Guarding U.S. Medicare Against Rising Drug Costs (GUARD) Model

Federal RegisterDec 23, 2025

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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.

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):

Electronically.

You may submit electronic comments on this regulation to

http://www.regulations.gov.

Follow the “Submit a comment” instructions.

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.

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

GUARDmodel@cms.hhs.gov.

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:

http://www.regulations.gov.

Follow the search instructions on that website to view public comments. The Centers for Medicare & Medicaid Services (CMS) will not post on

Regulations.gov

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

https://www.regulations.gov/.

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.

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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.

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.

Sparks, G., et al. (2024).

Public Opinion on Prescription Drugs and Their Prices.

KFF.

https://www.kff.org/health-costs/public-opinion-on-prescription-drugs-and-their-prices/

(Accessed: 10 December 2025).

Jones, E. & Noda, A. (2025).

Drug Costs and Their Impact on Care: Insights from Medicare Patients and Providers.

The Commonwealth Fund.

https://www.commonwealthfund.org/publications/issue-briefs/2025/feb/drug-costs-impact-care-insights-medicare-patients-providers

(Accessed: 10 December 2025).

Nekui, F., et al. (2021). Cost-related Medication Nonadherence and Its Risk Factors Among Medicare Beneficiaries.

Medical Care, 59

(1):13-21.

https://doi.org/10.1097/MLR.0000000000001458

Arnold Ventures, Commonwealth Fund, & PerryUndem. (2025).

Drug Costs and Their Impact on Care. https://www.arnoldventures.org/stories/drug-costs-and-their-impact-on-care

(Accessed: 10 December 2025).

Financial toxicity, or the negative impact that the monetary burden of medical care can have on patients' well-being, fiscal security, and overall health,

can be pronounced among the elderly population, most of whom are covered by Medicare, and among patients where the cost of treatment is high.

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.

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.

Arastu A., et al. (2020). Assessment of Financial Toxicity Among Older Adults with Advanced Cancer.

JAMA Network Open, 3

(12):e2025810.

https://doi.org/10.1001/jamanetworkopen.2020.25810

Narang, A.K. & Nicholas, L.H. (2016). Out-of-Pocket Spending and Financial Burden Among Medicare Beneficiaries with Cancer.

JAMA Oncology, 3

(6), 757.

https://doi.org/10.1001/jamaoncol.2016.4865.

Sparks, G., et al. (2024).

Public Opinion on Prescription Drugs and Their Prices.

KFF.

https://www.kff.org/health-costs/public-opinion-on-prescription-drugs-and-their-prices/

(Accessed: 10 December 2025).

Leonard, F., et al. (2023).

Medicare's Affordability Problem: A Look at the Cost Burdens Faced by Older Enrollees.

The Commonwealth Fund.

https://www.commonwealthfund.org/publications/issue-briefs/2023/sep/medicare-affordability-problem-cost-burdens-biennial

(Accessed: 10 December 2025).

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).

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).

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.

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.

MedPAC. (2025).

Health Care Spending and the Medicare Program. https://www.medpac.gov/wp-content/uploads/2025/07/July2025_MedPAC_DataBook_SEC.pdf

(Accessed: 10 December 2025).

MedPAC. (2025).

Health Care Spending and the Medicare Program. https://www.medpac.gov/wp-content/uploads/2025/07/July2025_MedPAC_DataBook_SEC.pdf

(Accessed: 10 December 2025).

IQVIA. (2023).

The use of medicines in the U.S. 2023. https://www.iqvia.com/insights/the-iqvia-institute/reports-and-publications/reports/the-use-of-medicines-in-the-us-2023

(Accessed: 10 December 2025).

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.

https://doi.org/10.1377/hlthaff.2022.00113

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).

The authors conclude that the United States is paying substantially higher prices for certain components of health care, including for drugs, than other countries.

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.

Among these countries, Japan and Canada use international reference pricing to help determine drug prices within the country.

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.

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.

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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.

https://doi.org/10.1111/1475-6773.13708

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.

https://doi.org/10.1111/1475-6773.13708

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.

https://doi.org/10.1377/hlthaff.2018.05207

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.

https://doi.org/10.1377/hlthaff.2018.05207

IQVIA. (2025). The

Global Use of Medicines 2025: Outlook to 2029—Global Webinar. https://www.iqvia.com/-/media/iqvia/pdfs/events/presentation_global-meds-webinar_public.pdf

(Accessed: 10 December 2025).

