| Drugmakers are challenging the Trump administration’s Medicare Part B pilot to tie drugmaker rebates to prices in other wealthy countries, a key part of President Donald Trump’s drug price reform agenda. The Pharmaceutical Research and Manufacturers of America (PhRMA) has called the experiment — known as the GLOBE model — unlawful since it was first proposed. But on Wednesday, the industry group officially filed suit, claiming that the Centers for Medicare and Medicaid Services is using a limited innovation authority to impose a sweeping, foreign-reference pricing system. “We share the administration’s goal of ensuring Americans can access and afford their medicines, but CMS cannot rewrite the law and bypass Congress to impose foreign price controls,” said Steve Ubl, PhRMA’s president and CEO. “Patients need more choices and more breakthroughs — not government price-setting schemes that undermine both.” The GLOBE model will “inflict severe and irreparable harm” on drugmakers through lost revenue, which will “force PhRMA members to reallocate R&D funding — imperiling their ability to bring new, life-saving drugs to market.” PhRMA argues that the model raises concerns about how much power Congress can delegate to an agency, and whether CMS can use existing law to make a major policy change that Congress has not authorized. The organization is asking the U.S. District Court for the District of Columbia to throw out the model before it takes effect next month. - The legal fight: The case centers on Section 1115A, the part of the Social Security Act that created the Center for Medicare and Medicaid Innovation, or CMMI. The agency was formed as part of the Affordable Care Act in 2010 to test “innovative payment and service delivery models” that help to reduce federal spending in Medicare and Medicaid, while maintaining or improving quality of care.
However, PhRMA says in the complaint that the GLOBE model doesn’t fit within that authority because it does not test a new way of delivering care or paying providers. Instead, the drug industry claims, CMS is imposing a new pricing requirement on pharmaceutical companies and “predetermines the outcome through mandatory manufacturer rebates.” - Constitutional argument: In a related argument, PhRMA says that if CMMI is allowed to utilize Section 1115A to create the GLOBE model, that would make the law unconstitutional, per the Presentment Clause and the nondelegation doctrine, two legal elements that focus on Congress holding the power to create laws. Reading Section 1115A broadly, PhRMA says in the lawsuit, “raises serious constitutional doubts.”
- Major questions doctrine: The Supreme Court’s major questions doctrine generally requires Congress to weigh in when an agency claims authority over a question of “vast economic and political significance.” “This case is a poster child for the major questions doctrine,” PhRMA writes in the lawsuit.
The GLOBE model is exactly that kind of policy, the industry group says, because “it upends the considered choices Congress has made in structuring our health care system, with hundreds of millions of dollars of immediate economic effects and billions more at stake in future years. … Congress has not given CMS clear authority to effectuate [most-favored-nation] MFN-style drug pricing in the Medicare program.” - QALYs: The complaint also argues that GLOBE conflicts with a separate statutory ban on using metrics known as quality-adjusted life years, or QALYs, to determine Medicare payments. That’s because, PhRMA says, the model effectively imports pricing criteria used by foreign governments that rely — either directly or indirectly — on QALYs.
PhRMA also argues that the first Trump administration unsuccessfully tried to do this. In 2020, Trump ordered Medicare to impose MFN pricing on drugs in the program — but it was blocked by the courts on procedural grounds. But: Federal judges said that regulators did not solicit comment before moving forward, but never ruled on the merits of the policy itself. - Regulators saw this coming: Meanwhile, CMS had anticipated the challenge and defended its authority to move forward. In the final rule establishing the seven-year GLOBE model, the agency argued in part that Congress expressly empowered the Innovation Center to test new Medicare payment approaches, and that the model’s limited scope distinguishes it from policies courts have struck down as executive overreach.
“We acknowledge that manufacturers may disagree with the GLOBE Model’s rebate methodology and may believe that the rebate obligations are excessive,” the agency wrote in the final rule. “However, disagreement with payment policy does not establish a constitutional violation.” The GLOBE model is being implemented on a limited group of drugs in geographic areas that cover about 25 percent of people under traditional Medicare. According to CMS estimates, the pilot would only initially apply to just three drug companies and a small handful of their products — though more could be added later on if they qualify. The more than two dozen companies that signed most-favored-nation (MFN) deals with the Trump administration are exempt from the otherwise-mandatory model, many of whom are PhRMA members. As I previously reported about the final rule, the exemptions provided by the administration made the GLOBE model a “hollowed-out version” of the proposal. However, the three companies that are first impacted by the GLOBE model are Biogen, Daiichi Sankyo and Takeda, all PhRMA members. - QALYs: In the final rule, CMS also responded to claims that the GLOBE model violates the ban on using QALYs, previewing what some of the government’s legal rebuttals may be.
