in a timely manner. Section
IV.L. of this proposed rule presents the proposed quality and
monitoring strategy for the GUARD Model, and section IV.M. of this
proposed rule presents the proposed beneficiary protections and
compliance related activities that CMS would require under the GUARD
Model. Section IV.N. of this proposed rule presents the GUARD Model's
interaction and coordination with other models and programs and CMS'
approach for taking these into account. Section IV.O. of this proposed
rule presents the proposed evaluation approach for the GUARD Model,
including the key outcomes that would be examined. Section IV.P. of
this proposed rule presents information on the limitations on review
that apply to CMS Innovation Center Models, including the GUARD Model.
Section IV.Q. of this proposed rule presents program waivers that CMS
proposes to apply to the GUARD Model. Section IV.R. of this proposed
rule denotes that the GUARD Model and its provisions are severable from
other CMS programs. Section IV.S. of this proposed rule presents
information on the termination of the GUARD Model. Section IV.T. of
this proposed rule presents the process for response to comments on
this proposed rule.
A. Proposed Model Performance and Test Period
CMS is proposing in Sec. 514.1(c) that the GUARD Model would have
a 7-year overall test period, which would consist of 5 performance
years, during which GUARD Model rebate payments would apply, and 7
payment years during which CMS calculates, invoices, collects, and
reconciles the GUARD Model rebates for a performance year, unless the
model is terminated sooner, in accordance with proposed Sec.
514.910(a).
In Sec. 514.5, we propose to define ``payment year'' as a 12-month
period beginning on January 1 and ending on December 31 during the
GUARD Model test period. As such, we propose to define ``GUARD Model
payment period'' as the 7-year period beginning on January 1, 2027
through December 31, 2033, as specified in Sec. 514.1(c). We propose a
7-year payment period to allow for sufficient time for payments to be
invoiced and collected after the end of the 5 performance years of the
GUARD Model.
In Sec. 514.5, we propose to define the ``GUARD Model performance
period'' as the 5-year period, beginning on January 1, 2027, through
December 31, 2031, as specified in Sec. 514.1(c). We propose to define
at Sec. 514.5, the ``performance year'' (PY) as the 12-month period
beginning on January 1st and ending on December 31st during the GUARD
Model performance period, and in alignment with the GUARD Model
duration as specified in Sec. 514.1(c). We propose to utilize a 5-year
performance period because it would allow for sufficient time and
duration to test an alternative to the Part D inflation rebate
calculation under the Medicare Part D Inflation Rebate Program, using
the applicable international benchmark price, as described in section
IV.G. of this proposed rule, and for the purpose of understanding the
impacts of the GUARD Model. A 5-year performance period would allow CMS
to examine whether the Model reduces expenditures under Part D and
maintains or improves quality of care for Part D enrollees; that is,
whether the GUARD Model--(1) maintains spending while improving
quality; (2) maintains quality while reducing spending; or (3) reduces
spending and improves quality. We believe this is sufficient time to
evaluate the way the GUARD Model impacts Medicare net spending for the
GUARD Model drugs. Within this time horizon, we would also be able to
observe short-, intermediate-, and some long-term impacts of the GUARD
Model, such as manufacturer and other stakeholder responses as well as
changes in cost sharing for beneficiaries. See section IV.L. of this
proposed rule for the quality and monitoring approach and section IV.O.
of this proposed rule for the evaluation strategy of the GUARD Model.
CMS proposes in Sec. 514.110(c) that it would be necessary to
continue GUARD Model processes for payment beyond the end of the GUARD
Model performance period and reconciliation activities beyond the GUARD
Model payment period. CMS believes the reconciliation activities beyond
the end of the GUARD Model payment period would pose minimal burden to
manufacturers. Examples of reconciliation activities that could take
place after the end of the GUARD Model payment period are responses to
reconciliation reports, suggestion of error processes, and payment of
any reconciled rebate amounts due or owed.
B. GUARD Model Drugs
1. Proposed Identification of GUARD Model Drugs
From among the Part D rebatable drugs included in the Part D
Inflation Rebate Program, as defined in 42 CFR 428.20 and identified in
42 CFR 428.101, CMS proposes at Sec. 514.120(a) that GUARD Model drugs
would be defined as sole-source drugs and biological products
identified at the NDC-9 level, except those that meet certain
exclusions, as described in section III.B.2. of this proposed rule.
This means that for every performance year, only sole-source drugs and
sole-source biological products included in the Part D Inflation Rebate
Program would be considered for the GUARD Model.
CMS proposes at Sec. 514.120(a) that identification of drugs and
biological products would be at the NDC-9 level because this is the
same unique prescription drug product number that is used to identify a
Part D rebatable drug in accordance with 42 CFR 428.20 and 428.101. We
would use the NDC-9 level at which to identify the drugs in the
Medicare Part D Prescription Drug Event (PDE) data. At Sec. 514.5 CMS
defines ``PDE data'' to mean records submitted by a Part D plan to CMS
each time a beneficiary fills a prescription under Medicare Part D. A
PDE record is data summarizing the final adjudication of a Part D
dispensing event that is reported to CMS by the Part D sponsor using a
CMS-defined file layout.
We propose at Sec. 514.100 that for the purposes of the GUARD
Model test, a ``sole-source drug'' will be defined as a drug approved
by the Food and Drug Administration (FDA) under a New Drug Application
(NDA) under section 505 of the Food Drug and Cosmetics Act (FD&C Act)
for which there are no
[[Page 60350]]
generic(s),\95\ as defined at Sec. 514.5, rated as therapeutically
equivalent (under the FDA's most recent publication of ``Approved Drug
Products with Therapeutic Equivalence Evaluations''). The generic rated
as therapeutically equivalent to the drug must be recognized as a
therapeutic equivalent in the FDA's Orange Book and be identified as
marketed in the FDA's NDC Directory. From this definition, it follows
that a multi-source drug, which is a drug with at least one
therapeutically equivalent generic approved and marketed, is not a
GUARD Model drug.
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\95\ At Sec. 514.5 we define ``generic'' to mean, for the
United States, a marketed drug submitted in an ANDA and approved
under an ANDA under section 505(j) of the FD&C Act.
---------------------------------------------------------------------------
We propose at Sec. 514.100 that a ``sole-source biological
product,'' for purposes of the GUARD Model test, will be defined as a
biological product licensed by the FDA under a Biologics License
Application (BLA) under section 351(a) of the Public Health Service
(PHS) Act that is not the reference biological product, as defined at
42 U.S.C. 262(i)(4), for a biosimilar biological product licensed by
FDA in a BLA under section 351(k) of the PHS Act. The biosimilar
biological product \96\ must have the biological product as its
reference product as defined at 42 U.S.C. 262(i)(4) in the FDA's Purple
Book and be identified as marketed in the FDA's NDC Directory. From
this definition, it follows that a multi-source biological product,
which is a biological product with at least one biosimilar biological
product licensed and marketed that has said biological product as their
reference product, is not a GUARD Model drug.
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\96\ At Sec. 514.5 we define ``biosimilar biological product''
to mean, for the United States, a marketed biological product
submitted in a BLA under section 351(k) of the PHS Act.
---------------------------------------------------------------------------
At the time of evaluating inclusion of a drug into the GUARD Model
(based on being sole-source drugs or biological products) for each
performance year, CMS would use the FDA's NDC Directory, including
historical information from NDC Directory files such as discontinued,
delisted, and expired listings, provided by the FDA or published on the
FDA website to identify whether the generic or biosimilar biological
products are being sold or marketed for purposes of the GUARD Model.
Additionally, CMS proposes at Sec. 514.120(a) that should a sole-
source drug or sole-source biological product become multi-source at
any point during a performance year, it would only be subject to the
GUARD Model for the period of the performance year during which it was
sole-source.
CMS recognizes that based on the definitions of sole-source
previously described, authorized generics and unbranded biological
products could potentially be GUARD Model drugs. Authorized generics
are drugs sold without their brand name by the original manufacturer or
a third party under the NDA of the original drug. Unbranded biological
products are biological products sold without their brand name by the
original manufacturer or a third party licensed by the BLA 351(a) of
the original biological product.\97\ Since both authorized generics and
unbranded biological products are, directly or indirectly, sponsored by
the original pharmaceutical drug manufacturer, CMS believes that if
their NDC-9 is included in the Part D Inflation Rebate Program, then
subject to the exclusions described in section III.B.2. of this
proposed rule, they would be included in the GUARD Model.
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\97\ It is possible for there to be an unbranded biological
product derived from a biosimilar biological product, which would
have been licensed under section 351(k) of the PHS Act. Given that
at Sec. 514.120 CMS proposes to exclude generics and biosimilar
biological products and that biosimilar biological products are
defined at Sec. 514.5 as those licensed under section 351(k), it
follows that these specific unbranded biological products would be
excluded from the GUARD Model.
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Under the proposed policies, the GUARD Model drugs would consist of
a subset of Part D rebatable drugs. CMS believes that focusing the
GUARD Model test on a subset of the Part D rebatable drugs, rather than
all Part D rebatable drugs, would allow CMS to understand the GUARD
Model's impacts with a smaller set of drugs. For example, testing the
GUARD Model on a select subset of drugs would allow CMS to understand
how the Part D plan market would respond to the alternative rebate
payment methodology tested under the GUARD Model. In Sec. 514.120(a),
we propose sole-source drugs and sole-source biological products for
inclusion in the GUARD Model because generally, these drugs face
similar market dynamics. By including only sole-source drugs and sole-
source biological products in the GUARD Model, we expect that learnings
from the test would not be influenced by the very different market
dynamics that exist for other types of drugs included in the Part D
Inflation Rebate program.
