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How the CMS GENEROUS Model Changes Medicaid Drug Pricing

  • Blog

Authors

Max Hunt
Max Hunt

Partner,
Value, Access, and Pricing

Amara Aarif
Amara Aarif

Engagement Manager,
Value, Access & Pricing

Additional Contributors:

The CMS GENEROUS model is designed to align Medicaid pricing to an international benchmark through agreements with manufacturers and states. Its value depends on the balance between lower net prices, standardized coverage policies, and existing rebate arrangements, alongside manufacturers’ incentives to secure relief from GLOBE / GUARD / tariffs. This article examines how GENEROUS works, the trade-offs shaping participation, and what manufacturers should consider as they assess the implications for both U.S. / Global pricing and market access strategy.

Most debate about most-favored-nation (MFN) pricing has focused on the administration enforcing rules on manufacturers; however, unlike GLOBE / GUARD, GENEROUS is voluntary and negotiated vs. mandatory.

  • GENEROUS: Medicaid, voluntary
  • GLOBE: Medicare Part B, mandatory
  • GUARD: Medicare Part D, mandatory and proposed

Because GENEROUS is voluntary, the model relies on participation from states as well as manufacturers. As of September 2026, states have overwhelmingly agreed that GENEROUS is, in fact, worthwhile, with CMS announcing that 40 states have finalized participation agreements while the remaining 10 have submitted applications.

On the manufacturer side, of the 26 companies that have reached MFN agreements with the Administration, 22 explicitly mention GENEROUS participation. Those 22 include large and mid-sized manufacturers that represent 89% of the branded drug market. CMS is continuing to speak with additional “small and mid-sized manufacturers”, suggesting that the Trump Administration is still seeking further expansion of the GENEROUS program. The first Pfizer and Lilly agreements obtained through the Freedom of Information Act (FOIA) indicate variation in key terms. Many details – including the specified country basket for each agreement – remain unclear, given the significant level of redactions; however, the agreements clarify that net price calculations will exclude patient financial assistance programs.

The long-awaited GLOBE final rule, announced on October 1, 2026, confirms a key incentive for manufacturer participation in GENEROUS: manufacturers that opt in are excluded from GLOBE rebates. Recent CMS internal email correspondence released through FOIA indicates that CMS expects a similar exclusion to apply to GUARD once its final rule is issued.

What is the GENEROUS Model?

At its core, GENEROUS anchors Medicaid pricing to an international benchmark: “the second lowest country-specific manufacturer-reported net price adjusted by gross domestic product per capita using a purchasing power parity method”, calculated at NDC-9. Using the second-lowest price limits the influence of outlier prices while keeping the benchmark tied to international market levels.

The reference basket includes the six non-U.S. G7 markets (UK, France, Germany, Italy, Canada, Japan), plus Denmark and Switzerland. CMS states “the list of countries would be stable” for the duration of the model. This is narrower than the 19-country OECD basket for GLOBE and GUARD.

The benchmark used to calculate the MFN price for a COD (at the NDC-9 level) is defined as the second lowest country-specific manufacturer-reported net price adjusted by gross domestic product per capita using a purchasing power parity method. For a given country, the manufacturer-reported net price for a COD would be calculated at the NDC-9 level as the average net price in each country for the reporting period, after all rebates, discounts, and other price concessions provided by the manufacturer are deducted from the list price. Manufacturers self-report those figures, and a CMS contractor audits them.

Four mechanics define the deal:

  • The operating formula: Supplemental Rebate = Wholesale Acquisition Cost (WAC) – (Guaranteed Net Unit Price (GNUP) + Unit Rebate Amount (URA)).
  • The price guarantee: CMS guarantees the GNUP to the state for at least 12 months from the effective date of the supplemental rebate agreement (SRA).
  • The 340B firewall: Supplemental rebates do not change Medicaid Best Price, so they do not affect ceiling prices offered under the 340B Drug Discount Program.
  • The scope: Manufacturers’ participation applies portfolio-wide rather than product by product; however, details from manufacturer agreements suggest negotiated carve outs for individual assets, while products already in the CMMI Cell and Gene Therapy Access Model are carved out.

How CMS Acts as the Intermediary Between Manufacturers and States

GENEROUS creates a marketplace where states and manufacturers meet to negotiate supplemental rebate agreements (SRAs) using CMS-created coverage criteria and pricing metrics, with the following order of operations:

  1. Manufacturers apply and negotiate key terms bilaterally with CMS.
  2. Manufacturers execute a manufacturer participation agreement (PA).
  3. CMS publishes the curated menu of terms and prices to states.
  4. States execute a PA with CMS.
  5. States sign SRAs drug by drug.

Manufacturers commit without knowing the extent of opt in from states, while states commit with full visibility into price and terms. CMS negotiates separately with each manufacturer and prohibits sharing terms with competitors. CMS also retains unilateral discretion to modify the terms of the model or cancel it.

What GENEROUS Changes for State Coverage Decisions

CMS negotiates a standardized access policy per drug with each manufacturer. That policy covers preferred drug list placement, prior authorization, step therapy, quantity limits, patient eligibility criteria, and provider qualifications. States must apply it uniformly across fee-for-service and managed care.

