Our Take: CMS launches payment model to lower Medicaid drug spending

CMS launches payment model to lower Medicaid drug spending

The Center for Medicare and Medicaid Innovation (CMMI) will begin a voluntary, 5-year payment model in January called Generating Cost Reductions for U.S. Medicaid, or GENEROUS, under which state Medicaid programs will be able to buy drugs included in the pilot program at prices that align with what other countries pay.

According to CMS, total gross Medicaid spending on prescription drugs in 2024 exceeded $100 billion, up $10 billion from just two years earlier. Even after manufacturer rebates were collected, net Medicaid spending was still $60 billion, the agency noted.

The GENEROUS model will allow CMS to negotiate lower prices on outpatient drugs with participating manufacturers. States that adopt the payment model must implement “uniform, transparent coverage criteria,” CMS said in a press release, adding that the consistent standards would “give patients and providers predictable access across participating states.”

Manufacturers will receive invoices from participating states for supplemental rebates to align with international prices. CMS will receive a share of rebates through lower federal spending on Medicaid programs.

CMS released a request for applications for drug manufacturers interested in participating in the model. Along with negotiation prices with the manufacturers, CMS will calculate rebates and ensure payments are accurate.

The regulator is also seeking letters of intent from interested state Medicaid agencies. Those that express an interest will have the opportunity to review pricing information and key terms before committing to participate in the model.

States that decide they want to participate in GENEROUS will need to submit a request for application and be able to enroll on a rolling basis through Aug. 31, 2026, CMS noted.

Additional details about the model and a link to the request for applications can be found here.

OUR TAKE: Since the end of September, Pfizer, AstraZeneca, Eli Lilly, and Novo Nordisk have entered into most-favored-nation (MFN) pricing agreements with the White House. In return for offering significant discounts on drugs sold directly to consumers through the TrumpRx platform, the manufacturers are exempt from certain tariffs for three years.  

All four drug companies were among the 17 drugmakers who were given 60 days, as of July 31, to take steps to match MFN prices. One of the steps outlined in the notice the White House sent to the drugmakers was “to provide MFN prices to every single Medicaid patient.”

Participating in the GENEROUS model would, presumably, fulfill that step for the companies that have yet to reach a separate agreement with the White House.

Dr. Mehmet Oz, CMS’ administrator, said in the announcement about the new model that GENEROUS “will help ensure state Medicaid programs are paying a fair and reasonable price for prescription drugs — furthering our efforts to preserve funds for our most vulnerable.”

While CMS may be trying to preserve funds for the country’s most vulnerable, stakeholders across the health care industry are attempting to prepare for cuts to Medicaid that were included in the reconciliation bill Congress passed this summer. Those cuts will be the deepest in the safety-net program’s history.

Health Care Rounds #193:‍Jigar Thakkar, PharmD
CEO, Longitude Rx

Specialty pharmacy plays a critical role in patient outcomes, but health systems often struggle to manage operations effectively while maintaining continuity of care. In this episode of Health Care Rounds, host John Marchica talks with Jigar Thakkar, PharmD, CEO of Longitude Rx, about how his company is helping leading health systems reimagine specialty pharmacy through technology, data integration, and partnership. Download the episode on your favorite podcast platform or watch it on YouTube.

What else you need to know

The FDA introduced a new “plausible mechanism pathway” to speed the approval process for personalized therapies intended to treat ultra-rare diseases. At least initially, the new model would be used in instances where there are too few patients to feasibly conduct randomized clinical trials. Dr. Marty Makary, FDA commissioner, and Dr. Vinay Prasad, director of the Center for Biologics Evaluation and Research, wrote about the new pathway in an article published in The New England Journal of Medicine.

The new regulatory approach requires therapies to act on a disease’s known biological mechanism, and there must be confirmation, either through a biopsy or preclinical tests, that they have successfully addressed their targets and improved clinical outcomes.

When developers have met these requirements in “several consecutive patients with different bespoke therapies,” the FDA will initiate an approval process, according to the NEJM article. After approval, drug companies will have to collect real-world evidence to confirm the treatments’ efficacy and safety.

For now, the new pathway will focus on cell and gene therapies, but Drs. Makary and Prasad said the pathway’s principles could eventually be extended to other drugs. More detailed guidance is forthcoming. a spokesperson for the Department of Health and Human Services told several news outlets.

In separate news, the FDA awarded six more national priority vouchers for faster review under a pilot program launched in July. The program aims to shorten the usual 10- to 12-month review time to potentially a couple of months.

In this second round, vouchers were awarded to Novo Nordisk’s oral version of Wegovy (semaglutide) for obesity and related indications; Eli Lilly’s oral GLP-1, orforglipron, for obesity and related conditions; Boehringer Ingelheim’s Hernexeos (zongertinib) as a first-line treatment for HER2 non-small cell lung cancer in combination with Merck’s Keytruda (pembrolizumab); GSK’s Jemperil (dostarlimab) for rectal cancer; Vertex Pharmaceuticals and CRISPR Therapeutics’ sickle cell disease treatment, Casgevy (exagamglogene autotemcel), for younger patients (ages 5 to 11); and Johnson & Johnson’s Sirturo (bedaquiline), an antibiotic, for drug-resistant tuberculosis in young children.