When determining the scope of drugs included in our proposal for
the GUARD Model, we considered two key characteristics related to
market dynamics for sole-source drugs and sole-source biological
products. First, sole-source drugs and sole-source biological products
experience different competitive forces than multi-source drugs and
multi-source biological products. The entry of a generic drug, which
changes a sole-source drug into a multi-source one, has been shown to
shift utilization from the original drug to the generic by 75 percent
within a year,\98\ with prices falling on average by more than half for
the sole-source drug.<SUP>99 100</SUP> Biosimilar biological product
entry, which changes a sole-source biological product into a multi-
source biological product, has been shown to shift utilization from the
original biological product to the biosimilar biological product by 40
percent within a year, with prices falling by up to 25 percent.\101\
These shifts and prices in multi-source drug \102\ and multi-source
biological product \103\ markets varies by market size, product form,
therapeutic area, distribution channel, and other idiosyncratic
characteristics. Therefore, by only including sole-source drugs and
sole-source biological products, the GUARD Model test can focus on
understanding the impacts on these types of drugs without having to
account for confounding factors that may arise due to the entry of
generics or biosimilars, which fundamentally alters market
dynamics.\104\
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\98\ Grabowski, H., et al. (2016). Updated Trends in US Brand-
name and Generic Drug Competition. Journal of Medical Economics,
19(9), 836-844. <a href="https://doi.org/10.1080/13696998.2016.1176578">https://doi.org/10.1080/13696998.2016.1176578</a>.
\99\ Darling P., et al. (2024) Economic Considerations Related
to Biosimilar Market Entry. American Bar Association. <a href="https://www.americanbar.org/groups/antitrust_law/resources/newsletters/economic-considerations-biosimilar-market-entry/">https://www.americanbar.org/groups/antitrust_law/resources/newsletters/economic-considerations-biosimilar-market-entry/</a> (Accessed: 10
December 2025).
\100\ Aitken, M. (2016). Price Declines after Branded Medicines
Lose Exclusivity in the U.S. IQVIA. <a href="https://www.iqvia.com/-/media/iqvia/pdfs/institute-reports/price-declines-after-branded-medicines-lose-exclusivity-in-the-us.pdf">https://www.iqvia.com/-/media/iqvia/pdfs/institute-reports/price-declines-after-branded-medicines-lose-exclusivity-in-the-us.pdf</a> (Accessed: 10 December 2025).
\101\ Maini L. et al. (2021). Biosimilar Entry and the Pricing
of Biologic Drugs. SSRN. <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3760213">https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3760213</a>.
\102\ Frank, R.G., et al. (2021). The Evolution of Supply and
Demand in Markets for Generic Drugs. The Milbank quarterly, 99(3),
828-852. <a href="https://doi.org/10.1111/1468-0009.12517">https://doi.org/10.1111/1468-0009.12517</a>.
\103\ McGeeney, J.D., et al. (2025). Measuring the First Mover
Advantage in US Biosimilar Markets. Value Health. <a href="https://doi.org/10.1016/j.jval.2025.07.011">https://doi.org/10.1016/j.jval.2025.07.011</a>.
\104\ Bosworth, A., et al. (2023). Changes in the List Prices of
Prescription Drugs, 2017-2023. Office of the Assistant Secretary for
Planning and Evaluation, U.S. Department of Health and Human
Services. <a href="https://www.aspe.hhs.gov/reports/changes-list-prices-prescription-drugs">https://www.aspe.hhs.gov/reports/changes-list-prices-prescription-drugs</a> (Accessed: 10 December 2025).
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Second, pharmaceutical drug manufacturer rebates and discounts are
significantly different for sole-source
[[Page 60351]]
and multi-source drugs and biological products. Although there are many
factors that influence the net price of a drug, which is exclusive of
rebates, discounts, and other price concessions, in general (though
there are exceptions), drugs that face more limited competition (such
as sole-source drugs and sole-source biological products) maintain
higher net prices than drugs that have market competition (such as
multi-source drugs and multi-source biological products).\105\ \106\
\107\ This occurs for multiple reasons, but one reason is due to the
specific features of the sole-source drug market. Part D plan sponsors
or their pharmacy benefit managers (PBMs) negotiate with pharmaceutical
drug manufactures for rebates in exchange for favorable formulary
placement, which includes assigning drugs into tiers with different
cost sharing requirements (for example, coinsurance vs. copayment);
prior authorization requirements; utilization management approaches,
and other aspects. Although Part D plan sponsors or their PBMs
negotiate with pharmaceutical drug manufactures for formulary placement
for both sole-source drugs and sole-source biological products as well
as multi-source drugs and biological products, negotiation is
fundamentally different due to the different characteristics of these
types of drugs.
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\105\ Government Accountability Office. (2023). Medicare Part D:
CMS should monitor effects of rebates on plan formularies and
beneficiary spending (GAO-23-105270). <a href="https://www.gao.gov/assets/gao-23-105270.pdf">https://www.gao.gov/assets/gao-23-105270.pdf</a>.
\106\ Hernandez, I., et al. (2020). Changes in List Prices, Net
Prices, and Discounts for Branded Drugs in the US, 2007-2018. JAMA,
323(9), 854-862. <a href="https://doi.org/10.1001/jama.2020.1012">https://doi.org/10.1001/jama.2020.1012</a>.
\107\ Mulcahy, A.W., et al. (2024). Prescription Drug Prices,
Rebates, and Insurance Premiums. RAND. <a href="https://www.rand.org/pubs/research_reports/RRA1820-3.html">https://www.rand.org/pubs/research_reports/RRA1820-3.html</a> (Accessed: 10 December 2025).
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These two key differences illustrate how market dynamics vary
between sole-source drugs and biological products and multi-source
drugs and biological products, and the way these differences directly
impact their pricing dynamics. CMS believes that the focus of the GUARD
Model on sole-source drugs and sole-source biological products
mitigates the potential confounding factors that would arise if the
full set of Part D rebatable drugs were included in the GUARD Model
test.
Further, CMS proposes in Sec. 514.120(a) to limit the subset of
sole-source drugs and sole-source biological products to those
classified by the United States Pharmacopeia (USP) Drug Classification
as belonging to certain categories selected by CMS. The categories
selected by CMS, hereinafter referred to as ``USP selected categories''
are proposed at Sec. 514.120(e) and include the specific categories
from the USP Drug Classification that correspond to all of the Part D
protected classes and additional categories based on several
considerations. The primary reasons for selection of these categories
are that Medicare beneficiaries taking these drugs have conditions for
which deficits in care exist and they represent a meaningful amount of
spending under Part D.
a. Approach for Selecting Categories From the United States
Pharmacopeia
Under the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003, Public Law 108-173, 117 Stat. 2066 (2003),
section 1860D-4(b)(3)(C)(ii) of the Act, the USP is required to develop
and revise the Medicare Model Guidelines, which is a classification
system used for the purpose of supporting Part D formulary development
and submission. The Medicare Model Guidelines include a list of
categories and classes that may be used by prescription drug plans; USP
revises them on a continuous basis based on changes in therapeutic uses
of covered Part D drugs and the additions of new covered Part D
drugs.\108\
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\108\ Historically, every 3 years, the USP publishes an updated
version of the Medicare Model Guidelines. The current guidelines can
be found following this link <a href="https://www.usp.org/health-quality-safety/usp-medicare-model-guidelines">https://www.usp.org/health-quality-safety/usp-medicare-model-guidelines</a>.
---------------------------------------------------------------------------
CMS proposes at Sec. 514.120(d) to use the `category' field of the
USP Drug Classification because CMS believes this field is sufficient
to identify drugs and biological products for conditions where Medicare
beneficiaries may experience deficits of care, while allowing for
differences in mechanism of action and molecular or biological targets
for products that treat the same therapeutic area. We recognize that a
drug or biological product may be listed in more than one USP category.
We propose at Sec. 514.120(d) that as long as one of the categories
selected for inclusion in the GUARD Model applies to the drug or
biological product, it will be considered to have met this criterion
and would be included in the GUARD Model.
CMS proposes at Sec. 514.120(d) to identify the Part D rebatable
drugs classified as belonging to one of the categories listed later in
this Section of this proposed rule using their RxNorm \109\ Concept
Unique identifier,\110\ active ingredient(s), NDC-9, or the FDA
approved indication. Using the current guidelines, the USP Medicare
Model Guidelines v9.0,\111\ CMS proposes at Sec. 514.120(a) that a
drug or biological product whose listed USP categories include at least
one of the following USP selected categories (as defined at Sec.
514.120(e)) would be included in the GUARD Model if they meet all other
inclusion criteria and limited to the exclusion criteria proposed at
Sec. 514.120(c): Analgesics; Anticonvulsants; Antidepressants;
Antimigraine Agents; Antineoplastics; Antipsychotics; Antivirals;
Bipolar Agents; Blood Glucose Regulators; Cardiovascular Agents;
Central Nervous System Agents; Gastrointestinal Agents; Genetic or
Enzyme or Protein Disorder: Replacement or Modifiers or Treatment;
Immunological Agents; Metabolic Bone Disease Agents; Ophthalmic Agents;
and Respiratory Tract/Pulmonary Agents.
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\109\ The National Library of Medicine (NLM) produces RxNorm.
RxNorm provides normalized names and unique identifiers for
medicines and drugs. The goal of RxNorm is to allow computer systems
to communicate drug-related information efficiently and
unambiguously. See <a href="https://www.nlm.nih.gov/research/umls/rxnorm/index.html">https://www.nlm.nih.gov/research/umls/rxnorm/index.html</a>.
\110\ An RXCUI is a machine-readable code or identifier that
points to the common meaning shared by the various source names
grouped and assigned to a particular concept. A concept is a
fundamental unit of meaning in RxNorm. <a href="https://www.nlm.nih.gov/research/umls/rxnorm/overview.html">https://www.nlm.nih.gov/research/umls/rxnorm/overview.html</a>.
\111\ The current guidelines can be found here: <a href="https://www.usp.org/health-quality-safety/usp-medicare-model-guidelines">https://www.usp.org/health-quality-safety/usp-medicare-model-guidelines</a>.
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The proposed list of USP categories includes categories that
correspond to the six Medicare Protected Classes (anticonvulsants,
antidepressants, antineoplastics, antipsychotics, antiretrovirals, and
immunosuppressants) identified by CMS as those for which ``all or
substantially all'' drugs must be covered by Part D plans.\112\ The USP
categories that correspond to the Medicare Protected Classes are
Anticonvulsants, Antidepressants, Antineoplastics, Antipsychotics,
Antivirals, Bipolar Agents, and Immunological Agents, as defined at
Sec. 514.5. The Bipolar Agents USP category has significant overlap
with the Medicare Protected Classes of antidepressants and
antipsychotics; thus, CMS considers Bipolar Agents to correspond with
the Medicare protected classes and this category would be included in
the GUARD Model. These USP categories that correspond to the protected
classes are included because of their relevance for vulnerable
[[Page 60352]]
beneficiaries that depend on these drugs for serious conditions. Except
for Anticonvulsants, among the Part D rebatable sole-source drugs and
sole-source biological products, all of the USP selected categories
that correspond to Medicare protected classes have 2024 total covered
gross drug costs above $1 billion.\113\ The top three spending
categories that correspond to Medicare Protected Classes in 2024 are
Immunological Agents, Antineoplastics, and Antivirals; for these
categories, among Part D rebatable sole-source drugs and sole-source
biological products, the total covered drug costs are $32, $30, and $10
billion, respectively.