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.

https://aspe.hhs.gov/sites/default/files/documents/277371265a705c356c968977e87446ae/international-price-comparisons.pdf

(Accessed: 10 December 2025).

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

https://usoecd.usmission.gov/about-the-oecd/

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.

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.

https://doi.org/10.1111/1468-0009.12714

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.

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.

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.

https://aspe.hhs.gov/reports/prescription-drug-supply-chains

(Accessed: 10 December 2025).

Rome, B.N., et al. (2022). Trends in Prescription Drug Launch Prices, 2008-2021.

JAMA, 327

(21), 2145.

https://doi.org/10.1001/jama.2022.5542

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.

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Among drugs

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.)

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.

Under the Part D program, this post point-of-sale compensation is included in Direct and Indirect Remuneration (DIR)

and is factored into CMS's calculation of final Medicare payments to Part D plans.

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).

Government Accountability Office. (2023).

Medicare Part D: CMS Should Monitor Effects of Rebates on Plan Formularies and Beneficiary Spending

[GAO-23-105270].

https://www.gao.gov/assets/gao-23-105270.pdf

(Accessed: 10 December 2025).

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.

https://doi.org/10.1001/jama.2020.1012

Mulcahy, A.W., et al. (2024).

Prescription Drug Prices, Rebates, and Insurance Premiums.

RAND.

https://www.rand.org/pubs/research_reports/RRA1820-3.html

(Accessed: 10 December 2025).

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 § 30.2.5, available at

https://www.cms.gov/medicare/prescription-drug-coverage/prescriptiondrugcovcontra/downloads/part-d-benefits-manual-chapter-6.pdf

(Last accessed September 24, 2025).

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.

https://aspe.hhs.gov/reports/prescription-drug-supply-chains

(Accessed: 10 December 2025).

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).

Centers for Medicare & Medicaid Services. (2017).

Medicare Part D—Direct and Indirect Remuneration (DIR).

U.S. Department of Health and Human Services.

https://www.cms.gov/newsroom/fact-sheets/medicare-part-d-direct-and-indirect-remuneration-dir

(Accessed: 10 December 2025).

Medicare Prescription Drug, Improvement, and Modernization Act of 2003, Public Law 108-173, 117 Stat. 2066 (2003).

https://www.congress.gov/108/plaws/publ173/PLAW-108publ173.pdf

(Accessed: 10 December 2025).

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.

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.

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

in negotiating the maximum fair price (MFP).

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.

Tordrup, D., et al. (2020).

Systematic Reviews for the Update of the WHO Guideline on Country Pharmaceutical Pricing Policies.

World Health Organization (WHO).

https://www.ncbi.nlm.nih.gov/books/NBK570141/pdf/Bookshelf_NBK570141.pdf

(Accessed: 10 December 2025).

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.

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:

• 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

total gross covered

drug costs below the GUARD minimum spend threshold; and (3) drugs that are subject to a negotiated MFP, during the price applicability period.

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.

• 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.

• 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.

• 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).

• 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.

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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.

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.

• 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.

Where net pricing refers to drug prices exclusive of any discounts, rebates, or price concessions offered by manufacturers.

• 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.

• 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.

• 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.

• 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.

• 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.

• 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

EP23DE25.000

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.

In 2024, Part D drug spending represented a large portion (about 40 percent)

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.

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).

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.

MedPAC. (2025).

Health Care Spending and the Medicare program. https://www.medpac.gov/wp-content/uploads/2025/07/July2025_MedPAC_DataBook_SEC.pdf

(Accessed: 10 December 2025).

IQVIA. (2025).

Understanding the Use of Medicines in the U.S. 2025. https://www.iqvia.com/insights/the-iqvia-institute/reports-and-publications/reports/understanding-the-use-of-medicines-in-the-us-2025

(Accessed: 10 December 2025).

IQVIA. (2023).

The Use of Medicines in the U.S. 2023. https://www.iqvia.com/insights/the-iqvia-institute/reports-and-publications/reports/the-use-of-medicines-in-the-us-2023

(Accessed: 10 December 2025).

IQVIA. (2025).

