CMS Bets on Mandatory Drug Model to Break Medicare Part D Pricing Gridlock

The Centers for Medicare & Medicaid Services (CMS) has proposed a new mandatory payment model aimed at lowering prescription drug costs for Medicare beneficiaries, a move that underscores both the urgency and complexity of reforming drug pricing in the United States. Dubbed the Guarding U.S. Medicare Against Rising Drug Costs (GUARD) Model, the initiative introduces international price benchmarking and modified rebate structures to rein in spending under Medicare Part D. But while the model reflects an aggressive policy posture, it also raises significant implementation and equity questions as it moves toward a 2027 launch.

From voluntary to mandatory: a shift in policy posture

The GUARD Model departs from previous CMS drug reform efforts by being mandatory for selected regions, covering an estimated 25% of Part D enrollees. This marks a strategic pivot from prior voluntary demonstrations, many of which saw limited uptake or failed to produce measurable results. As CMS continues to seek durable savings, mandatory participation may be the only path to scale.

The proposed model aligns with the broader administrative agenda to tie U.S. drug prices to those paid in economically similar countries. Under GUARD, inflation rebates would be recalculated using an international benchmark, effectively imposing a ceiling on price increases relative to peer nations. CMS would still incorporate existing manufacturer rebates and discounts but would redefine the baseline using non-U.S. market data.

This policy direction echoes elements of the Trump Administration’s earlier “Most Favored Nation” rule, which faced legal challenges and was ultimately suspended. GUARD, however, adapts this logic to the Part D landscape and introduces rebate mechanics as a workaround to direct price-setting authority which is still prohibited under current law.

Policy intent vs. patient impact

GUARD’s core objective is clear: reduce Medicare spending without compromising quality. But in practice, aligning those goals requires careful attention to downstream effects. The use of international pricing benchmarks introduces political and logistical sensitivities, particularly around how comparator countries are chosen and whether those reference prices accurately reflect therapeutic value or market dynamics.

A 2024 KFF brief highlighted that even modest drug price reductions can generate significant federal savings but may create cost-shifting incentives for manufacturers across payer segments. For Medicare beneficiaries, the near-term effects could include greater predictability and lower out-of-pocket costs, assuming that coverage, access, and formularies remain stable under the new pricing regime.

But that assumption is not guaranteed. A Health Affairs analysis found that models relying heavily on rebate restructuring risk creating incentives for manufacturers to withdraw or delay launches of new drugs in the U.S. market. While CMS insists that GUARD will preserve innovation, the boundaries between cost containment and R&D disincentivization remain blurred.

Geographic randomization and equity concerns

One of the more novel features of the GUARD Model is its geographic randomization strategy. Rather than targeting high-cost areas or voluntary participants, CMS will apply the model to randomly selected regions, a design meant to support rigorous evaluation and limit gaming. Yet this approach introduces potential disparities, particularly for beneficiaries who live outside GUARD zones and may continue to face higher prices or fragmented rebate structures.

Randomization may support statistical validity, but from a patient perspective, it creates a two-tiered system in which access to lower-cost drugs becomes a matter of geography. CMS has not yet clarified how it will monitor for unintended inequities during the model’s rollout or whether safeguards will be implemented for populations ineligible for participation.

The model’s duration, five years of active implementation with rebate processing continuing through 2033, also raises sustainability questions. If successful, CMS will face pressure to scale GUARD nationally. But if access limitations, formulary disruptions, or stakeholder pushback emerge during the pilot, expansion may prove politically unviable.

A test of statutory limits

Crucially, GUARD operates within the structural limits of CMS’s existing authority. Unlike the Inflation Reduction Act’s (IRA) direct negotiation provisions, GUARD uses the Center for Medicare and Medicaid Innovation’s (CMMI) demonstration powers to sidestep legislative deadlock. By focusing on rebate calculation rather than pricing mandates, CMS positions GUARD as both legally defensible and administratively flexible.

This design choice may prove shrewd. A recent GAO report cautioned that CMS drug payment models must navigate a narrow path between budget impact and legal permissibility. By anchoring GUARD in existing rebate mechanics and benchmarking principles, the agency minimizes litigation risk while still testing a potentially transformative policy.

However, this approach also limits the model’s reach. GUARD will not affect all Part D beneficiaries, nor will it apply to all drugs. Its effect on overall system pricing, therefore, may depend more on its signaling value than its immediate budgetary footprint.

Real reform or political pressure valve?

CMS’s proposal comes amid growing bipartisan pressure to demonstrate progress on drug affordability. While the GUARD Model presents a technically sophisticated and politically calculated approach, it remains a test case rather than a solution. Its success will hinge on implementation rigor, market response, and the agency’s ability to balance patient protection with fiscal discipline.

Stakeholders should treat this proposal not as an endpoint, but as an opportunity to interrogate the structural barriers that have long prevented sustainable drug pricing reform. Insurers, manufacturers, and patient advocates alike will need to engage with CMS not just through public comment, but through real-time participation in shaping how GUARD is executed and evaluated.

The GUARD Model is an experiment, and like all experiments, its value lies in what it reveals about what works, what doesn’t, and what must change next.