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\112\ Centers for Medicare & Medicaid Services. (2016). Medicare
Prescription Drug Benefit Manual: Chapter 6--Part D drugs and
formulary requirements (Rev. 18, Issued Jan. 15, 2016). U.S.
Department of Health and Human Services. <a href="https://www.cms.gov/medicare/prescription-drug-coverage/prescriptiondrugcovcontra/downloads/part-d-benefits-manual-chapter-6.pdf">https://www.cms.gov/medicare/prescription-drug-coverage/prescriptiondrugcovcontra/downloads/part-d-benefits-manual-chapter-6.pdf</a> (Accessed: 10
December 2025.
\113\ CMS analysis using preliminary list of Part D rebatable
drugs for 2024 and PDE data as of October 1, 2025.
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The proposed list also includes additional categories that
correspond to drugs that are used for conditions for which Medicare
beneficiaries experience deficits of care and that are within the top
spending categories for the Part D Inflation Rebate Program based on
previous spending trends. The additional USP selected categories (as
defined at Sec. 514.120(e)) are Analgesics; Antimigraine Agents; Blood
Glucose Regulators; Cardiovascular Agents; Central Nervous System
Agents; Gastrointestinal Agents; Genetic or Enzyme or Protein Disorder:
Replacement or Modifiers or Treatment; Metabolic Bone Disease Agents;
Ophthalmic Agents; and Respiratory Tract/Pulmonary Agents. Among the
Part D rebatable sole-source drugs and sole-source biological products,
in 2024, all of these USP selected categories have total covered gross
drug costs above $1 billion.\114\ The top two spending categories in
2024 were Blood Glucose Regulators and Respiratory Tract/Pulmonary
Agents.
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\114\ CMS analysis using preliminary list of Part D rebatable
drugs for 2024 and PDE data as of October 1, 2025.
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CMS proposes at Sec. 514.120(d) that once CMS has identified the
drug or biological product's category, it should remain in that
category for the entire GUARD Model performance period. Accordingly,
drugs or biological products will retain their category, while newly
added drugs or biological products will retain the category assigned at
the time of their identification, based on the USP Medicare Model
Guidelines available at the time. Additionally, as defined at Sec.
514.5, any change to the definition of Medicare Protected Classes in
Chapter 6 section 30.2.5 from the Medicare Prescription Drug Benefit
Manual would be carried over.
b. Addressing Deficits of Care Among Part D Enrollees
We propose these categories partly because Part D enrollees who
take these drugs have conditions for which deficits of care are
documented. For example, Part D beneficiaries who have immunological
diseases (and therefore may take immunological agents), endocrine
diseases (and therefore may take blood glucose regulators and metabolic
bone disease agents), neurological diseases (and therefore may take
analgesics, anticonvulsants, antimigraine agents, central nervous
system agents) and chronic diseases (and therefore may take
cardiovascular agents, gastrointestinal agents, respiratory tract and
pulmonary agents), may experience affordability challenges related to
their treatment.<SUP>115 116 117</SUP> There is evidence that patients
with autoimmune diseases such as rheumatoid arthritis and systemic
lupus erythematosus, neurological disease such as multiple sclerosis
and myasthenia gravis, and endocrine diseases such as diabetes
mellitus, continue to experience financial
burden.<SUP>118 119 120</SUP>
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\115\ Dusetzina, S.B., et al. (2022). Many Medicare
Beneficiaries Do Not Fill High-Price Specialty Drug Prescriptions.
Health Affairs, 41(4), 487-496. <a href="https://www.healthaffairs.org/doi/abs/10.1377/hlthaff.2021.01742">https://www.healthaffairs.org/doi/abs/10.1377/hlthaff.2021.01742</a>.
\116\ San-Juan-Rodriguez, A., et al. (2019). Trends in Prices,
Market Share, and Spending on Self-administered Disease-Modifying
Therapies for Multiple Sclerosis in Medicare Part D. JAMA Neurology,
76(11), 1386-1390. <a href="https://doi.org/10.1001/jamaneurol.2019.2711">https://doi.org/10.1001/jamaneurol.2019.2711</a>.
\117\ Tarazi, W., et al. (2022). Prescription Drug Affordability
among Medicare Beneficiaries. Office of the Assistant Secretary for
Planning and Evaluation, U.S. Department of Health and Human
Services. <a href="https://aspe.hhs.gov/sites/default/files/documents/1e2879846aa54939c56efeec9c6f96f0/prescription-drug-affordability.pdf">https://aspe.hhs.gov/sites/default/files/documents/1e2879846aa54939c56efeec9c6f96f0/prescription-drug-affordability.pdf</a>
(Accessed: 15 December 2025).
\118\ Sandoval-Heglund, D., et al. (2024). Economic Insecurities
and Patient-Reported Outcomes in Patients with Systemic Lupus
Erythematosus in the USA: a cross-sectional analysis of data from
the California Lupus Epidemiology Study. Lancet Rheumatology, 6(2),
e105-e114. <a href="https://doi.org/10.1016/S2665-9913">https://doi.org/10.1016/S2665-9913</a>(23)00296-5.
\119\ Weinstein, D.R., et al. (2022). Multiple Sclerosis:
Systemic Challenges to Cost-Effective Care. American Health & Drug
Benefits, 15(1), 13-20. <a href="https://pubmed.ncbi.nlm.nih.gov/35586614/">https://pubmed.ncbi.nlm.nih.gov/35586614/</a>.
\120\ Khan, S., et al. (2025). Insulin Rationing Persists
Despite Policy Changes: Repeated Cross-Sectional Studies, 2017 vs
2024. Journal of General Internal Medicine, 10.1007/s11606-025-
09886-9. Advance online publication. <a href="https://doi.org/10.1007/s11606-025-09886-9">https://doi.org/10.1007/s11606-025-09886-9</a>.
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Additionally, CMS analysis of the Medicare Current Beneficiary
Survey (MCBS) finds that nine percent of Medicare beneficiaries
reported that they decided not to fill a prescription in 2025 due to
cost.\121\ Financial distress associated with cost coping behaviors,
such as rationing or skipping medicines or delaying care that could
worsen health outcomes continues to raise concerns for providers
treating a range of conditions. This includes, for example, providers
treating autoimmune diseases such as systemic lupus erythematosus \122\
and neuromyelitis optical spectrum disorder,\123\ endocrine diseases
such as diabetes mellitus,\124\ neurological diseases such as multiple
sclerosis <SUP>125 126</SUP> and myasthenia gravis,\127\ and chronic
diseases such as cardiovascular diseases <SUP>128 129</SUP> and
inflammatory bowel disease.\130\
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\121\ Internal CMS analysis of Medicare Current Beneficiary
Survey data collected May-July 2025 (Office of Enterprise Data and
Analytics).
\122\ Sandoval-Heglund, D., et al. (2024). Economic Insecurities
and Patient-Reported Outcomes in Patients with Systemic Lupus
Erythematosus in the USA: a cross-sectional analysis of data from
the California Lupus Epidemiology Study. Lancet Rheumatology, 6(2),
e105-e114. <a href="https://doi.org/10.1016/S2665-9913">https://doi.org/10.1016/S2665-9913</a>(23)00296-5.
\123\ Wingerchuk, D.M., et al. (2022). Aligning Payer and
Provider Strategies with the Latest Evidence to Optimize Clinical
Outcomes for Patients with Neuromyelitis Optica Spectrum Disorder.
Journal of managed care & specialty pharmacy, 28(12-a Suppl), S3-
S27. <a href="https://doi.org/10.18553/jmcp.2022.28.12-a.s1">https://doi.org/10.18553/jmcp.2022.28.12-a.s1</a>.
\124\ Patel, M.R., et al. (2022). Measurement and Validation of
the Comprehensive Score for Financial Toxicity (COST) in a
Population with Diabetes. Diabetes Care, 45(11), 2535-2543. <a href="https://doi.org/10.2337/dc22-0494">https://doi.org/10.2337/dc22-0494</a>.
\125\ Singer, B.A., et al. (2024). Early Use of High-Efficacy
Therapies in Multiple Sclerosis in the United States: benefits,
barriers, and strategies for encouraging adoption. Journal of
Neurology, 271(6), 3116-3130. <a href="https://doi.org/10.1007/s00415-024-12305-4">https://doi.org/10.1007/s00415-024-12305-4</a>.
\126\ Mizell, R. (2024). The Impact of Insurance Restrictions in
Newly Diagnosed Individuals with Multiple Sclerosis. International
Journal of MS Care, 26(1), 17-21. <a href="https://doi.org/10.7224/1537-2073.2022-069">https://doi.org/10.7224/1537-2073.2022-069</a>.
\127\ Choi, S.A., et al. (2025). Health Care Costs and Resource
Utilization Among Patients with Myasthenia Gravis in the United
States. Journal of Managed Care & Specialty Pharmacy, 31(5), 472-
481. <a href="https://doi.org/10.18553/jmcp.2025.31.5.472">https://doi.org/10.18553/jmcp.2025.31.5.472</a>.
\128\ Sukumar, S., et al. (2023). Financial Toxicity of Medical
Management of Heart Failure: JACC Review Topic of the Week. Journal
of the American College of Cardiology, 81(20), 2043-2055. <a href="https://doi.org/10.1016/j.jacc.2023.03.402">https://doi.org/10.1016/j.jacc.2023.03.402</a>.
\129\ Wang, S.Y., et al. (2021). Out-of-Pocket Annual Health
Expenditures and Financial Toxicity from Healthcare Costs in
Patients with Heart Failure in the United States. Journal of the
American Heart Association, 10(14), e022164. <a href="https://doi.org/10.1161/JAHA.121.022164">https://doi.org/10.1161/JAHA.121.022164</a>.
