GENEROUS Model: Executive Summary and Model Architecture Analysis

ValuesEdge Institutional Analysis | CMMI Prescription Drug Models

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1. Executive Summary and Strategic Context

What Is This Model and What Problem Does It Solve?

The Generating Cost Reductions for U.S. Medicaid (GENEROUS) Model is a five-year CMMI payment model test launched January 1, 2026, and running through December 31, 2030, authorized under Section 1115A of the Social Security Act. The model's core mechanism is CMS-led negotiation with pharmaceutical manufacturers to establish Most Favored Nation (MFN) international pricing for Covered Outpatient Drugs (CODs) in Medicaid, delivered to states via supplemental rebates on top of existing statutory Medicaid Drug Rebate Program (MDRP) rebates.

The problem the model addresses is concrete and well-documented: Medicaid net drug spending reached $60 billion in 2024, an increase of $10 billion from 2022—a trajectory that threatens state budget flexibility and federal Medicaid sustainability. Despite existing MDRP statutory rebates (a basic rebate equal to the greater of 23.1% of Average Manufacturer Price (AMP) or the AMP-to-Best Price difference, plus an inflation rebate) and state-negotiated supplemental rebates, U.S. net drug prices for Medicaid remain substantially above what peer nations pay for the same molecules. GENEROUS is designed to close that gap by anchoring Medicaid net prices to an international benchmark—the second lowest net price across a defined country basket, adjusted for GDP per capita using purchasing power parity (PPP).

The scope is significant. Model drugs are limited to single source and innovator multiple source CODs, including blood clotting factors and drugs approved exclusively for pediatric indications—the highest-cost segment of the Medicaid formulary. Generics and drugs already included in the Cell and Gene Therapy Access Model are explicitly excluded.

Strategic Significance for the Value-Based Care Market

GENEROUS is structurally distinct from prior CMMI drug pricing models in several important respects that carry direct strategic implications for health system and payer leaders.

First, the model does not alter Medicaid Best Price calculations. The supplemental rebates paid by manufacturers under GENEROUS are CMS-authorized supplemental rebates that, by statute and regulation, fall outside the Best Price determination. This is explicitly confirmed in the model documents: supplemental rebates under CMS-authorized agreements do not affect Medicaid Best Price and therefore do not affect 340B ceiling prices. For health systems with significant 340B programs, this is a critical structural firewall—340B savings on these same CODs are unaffected by manufacturer participation in GENEROUS, at least as designed.

Second, the model creates a standardized coverage criteria framework that has significant downstream implications for utilization management across all participating states. When a manufacturer enters GENEROUS, CMS negotiates uniform prior authorization criteria, step therapy requirements, quantity limits, and PDL placement criteria for each COD—criteria that then propagate to all participating state Medicaid programs, including both fee-for-service (FFS) and Medicaid managed care organizations (MCOs). For physician groups and hospital systems operating across multi-state geographies, the standardization of prior authorization criteria for high-cost branded drugs could meaningfully reduce administrative burden and improve formulary predictability.

Third, states are prohibited from negotiating additional supplemental rebates for CODs on which they are accessing the MFN price. This anti-stacking provision has strategic consequences for states participating in multi-state supplemental rebate purchasing pools—a consideration the State LOI explicitly surfaces. States in purchasing pools must weigh whether MFN pricing exceeds what their pool can negotiate, and must also address how to handle the transition from existing pool SRAs to model SRAs.

Fourth, the model's evaluation design will generate the first large-scale empirical dataset on what happens to Medicaid prescribing patterns, PDL structures, utilization management intensity, hospital admissions, and emergency department utilization when high-cost branded drug prices are anchored to international benchmarks. This dataset will be foundational intelligence for future expansion decisions under Section 1115A(c).

Political Context and Administrative Alignment

GENEROUS is the Trump administration's operationalization of its Most Favored Nation drug pricing policy in the Medicaid context. The model's launch is explicitly connected to the administration's announced agreements with major pharmaceutical companies—AstraZeneca, Pfizer, and EMD Serono—which the model page identifies as future GENEROUS participants upon finalization of terms. This is not a CMMI model operating in political tension with the executive branch; it is a direct programmatic expression of the administration's highest-profile domestic health policy initiative.

Under the Trump administration's current CMS leadership—CMS Administrator Dr. Mehmet Oz and CMMI Director Abe Sutton—GENEROUS represents a sharp departure from the prior administration's approach to CMMI drug pricing models in both philosophy (international price benchmarking vs. Medicare-focused negotiation frameworks) and mechanism (Medicaid supplemental rebate architecture vs. direct Medicare payment redesign). The use of Section 1115A authority to test MFN pricing in Medicaid—rather than pursuing statutory rulemaking—allows for faster implementation, administrative flexibility, and program modification without Congressional action.

The near-universal state participation signal is politically significant: all state Medicaid programs, the District of Columbia, and Puerto Rico applied to participate, with a state application finalization deadline of September 30, 2026. This level of participation interest reflects both the fiscal appeal of lower drug costs and, likely, recognition that alignment with a Trump administration priority reduces political friction with CMS on other state Medicaid initiatives.