The model doesn’t use QALYs to determine coverage or reimbursement of medications, the agency said, which means the prohibition doesn’t apply. Instead, “foreign prices serve as a proxy for the payment levels at which drug manufacturers are willing to sell their products.” The Trump administration has a growing problem with its stance of expanding artificial intelligence in medicine. Namely, the technology it sees as a tool to transform health care could also make the system more expensive — all at a time when it’s trying to bring costs down. WP Intelligence Lead Health Care Analyst Rebecca Adams writes about this tension in her latest report. In it, she discusses how federal officials are saying that AI is poised to raise health care spending in the near term unless the industry changes how providers are paid to reward better outcomes rather than more care. “Short-term, AI is going to be inflationary, because it’s going to turbocharge the ability of the current billing systems to work more effectively,” Mehmet Oz, who leads the Centers for Medicare and Medicaid Services, said recently at the Oracle Health and Life Sciences Summit. “You’re not going to miss any diagnoses.” - The payment problem: Dan Brillman, director of Medicaid and CHIP, put the cost concerns bluntly at the MAHA Summit last week. He described conversations with people interested in deploying AI agents for patients, then asked what happens if the system pays for both the AI and the human clinician.
“Oh, my God, we’re going to be a $2 trillion Medicaid organization in a day because our costs are just going to skyrocket if we introduce agents all of a sudden but we don’t [change] the payment around that,” he said. The answer, Brillman said, is to build payment models around outcomes rather than simply adding another billable service. “We have to create great payment models that actually work [and] that focus on actual outcomes related to that.” - Yet even as he forecast higher short-term costs, Oz suggested that the situation over the long term could be different, and that, eventually, AI might be able to lower costs — particularly if his agency succeeds in changing the way that health care is funded.
Why it matters: Health care already accounts for nearly one-fifth of the U.S. economy, and that share is projected to keep rising. Last year, national health spending reached $5.7 trillion — a figure projected to reach nearly $9 trillion by 2034. Consumers have also said they’re worried about their own health bills and multiple polls have shown that Americans are concerned they can’t fully afford treatments or medications. - The policy: The Trump administration is continuing a decades-long push to move away from fee-for-service payments, which reimburse providers for each test or service, and toward other payment types based more on patients’ health outcomes.
That lines up with an analysis from University of Southern California researchers, who argue that AI is more likely to increase health care spending under a fee-for-service payment model and a highly consolidated health care system. AI scribes, for example, could potentially free clinicians to see more patients, but that additional capacity can translate into more visits, tests, referrals and prescriptions when providers are paid for volume. Under value-based payment, the same capacity could instead be used for prevention, follow-up care and managing more complex patients. And 70 percent of health insurers surveyed by PwC said AI tools that help providers generate more revenue were among the top three drivers of higher costs. “One of the most common early deployments of AI is in billing systems, where it may accelerate [a] provider’s ability to maximize their revenue by optimizing billing codes. Of course, insurance companies will also be arming themselves with AI to sort through these bills in an effort to contain costs,” Leila Agha, an associate professor of health care policy at Harvard Medical School, tells me. “But there is real risk that AI investment in billing optimization tools could inflate spending.” - The administration’s AI push: Top health officials, including Oz, have made AI a centerpiece of his vision for Medicare, the federal health program that covers more than 65 million older Americans and people with disabilities. Oz has pitched that agentic AI could eventually help every beneficiary choose plans and doctors, navigate benefits, and manage health information.
Health Secretary Robert F. Kennedy Jr. is pushing an even broader vision, arguing AI can analyze millions of health records to find patterns that humans cannot. At the MAHA Summit, Kennedy said that AI “can give you a second opinion that is much better informed than any doctor in the country.” Kennedy also recalled OpenAI co-founder and CEO Sam Altman telling him that it “would be malpractice for a doctor to make a diagnosis or to make a prescription without at least checking AI.” (The Post has a content partnership with OpenAI.) Kennedy’s statements have received pushback from major medical organizations, including the American Medical Association, the American College of Surgeons and the American Academy of Family Physicians. “Pitting physicians against technology or suggesting AI should replace physician expertise does not advance this important work. We need to move carefully, and we need to get this right,” the coalition said in a statement. “Statements suggesting AI is inherently better informed than physicians, or that physicians cannot be trusted to make clinical decisions without first consulting this technology, diminish physician expertise and risk undermining patients’ trust,” said the groups, which also included the American Academy of Pediatrics, the American College of Obstetricians and Gynecologists and the American College of Physicians. - Then there’s the regulatory question: The Food and Drug Administration is separately working through how to oversee generative AI-enabled medical devices, including how to evaluate systems that can perform multiple tasks or change over time. The agency is considering a new approach that would weigh a product’s risks and performance when deciding how it should be reviewed before launch. Comments are due Oct. 19.
The Federation of American Hospitals hired Paul Eiting to serve as vice president of policy at the industry group representing for-profit hospitals. He comes from the Blue Cross Blue Shield Association, and will now lead the provider group’s advocacy portfolio on issues relating to insurance coverage, including through the Affordable Care Act marketplaces and Medicare Advantage. “Trump says ‘we don’t think’ Russian plague case is a bioweapon,” The Post’s Dan Diamond, Lena H. Sun and Mary Ilyushina. “In DC, a secretive new thorn has appeared in the pharma industry’s side,” reports Max Bayer at Endpoints News. “These Influencers Are on a Mission to Stop People From Paying Medical Bills,” Peter Loftus reports at the Wall Street Journal.
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