\130\ Nguyen, N.H., et al. (2021). National Estimates of
Financial Hardship from Medical Bills and Cost-related Medication
Nonadherence in Patients with Inflammatory Bowel Diseases in the
United States. Inflammatory Bowel Diseases, 27(7), 1068-1078.
<a href="https://doi.org/10.1093/ibd/izaa266">https://doi.org/10.1093/ibd/izaa266</a>.
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Although the GUARD Model does not directly impact Part D enrollees'
out-of-pocket costs for these drugs, we believe the GUARD Model has the
capacity to address deficits of care experienced by the populations who
take the drugs that fall within these categories. The GUARD Model test
requires a GUARD Model
[[Page 60353]]
rebate payment, as described in Section IV.H. of this proposed rule, if
a GUARD Model drug's Medicare net price is greater than an
international benchmark. It is possible that in response to the
alternative payment strategy tested under the model, manufacturers
reduce their net price for a given drug, for instance by reducing
launch prices for drugs that are likely to become GUARD Model drugs. If
manufacturers decrease launch prices for GUARD Model drugs for the
purpose of reducing their liability under the GUARD Model, it may have
cascading effects. For example, such a response may benefit Part D
plans, who may then change their benefit design and offerings for Part
D plan enrollees and potentially reduce cost sharing for the drugs
included in the GUARD Model.
It is also possible manufacturers respond to the GUARD Model by
reducing the list prices of the drugs included in the model. A
reduction of list prices would reduce a manufacturer's rebate liability
under the GUARD Model. Given that the list price of drugs is used as a
starting point for negotiations in the pharmaceutical drug supply
chain, it is possible that a reduction in list prices may lead to a
reduction in the out-of-pocket costs paid by Part D enrollees who take
these drugs, particularly if the out-of-pocket cost is based on
coinsurance instead of a flat copayment.
In sum, CMS proposes at Sec. 514.5 that ``GUARD Model drug''
means, subject to the exclusions set forth in Sec. 514.120(c), a Part
D rebatable drug, as set forth in section 1860D-14B(g)(1) of the Act
and defined in 42 CFR 428.20 and determined in 42 CFR 428.101, that is
a sole-source drug or sole-source biological product as defined in
Sec. 514.100, has a USP category classification that includes at least
one of the USP selected categories, as defined in Sec. 514.120(e), and
is identifiable by a unique NDC-9 for which a payment was made under
Medicare Part D. This means that CMS proposes to limit the GUARD Model
test to the subset of sole-source drug and sole-source biological
products belonging to USP selected categories among the Part D
rebatable drugs, with some exclusions. Focusing the GUARD Model test on
sole-source drugs and source biological products allows the GUARD Model
test to identify the impact of the model without having to consider and
potentially adjust for the very different market dynamics between these
different types of drugs. Additionally, selecting drugs in specific USP
categories with deficits of care and high costs means the GUARD Model
focuses on drugs with the greatest potential for savings for the
Medicare program and Part D enrollees. Moreover, the proposed approach
allows for testing of the GUARD Model on a smaller subset of Part D
rebatable drugs, which would generate learnings and insights that can
help CMS understand how stakeholders may respond, even for drugs that
are not included in the GUARD Model.
2. Proposed Exclusion of Certain Part D Rebatable Drugs
CMS proposes in Sec. 514.120(a) to test the GUARD Model with a
subset of Part D rebatable drugs, specifically, sole-source drugs and
sole-source biological products belonging to the proposed selected
therapeutic USP categories.\131\ CMS proposes to exclude from the GUARD
Model, generics and biosimilar biological products. At Sec. 514.5 we
propose ``generic'' to mean, for the United States, a drug approved and
marketed under an Abbreviated New Drug Application (ANDA) under section
505(j) of the FD&C Act; and ``biosimilar biological product'' to mean,
for the United States, a biological product approved and licensed under
a BLA under section 351(k) of the PHS Act. Given that the only generics
that are Part D rebatable are sole-source generics, another way of
stating the exclusion is that sole-source generics and any (sole- or
multi-source) biosimilar biological products are excluded from the
GUARD Model.
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\131\ From the USP Medicare Model Guidelines v9.0: Analgesics,
Anticonvulsants, Antidepressants, Antimigraine Agents,
Antineoplastics, Antipsychotics, Antivirals, Bipolar Agents, Blood
Glucose Regulators, Cardiovascular Agents, Central Nervous System
Agents, Gastrointestinal Agents, Genetic or Enzyme or Protein
Disorder: Replacement or Modifiers or Treatment, Immunological
Agents, Metabolic Bone Disease Agents, Ophthalmic Agents, and
Respiratory Tract/Pulmonary Agents.
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CMS proposes this exclusion because sole-source generics and
biosimilar biological products experience very different market
dynamics than sole-source drugs (the original drug product approved
under an NDA) \132\ and sole-source biological products (the original
biological product licensed under section 351(a) of the PHS Act).\133\
This is consistent with our proposed policy to only include sole-source
drugs (which excludes multi-source drugs due to them having generics)
and sole-source biological products (which excludes multi-source
biological products due to them having biosimilar biological products).
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\132\ Could also be referred to as the reference listed drug to
the generic, where ``reference listed drug'' means the listed drug
identified by FDA as the drug product upon which an applicant relies
in seeking approval of its ANDA according to 21 U.S.C. 314.3(b).
\133\ Could also be referred to as the reference product to the
biosimilar biological product, where ``reference product'' means the
single biological product licensed under section 351(a) against
which a biological product is evaluated in an application submitted
under section 351(k) according to 42 U.S.C. 262(i)(4).
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As explained in this Section previously, sole-source generics
experience different market dynamics than sole-source original drugs.
Specifically, their existence necessitates that patent protections on
the original drugs have expired; their original counterparts may have
ceased to be marketed (usually discontinued due to business reasons);
they are typically at higher risk for disruptions in their supply; and
they tend to be older drugs.<SUP>134 135</SUP> For instance, sole-
source generics have been singled out by FDA via the Competitive
Generic Therapies pathway (created under the FDA Reauthorization Act of
2017); this pathway seeks to facilitate approval of sole-source
generics with the goal being to impact their market dynamics via
increased competition. CMS believes that it does not strengthen the
GUARD Model test to include sole-source generics in the model because
of their specific market dynamics.
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\134\ McGeeney, J.D., et al. (2025) Drug Shortages, 2018-2023.
Eastern Research Group, Inc. & Office of the Assistant Secretary of
Planning and Evaluation, U.S. Department of Health and Human
Services. <a href="https://aspe.hhs.gov/reports/drug-shortages-2018-2023">https://aspe.hhs.gov/reports/drug-shortages-2018-2023</a>
(Accessed: 10 December 2025).
\135\ Food and Drug Administration. (2019). Drug Shortages: Root
Causes and Potential Solutions. U.S. Department of Health and Human
Services. <a href="https://www.fda.gov/media/131130/download">https://www.fda.gov/media/131130/download</a> (Accessed: 10
December 2025).
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Biosimilar biological products also experience different market
dynamics compared to the original biological product. As stated earlier
in this Section of this proposed rule, the entry of a biosimilar
biological product results in a multi-source biological product market
which results in competitive forces that shift consumption patterns,
prices, and overall utilization of both the original biological product
and other biosimilars (if they exist). As such, CMS proposes at Sec.
514.120(c) that biosimilar biological products would be excluded from
the GUARD Model. For sole-source biosimilar biological products, this
would mean that the original biological product would have to no longer
be marketed according to the FDA's NDC Directory. At time of this
writing, there is no clear case of a sole-source biosimilar biological
product in the United States; however, there is also no reason to
believe that sole-source biosimilar biological products would behave
any differently from sole-source
[[Page 60354]]
generics in the market. For a sole-source biosimilar biological product
to exist, patent protections on the original product would had to have
expired; their original biologic products may have been discontinued;
and we would expect them to be older drugs. As such, CMS believes that
inclusion of sole-source biosimilar biological products would not
strengthen the GUARD Model test.
CMS proposes at Sec. 514.120(c) that the second exclusion would be
based on whether a sole-source drug or biological product's
application-level total gross covered prescription drug costs are below
the GUARD Model minimum spend threshold, as discussed below in this
Section of this proposed rule. ``Application-level total gross covered
prescription drug costs'' is defined at Sec. 514.100 as the sum of
total gross covered prescription drug costs, as defined in 42 CFR
428.100, from Medicare Part D PDE data for all rebatable Part D drugs
belonging to the same FDA application.
CMS believes that by using an application-level total gross covered
prescription drug costs, the risk of gaming to keep a specific Part D
rebatable drug below the threshold by, for example, applying for a new
NDC-9 to reduce the total gross covered prescription drug spend of the
original NDC-9 or by shifting formulary placement, is mitigated. At the
same time, the approach considers total spending incurred by the
Medicare Program on a GUARD Model drug by a manufacturer.\136\
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\136\ While it is possible for an application to change sponsor,
during or after approval, there is one responsible party (the
sponsor) for an application at a time. Any shifts in application
ownership are notified to FDA, thus reflected in Orange or Purple
Book, and would require a new NDC-9 and NDC codes are manufacturer-
specific.
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CMS proposes at Sec. 514.100 that the ``GUARD minimum spend
threshold'' means for the performance year beginning on January 1,
2027, an amount equal to $69 million and for subsequent performance
years, the minimum spend threshold is equal to the GUARD Model minimum
spend threshold for the prior performance year increased by the
percentage increase in the CPI-U \137\ for the 12-month period
beginning with January of the previous performance year, where a
``subsequent performance year'' means every performance year after the
first. There are four, starting January 1 and ending on December 31 of
2028, 2029, 2030, and 2031, as defined at Sec. 514.5. This means that
for each subsequent performance year, the GUARD minimum spend threshold
would increase with inflation. CMS would use PDE data to check whether
a potential GUARD Model drug is excluded from the GUARD Model due to
the minimum spend threshold. CMS proposes at Sec. 514.120(c) to
examine PDE data for the application-level total gross covered
prescription drug costs for the corresponding performance year. CMS
proposes at Sec. 514.120(c) that once a GUARD Model drug has exceeded
the GUARD Model minimum spend threshold for a performance year during
the GUARD Model performance period, they would no longer be subject to
this exclusion for subsequent performance years. This means that a
GUARD Model drug's minimum spend would not be checked annually.