And  in more FDA-related news, the agency appointed Dr. Richard Pazdur, who has been with the FDA for 26 years, as director of the Center for Drug Evaluation and Research. CDER’s previous director, Dr. George Tidmarsh, left abruptly earlier this month after serving in the role since July. Dr. Pazdur will continue to serve as director of the Oncology Center of Excellence until a successor is appointed.  

Minneapolis-based Fairview Health has agreed to a $1 billion capital commitment as part of a new 10-year partnership framework with University of Minnesota Physicians (UMP), the clinical practice for the University of Minnesota Medical School faculty. The new framework, which includes a provision for subsequent renewal periods, builds on a long-term collaboration between the two organizations and is set to take effect on Jan. 1, 2027.

Their existing joint clinical enterprise agreements, collectively referred to as M Health Fairview, will conclude at the end of next year. (The University of Minnesota is also part of M Health Fairview but, at least for now, is not included in the new framework. Fairview said the “door remains open” for collaboration with the university.)

The $1 billion will be invested in key academic sites, including the University of Minnesota Medical Center and Masonic Children’s Hospital. According to the announcement, Fairview and UMP have signed a binding agreement and anticipate completing a definitive agreement by the end of this year.

However, the day after Fairview and UMP announced the framework, the university’s board of regents approved a resolution affirming that UMP does not have the right to negotiate agreements affecting the medical school without the university’s approval. The board said in a press release the proposed deal “would have a profoundly negative impact” on the medical school and Minnesota. The medical school educates and trains an estimated 70% of the state’s physicians.

Merck agreed to pay approximately $9.2 billion to acquire Cidara Therapeutics, a San Diego-based biotech whose lead candidate, CD388, is a long-acting antiviral being developed to prevent infection from both influenza A and B strains in individuals at high risk. If approved, the investigational prophylactic would be an alternative to flu vaccines.

Cidara develops novel drug-Fc conjugates, which are low molecular weight biologics designed to function as long-acting small molecule inhibitors, Merck explained in a news release announcing the deal. / Under the definitive agreement, Merck will pay $221.50 per share to acquire Cidara, a price representing a premium of 108.9% relative to Cidara’s closing price the day before the deal was announced, Reuters reported. Both companies’ boards have approved the acquisition, which is subject to customary closing conditions and is expected to close in the first quarter of 2026.  

UnitedHealthcare will limit its coverage of remote physiologic monitoring (RPM) for plan members starting Jan. 1. Patients use RPM devices to collect biometric data and automatically transmit the data to their providers. UHC will continue to cover use of the devices only for heart failure or hypertensive disorders of pregnancy for members in commercial and individual exchange plans, Medicare Advantage (MA) plans, and the insurer’s Community plan (Medicaid).

UHC’s new policy excludes from coverage the use of RPM for all other health conditions, including type 2 diabetes, non-pregnancy-related hypertension, and chronic obstructive pulmonary disease. UHC said the policy change is based on the latest clinical evidence, stating there is “insufficient evidence of efficacy” to support RPM for conditions other than the two it will still cover.

The legality of UHC’s decision not to cover RPM for most health conditions in its MA plans has been called into question, as MA plans are required by law to cover all benefits traditional Medicare covers. UHC maintains that its new policy is in compliance because Medicare does not have a national coverage determination for RPM, nor does CMS have any local coverage determinations for RPM.

Federally supported primary care initiatives have improved care quality and coordination but not costs, a systematic review published in JAMA Health Forum indicates. The analysis included evaluation reports and articles from five primary care programs run by CMS and the Agency for Healthcare Research and Quality. All of the programs, which included the Comprehensive Primary Care (CPC) and CPC+ models, began after January 2011 and ended no later than December 2021. They supported practice-level changes in care delivery through processes such as payment changes, performance requirements, data feedback, and technical assistance.

The researchers found that while the programs were associated with substantial improvements in clinical care delivery and greater patient engagement, they were also associated with net increases in costs and only modest decreases in utilization. Most outcomes were not seen for at least two years, the researchers noted.

Primary care practices were limited by factors such as funding amounts and payment methods, challenges in using electronic health records and payer data to support improvements in care, and staff turnover. Except for the Multi-Payer Advanced Primary Care Practice model, the programs covered only about a third of patients in the participating practices. Fee-for-service payments continued to be the practices’ principal and most predictable revenue stream.  

Amazon Pharmacy is now part of Experity’s Urgent Care Partner Ecosystem. The collaboration makes it possible for patients to place a prescription order during an urgent care appointment, automatically obtain manufacturer discounts they may be eligible for, and have their medications delivered to their homes. In some markets, same-day delivery is available. Based in Chicago, Experity is an on-demand services and software provider that serves 22 of the country’s 25 largest enterprise urgent care organizations, according to a news release.

What we’re reading

The Erosion of Harm Reduction. NEJM, 11.8.25 (subscription or registration required)

High-Engagement Social Media Posts Related to Prescription Drug Promotion for 3 Major Drug Classes. JAMA, 11.13.25 (subscription or registration required)

Make Medical School Three Years. NYTimes, 11.10.25 (subscription or registration required)

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