Understanding the Use of Medicines in the U.S. 2025. https://www.iqvia.com/insights/the-iqvia-institute/reports-and-publications/reports/understanding-the-use-of-medicines-in-the-us-2025

(Accessed: 10 December 2025).

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.

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In 2024, the United States accounted for less than 5 percent of the world's population (4.22)

and about 15 percent (14.9) of the world's real gross domestic product (GDP),

but U.S. gross spending on drugs accounted for over half of the world's gross spending on drugs (53.2 percent)

and only about 10 percent of the volume sold.

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.

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.

https://doi.org/10.1377/hlthaff.2018.05207.

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.

https://aspe.hhs.gov/sites/default/files/documents/277371265a705c356c968977e87446ae/international-price-comparisons.pdf

(Accessed: 10 December 2025).

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.

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.

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%20hospital%20market

(Accessed: 10 December 2025).

Author analysis based on IQVIA MIDAS® 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.

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.

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

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.

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,

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).

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.

Mulcahy, A., et al. (2021).

International Prescription Drug Price Comparisons: Current Empirical Estimates and Comparisons with Previous Studies.

RAND.

https://www.rand.org/pubs/research_reports/RR2956.html

(Accessed: 16 December 2025).

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.

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.

https://aspe.hhs.gov/sites/default/files/documents/277371265a705c356c968977e87446ae/international-price-comparisons.pdf

(Accessed: 10 December 2025).

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.

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.

https://doi.org/10.1111/1468-0009.12714

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.

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).

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.

This, in turn, impacts Medicare costs, including premiums, under the Part D program.

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.

https://aspe.hhs.gov/reports/prescription-drug-supply-chains

(Accessed: 10 December 2025).

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.

https://aspe.hhs.gov/reports/prescription-drug-supply-chains

(Accessed: 10 December 2025).

Centers for Medicare & Medicaid Services. (2017).

Medicare Part D—Direct and Indirect Remuneration (DIR).

U.S. Department of Health and Human Services.

https://www.cms.gov/newsroom/fact-sheets/medicare-part-d-direct-and-indirect-remuneration-dir

(Accessed: 10 December 2025).

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.

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.

The prices of prescription drugs covered by a Part D plan are negotiated between the plan sponsor or its PBM and pharmaceutical drug manufacturers.

Medicare Prescription Drug, Improvement, and Modernization Act of 2003, Public Law 108-173, 117 Stat. 2066 (2003).

https://www.congress.gov/108/plaws/publ173/PLAW-108publ173.pdf

(Accessed: 10 December 2025).

MA-PD plans offer both medical and prescription benefits (Medicare Part D) through Medicare Part C. Standalone PDP plans offer only Part D coverage.

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.

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.

MedPAC. (2024).

Part D Payment System. https://www.medpac.gov/wp-content/uploads/2024/10/MedPAC_Payment_Basics_24_PartD_FINAL_SEC.pdf

(Accessed: 10 December 2025).

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

deductible, up to a maximum of $615 in 2026.

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.

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.

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.

Medicare.gov

. (n.d.).

Medicare Part D Costs.

Centers for Medicare and Medicaid Services (CMS), U.S Department of Health and Human Services.

https://www.medicare.gov/health-drug-plans/part-d/basics/costs

(Accessed: 10 December 2025).

Centers for Medicare & Medicaid Services. (2025).

Final CY 2026 Part D Redesign Program Instructions.

U.S. Department of Health and Human Services.

https://www.cms.gov/newsroom/fact-sheets/final-cy-2026-part-d-redesign-program-instructions

(Accessed: 10 December 2025).

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.

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.

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

CMS.gov

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.

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)

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;

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.

Previous research by ASPE has found that in 2019, about 5.7 million Medicare beneficiaries did not have prescription drug coverage.

Centers for Medicare & Medicaid Services. (2025).

Prescription Drug Coverage (Part D).

U.S. Department of Health and Human Services.

https://www.cms.gov/medicare/coverage/prescription-drug-coverage

(Accessed: 10 December 2025).

See also: Medicare Prescription Drug Benefit Manual Chapter 6—Part D Drugs and Formulary Requirements, Centers for Medicare & Medicaid Services (January 15, 2016) at § 30.2, Available at

https://www.cms.gov/medicare/prescription-drug-coverage/prescriptiondrugcovcontra/downloads/part-d-benefits-manual-chapter-6.pdf

(Last accessed September 24, 2025).