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\137\ If for a subsequent performance year, the resulting amount
is not a multiple of $10, CMS rounds that amount to the nearest
multiple of $10.
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CMS believes that setting a GUARD minimum spend threshold and
comparing application-level total gross covered prescription drug costs
against it reduces the risk of access-related challenges associated
with the drug. In our analysis, we find that on average, across the
2024 Part D rebatable drugs that would be included in the GUARD Model
if the model had been implemented in 2024 \138\ (using an application-
level total gross covered drug cost above $69 million), the included
drugs would be associated with approximately $188 million per drug in
Part D spending.\139\ Therefore, we believe applying a threshold of $69
million that is adjusted for inflation annually thereafter means that
manufacturers of GUARD Model drugs would have significant revenue from
the Medicare Program and thus would likely remain in the Medicare
program during the GUARD Model test.
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\138\ 2024 Part D rebatable sole-source drugs and sole-source
biological products whose USP category is a USP selected category
excluding generics, biosimilar biological products, and those
subject to an MFP during the price applicability period.
\139\ CMS analysis using 2024 total gross drug costs and
preliminary list of Part D rebatable NDC-9s (as of October 1, 2025).
---------------------------------------------------------------------------
CMS also believes that a threshold of $69 million in the first
performance year of the GUARD Model that is adjusted for inflation
annually thereafter allows us to evaluate impacts to drugs above and
below the threshold as part of the GUARD Model test. Specifically,
applying the $69 million GUARD minimum threshold to 2024 Part D
rebatable drugs that would be included if the model had been
implemented in 2024 \140\ results in 38 percent \141\ of sole-source
drugs and sole-source biological products included in the GUARD Model
test. Among the 2024 Part D rebatable drugs \142\ with an application-
level total gross covered drug cost above $69 million, each drug that
would be included in the GUARD Model is associated with an average
wholesale acquisition cost (WAC) of approximately $47; and each drug
excluded is associated with an average WAC of approximately $14.\143\
This analysis suggests that the GUARD minimum threshold, as applied to
2024 Part D rebatable drugs, results in the GUARD Model test directed
towards more expensive drugs and biological products whose average
gross covered prescription drug costs are significantly higher than the
GUARD minimum threshold.
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\140\ 2024 Part D rebatable sole-source drugs and sole-source
biological products whose USP category is a USP selected category
excluding generics, biosimilar biological products, and those
subject to an MFP during the price applicability period.
\141\ CMS analysis using 2024 total gross drug costs and
preliminary list of Part D rebatable NDC-9s (as of October 1, 2025).
According to the GUARD Model drug definition and in alignment with
the Part D Inflation Rebate Program, drugs are defined at the NDC-9
level, thus the percentage represents the number of NDC-9s included
in the GUARD Model.
\142\ 2024 Part D rebatable sole-source drugs and sole-source
biological products whose USP category is a USP selected category
excluding generics, biosimilar biological products, and those
subject to an MFP during the price applicability period.
\143\ CMS analysis using 2024 total gross drug costs and
preliminary list of Part D rebatable NDC-9s (as of October 1, 2025).
The averages are a weighted average using total quantity dispensed
as weights at the NDC-9 level.
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CMS believes that this threshold, in addition to the Part D
Inflation Rebate Program applicable threshold \144\ defined in 42 CFR
428.101, minimizes risk of disrupting access to drugs for several
reasons. The GUARD minimum threshold supports the goal of having
sufficient inclusion to adequately test the alternate payment strategy
on a set of specific type of drugs (sole-source, high-expenditure drugs
in specific USP selected categories). The Part D Inflation Rebate
Program applicable threshold ensures that drugs with low per
beneficiary gross drug costs which--given the low volume or price--
could be affected disproportionately with a
[[Page 60355]]
change in payment strategy, are excluded from the GUARD Model because
they are not Part D rebatable drugs.
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\144\ For the applicable period beginning October 1, 2022, the
applicable threshold is equal to $100. For the applicable period
beginning October 1, 2023, the applicable threshold is equal to $100
increased by the percentage increase in CPI-U for the 12-month
period beginning October 1, 2023. For subsequent applicable periods,
the applicable threshold is equal to the applicable threshold for
the prior applicable period increased by the percentage increase in
the CPI-U for the 12-month period beginning with October of the
previous period.
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In Sec. 514.120(c), CMS proposes, as a third exclusion, that when
the Part D payment is based on a maximum fair price (MFP) (as defined
in section 1191(c)(3) of the Act), the Part D rebatable drug would be
excluded from the GUARD Model. This means that drugs that are selected
for the Medicare Drug Price Negotiation program (under Part E of Title
XI of the Act (sections 1191 through 1198)) would be excluded from the
GUARD Model when the negotiated MFP is in effect. Specifically, this
proposal would mean that a GUARD Model drug that is selected for
negotiation of an MFP would be removed from the GUARD Model on the date
that the MFP goes into effect. For example, because the prices of the
drugs selected for initial price applicability year 2028 go into effect
on January 1, 2028, these set of drugs would not be included as GUARD
Model drugs as of January 1, 2028.
Should a drug no longer have a negotiated MFP in effect, but still
be covered under Medicare, and to the extent it continues to fulfill
the GUARD Model inclusion requirements, the drug would be included in
the GUARD Model. CMS believes that excluding drugs when the Medicare
Part D payment is based on a negotiated MFP is appropriate because
these drugs are subject to different market dynamics within the United
States, and we believe that including them could confound the GUARD
Model test. As such, we do not propose a waiver under this model
related to the Medicare Drug Price Negotiation Program.
To maintain consistency with the definition of a Part D rebatable
drug at 42 CFR part 428, we propose at Sec. 514.120(e) that any
changes to the definition of Part D rebatable drug at 42 CFR part 428
would be automatically carried over to the definition of a GUARD Model
drug at Part 514.
In summary, for the purposes of the GUARD Model, CMS is defining a
GUARD Model drug as proposed at Sec. 514.120(a) as a Part D rebatable
sole-source drug or biological product identified based on the Part D
Inflation Rebate Program and whose assigned USP categories are within
one of the USP selected categories listed previously in this Section of
the proposed rule with some exclusions. The proposed exclusions are:
(1) sole-source generics and any biosimilar biological products; (2)
sole-source drugs or sole-source biological products whose annual
application-level total gross covered prescription drug costs are below
the GUARD minimum spend threshold; and (3) sole-source drugs or sole-
source biological products that are subject to an MFP during the price
applicability period when the MFP is in effect. CMS believes that the
proposed identification approach, along with the proposed exclusions
covered in this Section of this proposed rule, would result in the
inclusion of drugs and biological products that are used to treat a
variety of conditions in the Part D enrollee population and are
frequently sold at retail pharmacies, mail order pharmacies, and long-
term care pharmacies.
We invite public comment on our proposed approach for defining a
GUARD Model drug as discussed in this proposed rule. We are seeking
comment on the inclusion and exclusion criteria for GUARD Model drugs,
including the GUARD minimum spend threshold and the proposal to include
drugs in the GUARD Model if they are included in one of the USP
selected categories included in the GUARD Model.
3. Alternatives Considered
CMS considered including multi-source drugs and biological
products, sole-source generic drugs, and biosimilar biological products
in the GUARD Model. However, CMS believes that their market dynamics
and pricing behaviors, as discussed previously, would generate
variability that would hinder precision in the evaluation of the
alternate payment strategy tested under the GUARD Model.
CMS also considered including additional USP categories beyond the
ones proposed. Specifically, we considered including some additional
categories based on their 2024 Part D total gross drug costs. For
instance, CMS considered including the following additional USP
categories due to each category having 2024 total covered gross drug
costs for Part D rebatable sole-source drugs and sole-source biological
products above $1 billion: Blood Products and Modifiers, Dermatological
Agents, Antibacterials, Electrolytes/Minerals/Metals/Vitamins, and
Genitourinary Agents.\145\ We also considered including all USP
categories with Part D rebatable sole-source drugs and sole-source
biological products that had any amount of Medicare Part D gross
covered drug spending in 2024. This would result in the additional
inclusion, besides the five USP categories already mentioned, of the
following USP categories: Antiparasitics, Dental and Oral Agents, Otic
Agents, Antimycobacterials, Contraceptives, and Antispasticity Agents.
These additional six USP categories only amount to 1.6 percent of
spending among Part D sole-source rebatable drugs and sole-source
biological products. Finally, CMS also considered including in the USP
selected categories list others such as Antidementia Agents,
Inflammatory Bowel Disease Agents, and Skeletal Muscle Relaxants; and
even considered not limiting inclusion for the GUARD Model by USP
category and including all Part D rebatable drugs regardless of their
USP category. However, CMS believes prioritizing the USP selected
categories proposed at Sec. 514.120(a)(2) is necessary because these
categories represent drugs with high Part D gross drug spending and
they treat conditions for populations that experience care deficits. We
also considered excluding some of the proposed USP selected categories
from the GUARD Model. For example, we considered excluding categories
that correspond to the Medicare Protected Classes such as
Anticonvulsants, or other categories such as Antimigraine Agents,
Gastrointestinal Agents, and Metabolic Bone Disease Agents. However, we
decided inclusion better serves the GUARD Model as the drugs in these
categories are taken by populations that experience deficits of care.
CMS seeks feedback on our approach, including whether additional
categories should be included (and if so, which ones) or if there are
any categories proposed that should be excluded. We also seek feedback
on whether there are other approaches to identify the categories that
we should consider.
---------------------------------------------------------------------------
\145\ CMS analysis using preliminary list of Part D rebatable
drugs for 2024 and PDE data as of October 1, 2025.
---------------------------------------------------------------------------
CMS considered using the total gross covered prescription drug
costs for an NDC-9 instead of the application-level total gross covered
prescription drug costs to identify the GUARD minimum spend threshold.
However, we decided not to propose any thresholds at the NDC-9 level
due to concerns regarding gaming, particularly the possibility of a new
NDC-9 being introduced without a significant change in the drug. CMS
also considered basing the minimum spend threshold on the total gross
covered drug costs accrued over a calendar year for all Part D
rebatable drugs with the same combination of certain characteristics.