From there, states retain meaningful but bounded choice:

  • States select which drugs to cover under a GENEROUS SRA.
  • A state that selects multiple MFN-priced products in one class cannot disfavor one manufacturer over another.
  • States may establish their own SRA criteria and policies, but those policies cannot be more restrictive than the CMS-negotiated access policy; states may be more permissive.
  • Medicaid programs remain free to maintain, renew, and seek SRAs through other channels, but they cannot use a GENEROUS SRA in conjunction with a non-GENEROUS SRA for the same drug.

Pros and Cons for GENEROUS / MFN Agreements

Overall, the decision calculus differs sharply for manufacturers and states: manufacturers weigh potential relief from future MFN models against pricing and operational exposure, while states weigh incremental savings against existing rebate arrangements and formulary flexibility.

Manufacturer Pros and Cons for Opting in to GENEROUS / Engaging in a Deal

Pros

  • Key selling point: Waiver of GLOBE rebates for Medicare Part B drugs from manufacturers that have signed GENEROUS model participation agreements (per GLOBE Final Rule: 2nd October 2026); with a comparable waiver expected for GUARD (Medicare Part D)
  • Three-year tariff protection is included in the deals, though not part of GENEROUS itself
     
  • A single standardized coverage negotiation with CMS, rather than varied state-by-state access negotiations, with a GNUP guarantee of at least 12-months, a ceiling on restrictiveness across fee-for-service and managed care, and no in-class disfavoring
  • Modest incremental exposure to a channel that already carries deep rebates
     
     
  • No effect on Best Price
     
     
     
     
  • Political goodwill in an environment with harsher alternative levers

Cons

  • Annual agreements and CMS’ unilateral modification rights mean that signed terms may not endure over the long term
     
     
     
  • Manufacturers commit their eligible portfolios (minus any product-specific carve outs), while states select products drug by drug and may reselect annually
  • Sharing international pricing infrastructure in the context of remaining uncertainty about the evolving policy / MFN landscape, including the durability of models beyond pilot periods
     
     
  • Retroactivity to January 1, 2026 means exposure predates signature, and manufacturers will therefore likely need to revalidate claims to account for MFN pricing
  • Anchoring the US Medicaid price to the second-lowest reference country creates an incentive to delay or skip low-price OECD launches and to resist tender-driven price erosion, with downstream effects for global access
  • Loss of state-level leverage as GENEROUS SRAs displace existing negotiated SRAs
  • Manufacturers may face a substantial administrative burden from creating new agreements in internal systems, administering pricing, validating claims, and supporting a potentially steep increase in state Medicaid contracts

State Pros and Cons of GENEROUS

Pros

  • Key selling point: Roughly 90% of drugs cost less in reference countries than their current Medicaid net prices; states with little or no existing supplemental rebate programs would realize the largest savings
  • Federal Medicaid cuts of $900 billion increase fiscal pressure to reduce drug spending
  • The Administration projects savings of $64.3 billion over ten years, though the underlying assumptions are not public
     
  • Federal purchasing power without negotiating for it, since CMS sits in the middle
     
     
  • Retroactive rebates to January 1, 2026
  • States see key terms and prices before signing, pick drug-by-drug, and keep outside SRAs for non-selected drugs

Cons

  • Key caveat: Value depends on whether the MFN price beats the net price a state already pays, with some states already negotiating supplemental rebates that exceed the model
  • Loss of formulary sovereignty, since states cannot be more restrictive than CMS-negotiated terms
  • Competitive retaliation risk: Non-participating competitor manufacturers may cut their own supplemental rebates in response, eroding savings elsewhere in the class
  • Potential multistate purchasing pool disruption, asked about directly in the letter of intent, because a GENEROUS SRA cannot run alongside a non-GENEROUS SRA
  • Operational lift may be substantial, including contract and formulary updates, as well as quarterly invoicing

How Manufacturers and States Read the Trade-off

Large and mid-sized pharmaceutical companies that have signed MFN deals are effectively pre-committed. For companies without such deals, four factors will shape the opt-in decision: Medicaid volume, the value of state Medicaid access gains, the strength of existing state SRAs, and the hedge against GLOBE / GUARD / tariffs.

States with mature, aggressive supplemental rebate programs may see limited upside. Smaller states and those with less bargaining leverage may have the strongest case for participation because GENEROUS could deliver prices they could not negotiate independently.

It remains to be seen to what extent states will select MFN-priced products overall; however, South Dakota has reported that it has identified only three drugs so far. If other states select similarly few products, GENEROUS’ ability to generate savings will be limited.

What Manufacturers Should Do Now

  • Model portfolio-wide exposure under the GENEROUS formula to help inform strategic trade-offs – evaluating which products to include in the GENEROUS program vs. which can be carved out during negotiations, focusing on high-value products for the administration while protecting more novel pipeline agents (especially given the 3-year duration of the deals)
  • Pressure-test the second-lowest reference price across the eight-country basket under GDP and PPP adjustment
  • Quantify what the coverage gain is worth; model incremental Medicaid volume from guaranteed formulary placement and capped utilization management against the rebate cost
  • Build the renewal decision into annual governance with an explicit exit test tied to GLOBE and GUARD status, tariff posture, and observed state uptake
  • Track state participation as the leading indicator; weigh the value of an exemption from GLOBE and GUARD against the risk of setting a permanent international price-disclosure precedent

Sources

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