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).

MedPAC. (2025).

Health Care Spending and the Medicare program. https://www.medpac.gov/wp-content/uploads/2025/07/July2025_MedPAC_DataBook_SEC.pdf

(Accessed: 10 December 2025).

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.

https://aspe.hhs.gov/sites/default/files/documents/b9ac26a13b4fdf30c16c24e79df0c99c/medicare-beneficiary-enrollment-ib.pdf

(Accessed: 10 December 2025).

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.

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.

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.

MedPAC. (2024).

Part D Payment System. https://www.medpac.gov/wp-content/uploads/2024/10/MedPAC_Payment_Basics_24_PartD_FINAL_SEC.pdf

(Accessed: 10 December 2025).

MedPAC. (2023).

Assessing postsale rebates for prescription drugs in Medicare Part D, Report to the Congress: Medicare and the Health Care Delivery System.

https://www.medpac.gov/wp-content/uploads/2023/06/Jun23_Ch2_MedPAC_Report_To_Congress_SEC.pdf

(Accessed: 10 December 2025).

MedPAC. (2025).

Chapter 4: Part D Outlook, Medicare Payment Advisory Commission.

https://www.medpac.gov/wp-content/uploads/2025/06/Jun25_Ch4_MedPAC_Report_To_Congress_SEC.pdf

(Accessed: 10 December 2025).

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.

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

and further clarified in a December 2023 guidance,

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.

Social Security Act, Payment for Covered Outpatient Drugs (section 1927 of the Act, 42 U.S.C. 1396r-8).

https://www.ssa.gov/OP_Home/ssact/title19/1927.htm

(Accessed: 10 December 2025).

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.

https://www.cms.gov/files/document/medicare-part-d-inflation-rebate-program-revised-guidance.pdf

(Accessed: 10 December 2025).

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.

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.

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.

https://www.cms.gov/files/document/medicare-prescription-drug-inflation-rebate-program-final-fact-sheet.pdf

(Accessed: 10 December 2025).

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

costs (meaning that manufacturer payments made under the Manufacturer Discount Program will not accrue to a beneficiary's incurred costs).

See sections 1860D-2(b)(4)(C)(iii) and (E) of the Social Security Act).

The IRA also established the Medicare Drug Price Negotiation Program, codified in sections 1191 through 1198

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.

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.

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.

https://www.cms.gov/newsroom/fact-sheets/medicare-drug-price-negotiation-program-negotiated-prices-initial-price-applicability-year-2026

(Accessed: 10 December 2025).

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.

https://www.cms.gov/newsroom/press-releases/hhs-announces-15-additional-drugs-selected-medicare-drug-price-negotiations-continued-effort-lower

(Accessed: 10 December 2025).

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.

Leonard, F., et al. (2023).

Medicare's Affordability Problem: A Look at the Cost Burdens Faced by Older Enrollees.

The Commonwealth Fund.

https://www.commonwealthfund.org/publications/issue-briefs/2023/sep/medicare-affordability-problem-cost-burdens-biennial

(Accessed: 10 December 2025).

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).

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.

MedPAC. (2025).

Health Care Spending and the Medicare program. https://www.medpac.gov/wp-content/uploads/2025/07/July2025_MedPAC_DataBook_SEC.pdf

(Accessed: 10 December 2025).

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.

https://doi.org/10.18553/jmcp.2024.30.12.1355

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.

Generic drugs represented the remaining 15 percent of spending.

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.

MedPAC. (2025).

Health Care Spending and the Medicare program. https://www.medpac.gov/wp-content/uploads/2025/07/July2025_MedPAC_DataBook_SEC.pdf

(Accessed: 10 December 2025).

MedPAC. (2025).

Health Care Spending and the Medicare program. https://www.medpac.gov/wp-content/uploads/2025/07/July2025_MedPAC_DataBook_SEC.pdf

(Accessed: 10 December 2025).

MedPAC. (2025).

Health Care Spending and the Medicare program. https://www.medpac.gov/wp-content/uploads/2025/07/July2025_MedPAC_DataBook_SEC.pdf

(Accessed: 10 December 2025.

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.

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.

https://aspe.hhs.gov/reports/medicare-part-d-enrollee-out-pocket-spending

(Accessed: 10 December 2025).

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.

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.

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.