These characteristics could include all or some of active ingredient,
route of administration, and dosage form. However, this would mean the
total summed covered gross drug costs would not necessarily all
[[Page 60356]]
correspond to the same manufacturer. Therefore, CMS does not believe
this is the best approach for identifying the GUARD minimum spend
threshold.
Additionally, CMS considered determining the application-level or
other aggregate levels of total covered gross costs for comparison with
the GUARD minimum spend threshold using all Part D drugs not just those
that qualify for the Part D Inflation Rebate Program. However, CMS
believes that, given that the GUARD Model is testing an alternative
calculation for the Part D inflation rebate calculation, it is
appropriate to use the total covered gross costs from Part D rebatable
drugs.
CMS also considered evaluating whether a GUARD Model drug's
application-level total covered gross costs exceeds the GUARD Model
minimum spend threshold for every performance year instead of only for
the first performance year that the drug is being considered for
inclusion as a GUARD Model drug. However, in the interest of stability
and transparency regarding which drugs or biological products are GUARD
Model drugs and given the modest 5-year duration of the GUARD Model
performance period, CMS decided against this. CMS welcomes comments on
the proposed approach and the alternatives considered.
In proposing the GUARD minimum spend threshold, CMS considered all
amounts between $24.4 and $127 million since these amounts would result
in 50 and 30 percent of Part D rebatable sole-source drugs and sole-
source biological products after GUARD Model exclusions being
included.\146\ A GUARD minimum spend threshold lower than $24.4 million
would result in the set of drugs and biological products included being
too broad and CMS believes that it benefits the GUARD Model to focus
the model test on a narrower set of drugs for conditions with observed
deficits of care and those with higher costs. A GUARD minimum spend
threshold higher than $127 million would result in a set of drugs
included too narrow; CMS believes this is an insufficient number of
drugs and biological products for the GUARD Model test to be
informative.
---------------------------------------------------------------------------
\146\ CMS analysis using 2024 total gross drug costs and
preliminary list of Part D rebatable NDC-9s (as of October 1, 2025).
Part D rebatable sole-source drugs and sole-source biological
products whose USP category is a USP selected category excluding
generics, biosimilar biological products, and those subject to an
MFP during the price applicability period. Drugs and biological
products analyzed at the NDC-9 level.
---------------------------------------------------------------------------
CMS also considered not inflation adjusting the $69 million GUARD
minimum threshold for each subsequent performance year after the first
performance year; however, we believe that given the specific
characteristics of the Part D program, inflation adjustment is
necessary.
Additionally, CMS considered beginning the GUARD Model with a
limited set of drugs, ranging from only a set number of top spending
drugs or starting with a small subset of drugs and phasing drugs in
over time. Concerns around administrative burden, competitive
disadvantages, operational complexity, and insufficient sample for
evaluation of the model contributed to our decision not to employ these
alternative approaches. CMS believes that beginning the GUARD Model
with a subset of Part D rebatable drugs that allows for exclusions is a
transparent, consistent, and clear approach that would provide
sufficient opportunity for CMS to observe a wide range of manufacturer
behavior with respect to drug pricing, increasing the generalizability
of the evaluation findings.
We believe the benefits of including a subset of Part D rebatable
drugs in the GUARD Model with some exclusions, as discussed in this
Section of this proposed rule, outweigh the benefits of initiating the
GUARD Model with greater or fewer Part D rebatable drugs. We seek
comments on our proposed approach, including the inclusion of only
sole-source drugs and biological products from selected therapeutic
areas; \147\ the exclusion of sole-source generics and biosimilar
biological products; the exclusion of drugs whose annual application-
level total gross covered prescription drug cost are below the GUARD
minimum spend threshold; and the exclusion of drugs subject to an MFP
during the price applicability period.
---------------------------------------------------------------------------
\147\ From the USP Medicare Model Guidelines v9.0: Analgesics,
Anticonvulsants, Antidepressants, Antimigraine Agents,
Antineoplastics, Antipsychotics, Antivirals, Bipolar Agents, Blood
Glucose Regulators, Cardiovascular Agents, Central Nervous System
Agents, Gastrointestinal Agents, Genetic or Enzyme or Protein
Disorder: Replacement or Modifiers or Treatment, Immunological
Agents, Metabolic Bone Disease Agents, Ophthalmic Agents, and
Respiratory Tract/Pulmonary Agents.
---------------------------------------------------------------------------
4. GUARD Model Drug Units
We propose at Sec. 514.125(a) that the GUARD Model include every
GUARD Model drug unit, with some exceptions, as defined at 514.5 and
described in this section of the proposed rule, dispensed based on Part
D PDE records for GUARD Model drugs that are furnished to Part D
enrollees who reside in ``GUARD Model geographic areas'' as defined by
Sec. 514.5, which means the geographic areas, defined by Zonal
Improvement Plan Code Tabulation Areas (hereinafter ZCTAs; see Section
IV.C. of this proposed rule for details), selected for participation in
the GUARD Model in accordance with Sec. 514.110(d), and who are part
of the GUARD Model beneficiary population (as described in section
IV.C. of this proposed rule). We propose to use the PDE data to
identify GUARD Model drug and drug units because it is the prescription
drug cost and payment data that enables CMS to administer the Part D
benefit and records all prescription drug events for drugs covered
under the Part D program.
We propose at Sec. 514.125(b) that the following drug units would
be excluded from the GUARD Model: drug units for which payment is
subject to an agreement under 340B.
C. Proposed Model Test Design, Geographic Selection, and Beneficiary
Population
Section 1115A(b) of the Act gives the Secretary discretion in the
design of models, including the geographic reach of models. Section
1115A(a)(5) of the Act states that the Secretary may elect to limit
testing of a model to certain geographic areas. In this section, we
describe the proposed model test design, including the geographic
selection approach, and the defined beneficiary population that would
be included in the GUARD Model.
1. Proposed Model Test Design and Identification of Geographic Areas
At Sec. 514.110(d), we propose a randomized design in which the
GUARD Model geographic approach will be determined by selection of
geographic areas where GUARD Model beneficiaries reside, as determined
by CMS. Model test geographic areas would be randomly selected to
balance the Part D population and Medicare expenditures nationwide.
Later in this Section of the proposed rule, we propose the process by
which CMS would identify the model cohort and propose that, prior to
the model start, CMS would randomly identify the model geographic
areas. We also propose at Sec. 514.130(e) that the identification of
included beneficiaries and the timing of such identification, as well
as the identification of a comparison group, would be performed by CMS
and would not be subject to administrative or judicial review.
CMS proposes to establish the unit of geography for evaluation of
GUARD Model impacts based on identifying existing well-defined
geographic units that are sufficiently numerous to
[[Page 60357]]
support statistical analysis. Based on CMS' review of existing defined
geographic units that are suitable for statistical purposes, CMS, after
consideration of alternatives, proposes at Sec. 514.110(d) that ZCTAs
would be an appropriate geographic unit to randomly select geographic
areas included in the GUARD Model. At Sec. 514.100, CMS defines
``ZCTAs'' to mean approximate area representations of U.S. Postal
Service 5-digit Zonal Improvement Plan (ZIP) Code service routes that
the U.S. Census Bureau creates using whole blocks to present
statistical data from censuses and surveys, where ``ZIP Code'' means a
trademark of the USPS created to coordinate mail handling and delivery.
The USPS assigns ZIP Code ranges to regional post offices, which in
turn assign ZIP Codes to delivery routes. ZCTA's are a geographic
product of the U.S. Census Bureau, created to allow mapping, display,
and geographic analyses. They are both numerous and small in size.
ZCTAs are generalized and real representations of the geographic extent
and distribution of the U.S. Postal Service 5-digit ZIP Code service
routes that the U.S. Census Bureau creates using whole blocks to
present statistical data from censuses and surveys. The ZIP Code used
for beneficiary enrollment in Medicare can be linked to ZCTAs.
CMS believes that because of their small size and large numbers,
the random assignment of ZCTAs to define the GUARD Model geographic
area and the associated GUARD Model beneficiaries would enable CMS to
achieve the desired balance in the counts of beneficiaries, Part D
spending, and prescription drug utilization between the intervention
and comparison arms of the GUARD Model within the country, within the
Part D Plan regions, and within Part D plans. In addition, ZCTAs are
small enough to allow CMS to randomly select the GUARD geographic area
and the associated GUARD Model beneficiaries to ensure balance in the
number of beneficiaries included in the GUARD Model for each Part D
plan.
The proposed design of the model would reduce the potential for
unintended interactions resulting from the geographic selection
approach. Under this proposed design, the beneficiary is assigned to
the GUARD geographic area based upon the ZCTA linked to their
enrollment data and not where the beneficiary would fill their
prescription, limiting beneficiary incentives to switch pharmacies. For
example, when a beneficiary is assigned to a non-GUARD Model geographic
area, their prescription fill, even if for a GUARD rebatable drug at a
pharmacy located in a GUARD Model geographic area, would not be subject
to the intervention. Also, because beneficiary assignment to a GUARD
Model geographic area or non-GUARD Model geographic area would not
change with a change in residence, the measurement of outcomes to be
evaluated in the proposed model would not be dependent upon the size of
the geographic area. Therefore, randomizing a geographic area that is
small and numerous, such as a ZCTA, would enable balance of measured
and unmeasured characteristics of the geography, the associated
resident population, and pharmacies and other dispensing entities that
may be associated with this model.
CMS has considered the variation in GUARD Model drugs with respect
to cost and use in the Medicare population and proposed at Sec.
514.110(d) that the ideal allocation between GUARD Model and non-GUARD
Model regions for operational fairness is to allocate based on a 1:3
ratio. That is, the GUARD Model should be tested with approximately 25
percent of Medicare beneficiaries. A simple random selection of 25
percent of ZCTAs would result in the selection of approximately 25
percent of Medicare Part D enrollees representing approximately 25
percent of Medicare Part D spending. The geographic area would be
varied, and a representative selection of urban and rural areas are
expected to be included. CMS proposes this policy because a simple
random selection at the ZCTA level would enable about a quarter of
nearly every Part D plan sponsors' beneficiaries to be in the GUARD
Model and three-quarters would be in the comparison group (and
therefore, not subject to the GUARD Model test).
