PhRMA sues Trump administration over Medicare Part B drug pricing model

The Pharmaceutical Research and Manufacturers of America (PhRMA), the pharmaceutical industry's main trade group, filed a lawsuit this week seeking to block one of the Trump administration’s main most-favored-nation programs designed to lower drug prices by tying them to prices paid in other countries. PhRMA claims that CMS overstepped its authority to test new pricing ideas and is instead rewriting Medicare's pricing structure without congressional action.

What the GLOBE model does

The lawsuit targets the Global Benchmark for Efficient Drug Pricing (GLOBE) Model, a mandatory model CMS finalized last week that links some Medicare Part B drug rebates to prices paid in other wealthy countries, according to a CMS news release.

The agency now expects the model to save far less than it first projected. When CMS proposed the model, it projected about $2.3 billion in annual savings. The final rule estimates about $80 million a year, or roughly $440 million over the full payment period, which runs through 2034.

Part B covers drugs that clinicians administer in settings such as physician offices and hospital outpatient departments. GLOBE's rebate formula, which begins Jan. 1, 2027, sets a benchmark using prices from 19 countries, including Canada, France, Germany, Japan and the United Kingdom.

In an interview with Reuters, PhRMA General Counsel Jim Stansel said Congress has given CMS only "a little bit of authority to test models." Instead, he said, the agency is doing what Congress has repeatedly declined to do: replacing Medicare's pricing structure with a most-favored-nation one.

CMS argues in the final rule that it is acting within a statutory framework Congress designed for this type of model test.

"Medicare Part B patients and American taxpayers have paid significantly more for prescription medications than people in comparable countries," said CMS Administrator Mehmet Oz, M.D. "At CMS, we're focused on more than promises to make healthcare more affordable — we're taking action to pilot a new approach to lower costs and strengthen the quality of care while preserving medical innovation."

Brand-name prescription drugs cost Americans more than four times what patients in other developed nations pay, and spending on drugs covered under Original Medicare Part B is outpacing the rest of the U.S. drug market. Between 2008 and 2021, Part B drug spending rose nearly four times as fast as drug spending across all payers, including Medicare, Medicaid and commercial insurance, according to the HHS Office of the Assistant Secretary for Planning and Evaluation.

Manufacturers with existing White House pricing deals would be waived from the model. More than two dozen drugmakers, including Pfizer, Eli Lilly and Novo (formerly Novo Nordisk), have signed such agreements with the Trump administration.

What the lawsuit could mean for patients and payers

In some respects, a PhRMA win could hurt patients and complicate planning for medical practices and payers.

• Higher out-of-pocket costs for some seniors. About 25% of Original Medicare Part B patients would be in the model, and roughly 94% of covered drugs would carry coinsurance of 2% to 12% instead of the standard 20%. The drugs are high-priced cancer, immunology and eye drugs. If the rule is struck down, that relief disappears.
• A precedent that limits future models. A ruling that narrows the CMS Innovation Center's authority could constrain other mandatory models, including the companion Part D model, GUARD, which isn't final yet.
• More uncertainty for practices. CMS hasn't said when it will post the drug list and selected ZIP code areas, so practices can’t yet tell which patients qualify. Litigation adds to that.

PhRMA, for its part, frames the suit as a check on an agency making a major policy change that Congress has repeatedly declined to enact. When the group challenged an earlier most-favored-nation rule in 2020, it also warned the policy would disrupt patients' access to medicines.

The model's reach may be limited either way. With companies that have White House deals waived, it may apply to as few as four drugmakers. Unless the court blocks the rule, it takes effect Nov. 30, and the model begins Jan. 1, 2027.