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.

https://schaeffer.usc.edu/research/cost-sharing-burden-medicare-part-d/

(Accessed: 10 December 2025).

Internal CMS analysis of Medicare Current Beneficiary Survey data collected May-July 2025 (Office of Enterprise Data and Analytics).

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.

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.

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.

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.

https://aspe.hhs.gov/sites/default/files/documents/b9ac26a13b4fdf30c16c24e79df0c99c/medicare-beneficiary-enrollment-ib.pdf

(Accessed: 10 December 2025).

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.

https://www.cms.gov/newsroom/fact-sheets/2026-medicare-part-d-bid-information-and-part-d-premium-stabilization-demonstration-parameters

(Accessed: 10 December 2025).

Suzuki, S., et al. (2025).

Structural differences between the Part D PDP and MA-PD markets.

MedPAC.

https://www.medpac.gov/wp-content/uploads/2025/04/Tab-D-Structural-issues-in-Part-D-April-2025.pdf

(Accessed: 10 December 2025).

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.

90 91

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.

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.

https://schaeffer.usc.edu/research/cost-sharing-burden-medicare-part-d/

(Accessed: 10 December 2025).

MedPAC. (2025).

Health Care Spending and the Medicare program. https://www.medpac.gov/wp-content/uploads/2025/07/July2025_MedPAC_DataBook_SEC.pdf

(Accessed: 10 December 2025).

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.

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:

• 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

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.

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.

• 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

would be required to participate in the GUARD Model.

• 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.

• 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).

• 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

is sold. Please see section IV.G. of the proposed rule.

• 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.

• 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.

• 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.

• 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

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 § 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 § 514.910(a).

In § 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 § 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 § 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 § 514.1(c). We propose to define at § 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 § 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 § 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 § 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 § 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 § 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 § 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

generic(s),

as defined at § 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.

At § 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 § 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

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.

At § 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 § 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.

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.

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 § 514.120 CMS proposes to exclude generics and biosimilar biological products and that biosimilar biological products are defined at § 514.5 as those licensed under section 351(k), it follows that these specific unbranded biological products would be excluded from the GUARD Model.

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 § 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,

with prices falling on average by more than half for the sole-source drug.

99 100

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

Grabowski, H., et al. (2016). Updated Trends in US Brand-name and Generic Drug Competition.

Journal of Medical Economics, 19

(9), 836-844.

https://doi.org/10.1080/13696998.2016.1176578

Darling P., et al. (2024)

Economic Considerations Related to Biosimilar Market Entry.

American Bar Association.

https://www.americanbar.org/groups/antitrust_law/resources/newsletters/economic-considerations-biosimilar-market-entry/

(Accessed: 10 December 2025).

100

Aitken, M. (2016).

Price Declines after Branded Medicines Lose Exclusivity in the U.S.

IQVIA.

https://www.iqvia.com/-/media/iqvia/pdfs/institute-reports/price-declines-after-branded-medicines-lose-exclusivity-in-the-us.pdf

(Accessed: 10 December 2025).

101

Maini L. et al. (2021). Biosimilar Entry and the Pricing of Biologic Drugs.

SSRN. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3760213

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.

https://doi.org/10.1111/1468-0009.12517

103

McGeeney, J.D., et al. (2025). Measuring the First Mover Advantage in US Biosimilar Markets.

Value Health. https://doi.org/10.1016/j.jval.2025.07.011

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.

https://www.aspe.hhs.gov/reports/changes-list-prices-prescription-drugs

(Accessed: 10 December 2025).

Second, pharmaceutical drug manufacturer rebates and discounts are significantly different for sole-source

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.

105

Government Accountability Office. (2023).

Medicare Part D: CMS should monitor effects of rebates on plan formularies and beneficiary spending

(GAO-23-105270).

https://www.gao.gov/assets/gao-23-105270.pdf

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.

https://doi.org/10.1001/jama.2020.1012

107

Mulcahy, A.W., et al. (2024).

Prescription Drug Prices, Rebates, and Insurance Premiums.

RAND.

https://www.rand.org/pubs/research_reports/RRA1820-3.html

(Accessed: 10 December 2025).

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 § 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 § 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

Historically, every 3 years, the USP publishes an updated version of the Medicare Model Guidelines. The current guidelines can be found following this link

https://www.usp.org/health-quality-safety/usp-medicare-model-guidelines.