2. Proposed Unit of Analysis and Defined Population
In designing the proposed GUARD Model, CMS determined that
conducting the proposed GUARD Model test in the population of
beneficiaries residing in GUARD Model geographic areas would provide
the best means for testing the alternative rebate mechanism.
CMS proposes in Sec. 514.130(a) to identify a GUARD Model
beneficiary as a Part D enrollee who ``resides within the GUARD Model
geographic area'', which means according to Sec. 514.100, that the
beneficiary's home address as recorded in CMS' Medicare Enrollment
Database [or CMS' Medicare Beneficiary Database (MDB) System] is within
the set of ZIP Codes linked to ZCTAs selected for the GUARD Model
geographic areas in the U.S., excluding U.S. territories as identified
in Sec. 514.110. In Sec. 514.5, CMS proposes to define a ``GUARD
Model beneficiary'' as an individual who is enrolled in a Part D plan,
either in a standalone prescription drug plan (PDP) or Medicare
Advantage prescription drug (MA-PD) plan, but not in an Employer Group
Waiver Plan (EGWP), and who resides in a GUARD Model geographic area as
determined by the beneficiary's address of record with Medicare. CMS
proposes at Sec. 514.130(a) that Part D enrollees who do not have
Medicare as their primary payer or are enrolled in EGWPs would be
excluded from the GUARD Model. Therefore, the ``GUARD Model beneficiary
population'' is defined in this proposed rule at Sec. 514.5, to
include all Part D enrollees (with the exception of those who are
enrolled in an EGWP) who are furnished with a GUARD Model drug as
identified in Medicare Part D PDE data within the GUARD Model
performance period and who reside within a GUARD Model geographic area.
CMS proposes in Sec. 514.130(b) that 30 calendar days prior to the
start of the model, CMS would identify a beneficiary as a GUARD Model
beneficiary. Periodically thereafter, but no more than weekly, CMS
would identify eligible GUARD Model beneficiaries who would be
subsequently aligned to the model. GUARD Model beneficiaries would be
aligned to the model until the model ends, or the beneficiary is no
longer enrolled in Part D. If a GUARD Model beneficiary's address as
recorded in CMS' MBD changes (that is, they no longer reside within the
GUARD Model geographic areas) they would continue to be aligned to the
model, as proposed in Sec. 514.110(d). Beneficiaries who become newly
enrolled in Medicare Part D plans and are identified by CMS as GUARD
Model beneficiaries (because all criteria are met) would be aligned to
the GUARD Model; these beneficiaries (and any relevant drug units)
would be included in the GUARD Model rebate payment calculations from
the time that they newly enroll in Medicare Part D, if all criteria are
met. Beneficiaries for whom Medicare switches from being a secondary
payer to being the primary payer and are identified by CMS as a GUARD
Model beneficiary (because all criteria are met) would be aligned to
the model cohort at the time that they switch, according to Sec.
514.130(c). No other beneficiaries would be aligned to the GUARD Model
after the model starts. For example, the following changes would not
enable beneficiary
[[Page 60358]]
alignment to the GUARD Model after the model starts: (1) beneficiaries
who were enrolled in Medicare at the time CMS identifies the initial
cohort prior to the start of the model and had an MBD address in a non-
GUARD Model geographic area then had an address change to a GUARD Model
geographic area; and (2) newly enrolled Medicare Part D beneficiaries
with an address with a new ZIP Code that did not exist at the time that
the GUARD Model geographic areas were identified.
Defining the population broadly and in a manner that fosters a
stable and consistent model cohort would allow CMS to observe the
implications of an alternative approach to determining the GUARD Model
rebate payment for GUARD Model drugs across a broad set of
manufacturers and beneficiaries. If this proposed rule is finalized,
the GUARD Model geographic areas would be identified in a table that
lists the model test areas, total number of Medicare beneficiaries at
the time of analysis, and any other relevant information no later than
60 calendar days in advance of the beginning of the GUARD Model
performance period. This table would be shared on the GUARD Model
website. Defining the population in this manner would allow CMS to
assess if the GUARD Model payment test reduced Medicare costs while
preserving or enhancing quality of care, in line with section
1115A(b)(2) of the Act, across a broad set of pharmacies and other
dispensing entities and Part D enrollees, as well as a large set of
manufacturers. Lessons learned from the GUARD Model would inform CMS
and other interested parties about the effect of applying the proposed
alternative rebate approach to a broader set of drugs on Part D
enrollees and to the Medicare program.
3. Alternatives Considered
CMS considered initiating the model with a greater number of
geographic areas to include up to approximately 50 percent of Part D
beneficiaries in the model beneficiary cohort instead of our proposal
to test the model with approximately 25 percent of Part D
beneficiaries. We also considered an approach of initially testing the
model with approximately 25 percent of Part D beneficiaries and then
after initial monitoring observations are assessed, increasing the
model beneficiary cohort to include up to approximately 50 percent of
Part D beneficiaries. We note that these alternatives would likely
necessitate selection of the initial and potentially additional
geographic areas at the same point, prior to model start. These
approaches would have the benefit of enhancing the model evaluation as
a random selection of approximately 50 percent of the Medicare Part D
population would enable a 1:1 allocation of treatment to comparison. We
also considered approaches that CMS could follow to identify when and
how the included geographic areas and beneficiary cohort could be
increased to include up to 50 percent of Part D beneficiaries. One
option is that CMS could increase the beneficiary cohort at different
points throughout the model, depending on observed data. For example,
based on the first 6 months of data, if new patient access or supply
chain constraints do not appear or do not appear to be attributed to
the GUARD Model, CMS could increase the size of the model cohort later
in the model test period. CMS could continue to periodically monitor
available data and consider whether to increase the geographic areas
included in the model. However, we decided against these approaches
because we believe testing the GUARD Model with 25 percent of Medicare
Part D enrollees across randomly selected geographic areas is
sufficient for CMS to glean learnings on the impacts of the model. We
seek feedback on this approach.
We also considered the following geographic areas as the geographic
unit from which beneficiaries would be included in the model
requirements: (1) ZIP Codes; (2) counties; (3) states; (4) Census-
defined Core Based Statistical Areas (CBSAs) or Combined Statistical
Areas (CSAs); and (5) Part D Plan regions. ZIP Codes were considered
because they are the basis for determining beneficiary residence.
However, ZIP Codes, unlike ZCTAs are not technically geographic areas,
but delivery routes for the U.S. Postal Service, and they are not
Census-designated regions. Counties, states and CBSAs were determined
to be too heterogeneous in their size and population to achieve the
desired balance between intervention and comparison groups for the
proposed design. Part D Plan regions were considered to reduce
operational complexity but also were determined to be too large and
heterogeneous. CMS determined that these candidates would likely fail
to achieve the desired balance in the counts of beneficiaries, Part D
spending, and prescription drug utilization between the intervention
and comparison arms of the GUARD Model within the country, within the
Part D Plan regions, and within Part D plans. We welcome comment on
this proposal and the alternatives considered.
We considered including the ZCTAs of U.S. territories among the
geographic regions from which the randomly selected model geographic
area would be selected. However, due to operational considerations, we
decided to exclude U.S. territories. We seek feedback on this
exclusion.
We also considered randomly selecting plans as the unit from which
Part D drugs would be subject to the model requirements. This would
enable plans to have a uniform consideration of how rebates would apply
across all their beneficiaries. This, however, could reduce operational
fairness across plans nationally so we decided against this approach.
We welcome comment on our proposal to select ZCTAs as our geographic
unit of analysis.
In addition, we considered whether to include beneficiaries who are
enrolled in an EGWP. We decided against this, however, because there
are differences in the data that is available for these enrollees
compared to beneficiaries enrolled in standalone PDPs and MA-PDs and
because we believe this group could serve as an important
counterfactual for subgroup analysis in the evaluation. We seek
feedback on this proposed policy.
We welcome comment on all of our policy proposals presented here,
including proposals to test the model in geographic areas to cover 25
percent of Part D beneficiaries in the GUARD Model beneficiary
population and whether CMS should test the model with an alternative
approach that would include additional geographic areas, different
geographic selection units, U.S. territories, and additional
beneficiaries in the model.
D. GUARD Model Participants
1. Proposed Participants
At Sec. 514.110(a), CMS proposes that manufacturers would be the
participants of the GUARD Model. CMS proposes at Sec. 514.5 that
``manufacturer'' would have the same meaning as that term is defined
and used in Sec. 428.20 and section 1927(k)(5) of the Act. We note
that this is consistent with how CMS defines manufacturer for the
purposes of the Part D Inflation Rebate Program. We propose to define
at Sec. 514.5 ``GUARD Model participant'' as a manufacturer of a GUARD
Model drug that receives a Part D inflation rebate report for an
applicable period that overlaps with the GUARD Model performance
period.
At Sec. 514.110(a), CMS proposes that all manufacturers that
receive a Part D inflation rebate report including a GUARD Model drug
for an applicable period that overlaps with the GUARD
[[Page 60359]]
Model performance period would be required to participate in the GUARD
Model. There would be no specific enrollment activities for GUARD Model
participants; rather, their participation will be effectuated through
the requirements under the Part D Inflation Rebate Program, and where
applicable, the application of the proposed GUARD Model rebate payment,
as described in section IV.H. of this proposed rule.
CMS believes that this proposal to require participation of
manufacturers is necessary to conduct the GUARD Model test and
comprehensively understand the potential impacts of the model.
Mandatory participation can enhance the generalizability of model
results, as mandatory model participants may be more broadly
representative of all organization types that could be affected by a
model. With a mandatory participation policy, CMS would be able to
observe the experience of manufacturers with a diverse range of
characteristics--including, for example, large and small
manufacturers--as well as manufacturers with varying corporation
structures; difference in penetration within the United States and
global markets; differences in global pricing approaches; and
differences in marketing strategies. Additionally, CMS believes that
despite the potential opportunity under the GUARD Model to lower the
Part D program's financial liability and potentially reduce Part D
enrollees' financial barriers to access GUARD Model drugs, which could,
in turn, increase U.S. sales of such drugs, manufacturers of the
proposed GUARD Model drugs would likely not volunteer to participate in
the GUARD Model, which would threaten the model test. Therefore, CMS
believes that mandatory participation of manufacturers is essential to
carrying out the GUARD Model test.
