Drug Payment Models Estimated to Cut Medicare Spending

Proposed international price-referencing models could reduce net Medicare drug expenditures by up to 17.6%.

Updated on Sept. 28, 2026 in Healthcare

Drug Payment Models Estimated to Cut Medicare Spending

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Should the federal government mandate international reference pricing for prescription drugs to lower Medicare costs?

Researchers have evaluated the potential financial impact of two Medicare drug pricing models, GLOBE and GUARD, which tie U.S. payments to international list prices. The analysis suggests these frameworks could generate significant net savings for Medicare across a sample of 195 brand-name drugs.

Why it matters

Operators in the pharmaceutical and healthcare sectors should monitor these models, as they signal a shift toward basing U.S. drug reimbursement on foreign benchmarks. The projected savings are highly sensitive to which countries are included in the reference basket and which manufacturers remain exempt from federal agreements.

The study found potential Medicare spending reductions of 17.6% under the GUARD model and 16.1% under the GLOBE model. However, projected savings would drop by 71.3% if manufacturers with separate Department of Health and Human Services agreements are exempted.

The players

Department of Health and Human Services

The federal agency responsible for administering Medicare and establishing drug pricing policy frameworks.

The details

The models function by linking U.S. drug payments to a reference basket of 19 countries, with prices adjusted based on purchasing power parity and gross domestic product per capita. Under the GLOBE model, manufacturers must provide rebates if their U.S. list price exceeds the lowest international rate. The GUARD model employs a broader reference basket approach to determine rebates. These calculations represent a significant shift from current independent domestic pricing, directly impacting the revenue models for brand-name drug manufacturers.

September 28, 2026: Research findings were reported by news outlets.

Market Landscape

These proposed payment models build upon the regulatory precedent established by the Inflation Reduction Act's Medicare drug-price negotiation provisions. The research extends the current federal focus on cost containment by introducing global price-benchmarking mechanisms into the Medicare ecosystem.

Manufacturers should factor a potential 12.2% reduction in savings if the reference basket is limited to G7 countries when modeling their future revenue exposure. Executives must also monitor specific exemption criteria, as current estimates show that excluding certain manufacturers could erode total program savings by over 70%.

The takeaway

These findings suggest that aligning U.S. drug spending with international price benchmarks could significantly reduce federal expenditures. Operators should monitor the specific composition of reference country baskets and manufacturer exemption clauses as key indicators of the program's ultimate financial impact.