CMS proposes at § 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 § 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 § 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 § 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 § 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 § 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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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

https://www.nlm.nih.gov/research/umls/rxnorm/index.html.

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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.

https://www.nlm.nih.gov/research/umls/rxnorm/overview.html.

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The current guidelines can be found here:

https://www.usp.org/health-quality-safety/usp-medicare-model-guidelines.

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.

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The USP categories that correspond to the Medicare Protected Classes are Anticonvulsants, Antidepressants, Antineoplastics, Antipsychotics, Antivirals, Bipolar Agents, and Immunological Agents, as defined at § 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

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.

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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.

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.

https://www.cms.gov/medicare/prescription-drug-coverage/prescriptiondrugcovcontra/downloads/part-d-benefits-manual-chapter-6.pdf

(Accessed: 10 December 2025.

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CMS analysis using preliminary list of Part D rebatable drugs for 2024 and PDE data as of October 1, 2025.

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 § 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.

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The top two spending categories in 2024 were Blood Glucose Regulators and Respiratory Tract/Pulmonary Agents.

114

CMS analysis using preliminary list of Part D rebatable drugs for 2024 and PDE data as of October 1, 2025.

CMS proposes at § 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 § 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.

115 116 117

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.

118 119 120

115

Dusetzina, S.B., et al. (2022). Many Medicare Beneficiaries Do Not Fill High-Price Specialty Drug Prescriptions.

Health Affairs, 41

(4), 487-496.

https://www.healthaffairs.org/doi/abs/10.1377/hlthaff.2021.01742.

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.

https://doi.org/10.1001/jamaneurol.2019.2711.

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.

https://aspe.hhs.gov/sites/default/files/documents/1e2879846aa54939c56efeec9c6f96f0/prescription-drug-affordability.pdf

(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.

https://doi.org/10.1016/S2665-9913(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.

https://pubmed.ncbi.nlm.nih.gov/35586614/.

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.

https://doi.org/10.1007/s11606-025-09886-9.

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.

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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

125 126

and myasthenia gravis,

127

and chronic diseases such as cardiovascular diseases

128 129

and inflammatory bowel disease.

130

121

Internal CMS analysis of Medicare Current Beneficiary Survey data collected May-July 2025 (Office of Enterprise Data and Analytics).

122

Lancet Rheumatology, 6

(2), e105-e114.

https://doi.org/10.1016/S2665-9913(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.

https://doi.org/10.18553/jmcp.2022.28.12-a.s1.

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.

https://doi.org/10.2337/dc22-0494.

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.

https://doi.org/10.1007/s00415-024-12305-4.

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.

https://doi.org/10.7224/1537-2073.2022-069.

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.

https://doi.org/10.18553/jmcp.2025.31.5.472.

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.

https://doi.org/10.1016/j.jacc.2023.03.402.

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.

https://doi.org/10.1161/JAHA.121.022164.

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.

https://doi.org/10.1093/ibd/izaa266.

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

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 § 514.5 that “GUARD Model drug” means, subject to the exclusions set forth in § 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 § 514.100, has a USP category classification that includes at least one of the USP selected categories, as defined in § 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 § 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.

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CMS proposes to exclude from the GUARD Model, generics and biosimilar biological products. At § 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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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.

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)

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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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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).

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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).

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.

134 135

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.

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.

https://aspe.hhs.gov/reports/drug-shortages-2018-2023

(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.

https://www.fda.gov/media/131130/download

(Accessed: 10 December 2025).

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 § 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

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 § 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 § 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.

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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.

CMS proposes at § 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

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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 § 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 § 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 § 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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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.

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.

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.

140

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

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.

CMS believes that this threshold, in addition to the Part D Inflation Rebate Program applicable threshold

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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

change in payment strategy, are excluded from the GUARD Model because they are not Part D rebatable drugs.

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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.

In § 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 § 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 § 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 § 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

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.

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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.

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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;

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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.

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4. GUARD Model Drug Units

We propose at § 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 § 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 § 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 § 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 § 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 § 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

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 § 514.110(d) that ZCTAs would be an appropriate geographic unit to randomly select geographic areas included in the GUARD Model. At § 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 § 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 § 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 § 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 § 514.110. In § 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 § 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 § 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 § 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 § 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 § 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

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 m

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