CMS invites comment on our proposal for mandatory participation in
the GUARD Model by manufacturers of GUARD Model drugs. We also seek
feedback on whether manufacturers of proposed GUARD Model drugs would
voluntarily participate in the proposed GUARD Model absent a mandatory
participation requirement while still allowing for a robust test and
evaluation during performance year 1 and thereafter.
2. Mandatory Participation Requirements
CMS proposes that model participation would be mandatory for all
manufacturers that receive a Part D inflation rebate report including a
GUARD Model drug during an applicable period that overlaps with the
GUARD Model performance period. In Sec. 514.110(b) and (c), we propose
the GUARD Model participant requirements during and after the GUARD
Model performance period and payment years.
During the GUARD Model performance period and payment years, CMS
proposes that GUARD Model participants must--
<bullet> Adhere to the proposed GUARD Model rebate invoicing and
payment instructions as proposed in Sec. 514.610 and established by
CMS and its contractors responsible for providing GUARD Model rebate
reports and invoices and processing GUARD Model rebates, including
without limitation those described in proposed Sec. 514.640 to ensure
appropriate and accurate GUARD Model rebate payments.
<bullet> Participate in GUARD Model monitoring and evaluation
activities in accordance with 42 CFR 403.1110(b), including collecting
and reporting of information as the Secretary determines is necessary
to monitor and evaluate the GUARD Model.
<bullet> If voluntarily electing to submit manufacturer reported
international drug net pricing data, adhere to the requirements set
forth in Sec. 514.310 and the GUARD Model data agreement set forth in
Sec. 514.310(b)(1).
After the GUARD Model performance period and payment years, we
propose that GUARD Model participants must--
<bullet> Adhere to the proposed GUARD Model rebate invoicing and
payment instructions as proposed in proposed Sec. 514.610 and
established by CMS and its contractors responsible for providing GUARD
Model rebate reports, processing GUARD Model rebates, including without
limitation those described in proposed Sec. 514.640 to ensure
appropriate and accurate GUARD Model rebate payments.
<bullet> Participate in GUARD Model monitoring and evaluation
activities in accordance with 42 CFR 403.1110(b), including collecting
and reporting of information as the Secretary determines is necessary
to monitor and evaluate the GUARD Model.
<bullet> If electing to submit international net drug pricing data,
adhere to the requirements set forth in Sec. 514.310 and the GUARD
Model data agreement set forth in Sec. 514.310(b)(1).
<bullet> Continue GUARD Model rebate payment reconciliation
activities as proposed in Sec. 514.640.
We seek comment on our proposal for model participation
requirements for GUARD Model participants.
E. Proposed Existing International Drug Pricing Data and Reference
Countries
Under the GUARD Model, as described in section IV.G. of this
proposed rule, CMS will test two approaches to calculating the GUARD
Model international benchmark: Method I referred to as the GUARD Model
default international benchmark, and Method II, referred to as the
GUARD Model updated international benchmark. This Section of this
proposed rule discusses the existing sources for international drug
pricing data and the selection process of an international drug pricing
data source that CMS proposes to use, if available, to calculate the
GUARD Model default international benchmark for each GUARD Model drug.
We also describe our proposals to identify the set of reference
countries that would be used to identify the GUARD Model international
benchmark, both for the default and the updated international
benchmarks.
1. Existing Data Sources for International Drug Pricing Data
CMS proposes that the selected data source for a specific GUARD
Model drug must contain international drug pricing data for that
specific GUARD Model drug's set of international analogs. We propose,
at Sec. 514.5, to define ``set of international analogs'' to mean, for
each GUARD Model drug, the set of international products sold in all
reference countries, identified in Sec. 514.220(d) and as discussed
later in this Section of this proposed rule; and, we define
``international product'' to mean a drug or biological product, sold in
a reference country (where ``reference country'' means the countries
identified in Sec. 514.220(d) and discussed later in this Section of
this proposed rule), that is aligned across its identifying
characteristics with a GUARD Model drug. The identifying
characteristics are specific to each GUARD Model drug (which in
accordance with Sec. 514.120(a), is identified at the NDC-9 level) and
include active ingredient(s), route of administration, dosage form, and
strength. Alignment across identifying characteristics, according to
Sec. 514.410 and as discussed in section IV.G. of the proposed rule,
allows for adjustments that do not materially modify the nature of the
drug but account for country-specific differences, such as differences
due to language, units of measurement, labeling standards, or
differences in dosage form or strength. The international drug pricing
data for international analogs would then be used to determine, for
each GUARD
[[Page 60360]]
Model drug, the GUARD Model default international benchmark, as
described in section IV.G. of this proposed rule, which would be used
to calculate the GUARD Model rebate payment, which is described in
section IV.H. of this proposed rule.
To calculate the GUARD Model default international benchmark as
described in section IV.G. of this proposed rule and proposed at Sec.
514.410, CMS proposes to use existing data sources as proposed in Sec.
514.210 available to CMS that contain international drug pricing data,
including coordinated prices and volume data, coordinated sales and
volume data, or only prices.
Within the available data sources with international drug pricing
data that CMS proposes to use, sales may be based on ex-manufacturer
prices (sometimes referred to as ex-factory price) that represent
actual or calculated prices paid to the manufacturer by wholesalers and
other distributors, retail prices, prices for other distribution
channels, or a combination thereof. Confidential manufacturer rebates
to payers and other off-invoice payments would not likely be accounted
for within this data as this data does not typically represent net
prices. Therefore, existing sources for international drug sales data
may differ from net prices realized by manufacturers. However, CMS
believes the existing data sources are adequate for purposes of
identifying country-level average prices. At Sec. 514.5, ``country-
level average price'' is defined for a reference country identified in
Sec. 514.220(d), as the average or weighted-average unitary price for
the international products sold in the specific reference country that
are part of a GUARD Model drug's set of international analogs, where
the unit is the lowest dispensable amount of the GUARD Model drug
expressed in terms of National Council for Prescription Drug Program
(NCPDP) units.\148\ If the selected data source (according to the
requirements and selection criteria proposed at Sec. 514.210(b) and
(c)) includes international drug pricing information on volume, then
the country-level average price is a weighted-average where the weights
are the corresponding volume for a price expressed in the terms of the
NCPDP unit corresponding to the GUARD Model drug. The country-level
average prices would serve as the basis for the GUARD Model default
international benchmark, as described in section IV.G. of this proposed
rule, and CMS would select, among these, the lowest country-level
price, as described in section IV.G. of this proposed rule. In
addition, manufacturers would have the option to voluntarily submit
international drug net pricing data to CMS that would potentially be
used to identify the GUARD Model updated international benchmark, as
described in sections IV.F and IV.G. of this proposed rule.
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\148\ To assist in consistent and accurate billing of
pharmaceutical products, NCPDP developed the Billing Unit Standard
(BUS). The standard contains three billing units: EA, ML and GM. CMS
also requires reporting of unit type for purposes of rebates in the
Medicaid Drug Rebate Program. When possible, the NCPDP billing unit
and CMS unit type should be aligned. <a href="https://standards.ncpdp.org/Standards/media/pdf/BUS_fact_sheet.pdf">https://standards.ncpdp.org/Standards/media/pdf/BUS_fact_sheet.pdf</a>.
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We identified and assessed several existing data sources to confirm
the availability and sufficiency of international drug pricing data for
the implementation of the GUARD Model. Specifically, we reviewed
proprietary global drug pricing data sources that include drug pricing
data for a large diverse set of pharmaceutical products, including the
types of pharmaceutical products that could be covered under Part D,
for more than 30 countries. These data sources vary with respect to the
scope (such as products, manufacturer level, market level data,
countries), and periodicity of updates (such as daily, monthly,
quarterly).
One existing data source evaluated by CMS was IQVIA's
MIDAS[supreg],\149\ which is an IQVIA proprietary information service
which integrates IQVIA's national audits into a globally consistent
view of the pharmaceutical market, and provides estimated product
volumes of registered medicines, trends and market share through retail
and non-retail channels. IQVIA MIDAS \150\ includes detailed drug
product information such as brand name, molecule, strength, dosage
form, pack characteristics, manufacturer, regulatory approval, and
intellectual property protection statuses. For each of the drug
products, it also has sales and volume amounts by country, distribution
channel (for example, retail or hospital), and calendar quarter.
IQVIA's MIDAS is updated monthly and retains extensive historical data
for over 90 countries.
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\149\ The statements, findings, conclusions, views, and opinions
contained and expressed in this research article are based in part
on data obtained under license from the following IQVIA information
service(s): IQVIA MIDAS[supreg]. Copyright IQVIA. All rights
reserved. The statements, findings, conclusions, views and opinions
contained and expressed herein are not necessarily those of IQVIA or
any of its affiliated or subsidiary entities.
\150\ IQVIA. (n.d.) IQVIA MIDAS Overview. <a href="https://www.iqvia.com/solutions/commercialization/data-and-information-management/midas">https://www.iqvia.com/solutions/commercialization/data-and-information-management/midas</a>
(Accessed: 10 December 2025).
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Another potential data source we assessed is Global Data
Pharmaceutical Prices (POLI) \151\ data which includes prices for at
least 80 countries at the pack level (pharmaceutical name, generic
name, dosage form, strength, and number of units). POLI includes drug
product information (such as drug descriptor, molecule type, dosage
form, strength, and classification as brand or generic) and market
information (such as therapeutic area and geography). POLI is updated
monthly and provides historic data since 2016. Eversana NAVLIN's Price
& Access database,\152\ includes pricing data for more than 100
countries, as well as tools to compare international pricing
(specifically, pricing across countries), and is another potential data
source.
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\151\ Global Data. (n.d.) Data Lake--Pharmaceutical Prices
(POLI). <a href="https://marketaccess.globaldata.com/product-solutions/data-lake-pharmaceutical-prices-poli/">https://marketaccess.globaldata.com/product-solutions/data-lake-pharmaceutical-prices-poli/</a> (Accessed: 10 December 2025).
\152\ NAVLIN by Eversana. (n.d.). Navlin. <a href="https://www.navlin.com/">https://www.navlin.com/</a> (Accessed: 10 December 2025).
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CMS believes any of these three data sources would provide adequate
information in a timely way to inform CMS' determination of the G
[…truncated; see source link]Indexed from Federal Register on December 23, 2025.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.