Market Transformation Implications

The manufacturer value proposition embedded in GENEROUS is calibrated to overcome the standard resistance to price concessions: in exchange for offering MFN pricing, manufacturers receive standardized coverage criteria across all participating states, eliminating the costly state-by-state negotiation process that currently burdens commercial and government affairs teams. For manufacturers with products facing aggressive prior authorization policies across multiple states, the trade of lower net price for broader, standardized access may represent genuine value—particularly for higher-cost specialty branded products where utilization management barriers currently suppress volume.

If GENEROUS achieves broad manufacturer participation, it will effectively create a national formulary policy framework for Medicaid branded drugs driven by CMS-negotiated coverage criteria rather than individual state P&T committees and DUR boards. This has profound implications for MCOs and PBMs operating in Medicaid managed care: their formulary and utilization management discretion for model drugs is constrained to the negotiated Key Terms, with state-specific variations permitted only as required by state law and only with CMS approval.

For health system CFOs and CMOs, the model's quality monitoring framework—tracking hospital admissions, ED visits, medication adherence (proportion of days covered), and prescribing pattern shifts—will generate claims-based evidence on whether reduced utilization management barriers for high-cost branded drugs produce offsetting reductions in downstream acute care utilization. This evidence base will be consequential for population health investment decisions.

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2. Model Architecture and Payment Structure

Participation Structure

GENEROUS operates on a tripartite legal architecture involving CMS, manufacturers, and state Medicaid programs. All three categories of participant must execute formal agreements for the model to function at the drug level.

Manufacturer Eligibility:

• Must participate in the Medicaid Drug Rebate Program (MDRP) under Section 1927 of the Social Security Act
• Must hold an active rebate agreement with the Secretary of HHS
• Must market FDA-approved single source or innovator multiple source CODs
• Must be able to enter into supplemental rebate agreements with state Medicaid programs
• Must execute a Manufacturer Participation Agreement (PA) with CMS by June 30, 2026

State Eligibility:

• All states, the District of Columbia, and U.S. territories participating in the MDRP are eligible
• Must have, or obtain, CMS approval of a State Plan Amendment (SPA) authorizing entry into supplemental rebate agreements
• Must align both FFS and Medicaid managed care coverage policies with model requirements
• Must submit state RFA by July 31, 2026 and execute state PA by August 31, 2026
• States not joining by August 31, 2026, may participate only at CMS discretion

Drug Eligibility:

• Limited to single source and innovator multiple source CODs at the NDC-9 level (active ingredient, dosage form, and strength)
• Includes blood clotting factors and drugs approved exclusively for pediatric indications
• Explicitly excludes CODs already included in the Cell and Gene Therapy Access Model
• Manufacturers must apply MFN pricing across all associated labeler codes

Payment Methodology: MFN Price Calculation

The GENEROUS payment architecture centers on the Guaranteed Net Unit Price (GNUP), which is the operationalized form of the MFN target price. The MFN price is calculated as follows:

MFN Price Benchmark: The second lowest country-specific manufacturer-reported net price across the defined country basket, adjusted by GDP per capita using a purchasing power parity (PPP) method, calculated at the NDC-9 level. Net prices are calculated after all rebates, discounts, and other price concessions are deducted from list price.

Country Basket (fixed for the five-year model period):

Country	G-7 Status
United Kingdom	G-7 (ex-U.S.)
France	G-7 (ex-U.S.)
Germany	G-7 (ex-U.S.)
Italy	G-7 (ex-U.S.)
Canada	G-7 (ex-U.S.)
Japan	G-7 (ex-U.S.)
Denmark	Non-G-7 inclusion
Switzerland	Non-G-7 inclusion

Supplemental Rebate Calculation:

The core payment formula is:

Supplemental Rebate = WAC – (GNUP + URA)

Where:

• WAC = Wholesale Acquisition Cost (the manufacturer's list price to wholesalers, excluding discounts)
• GNUP = the target MFN net unit price (based on second-lowest PPP-adjusted international net price)
• URA = Unit Rebate Amount (the existing statutory Medicaid rebate calculated by CMCS: basic rebate + inflation rebate)

Illustrative Example from RFA:

Variable	Value
WAC (per tablet)	$2.00
GNUP (MFN target, per tablet)	$0.50
URA (statutory Medicaid rebate, per tablet)	$0.25
Supplemental Rebate = $2.00 – ($0.50 + $0.25)	$1.25 per tablet

The supplemental rebate is invoiced by states to manufacturers within 60 days of the end of each calendar quarter. Manufacturers have 37 days after receiving invoices to pay rebates; interest accrues after the 37-day window. CMS shares in MFN supplemental rebates through a reduction in federal spending based on each state's Federal Medical Assistance Percentage (FMAP), consistent with current MDRP practice.

States may not negotiate additional supplemental rebates on CODs for which they are accessing the MFN price. States may continue to seek supplemental rebates outside the model for any COD of a participating manufacturer that the state has not selected for MFN pricing.

CMS may make allowances in the final GNUP to account for unique manufacturer costs related to storage, handling, or distribution of a COD. When an exact dosage form and strength match does not exist between reference country prices and the U.S. product, CMS—with manufacturer input—will determine appropriate product matches (e.g., a 20 mg cartridge formulation in the UK matched to a 20 mg pen formulation in the U.S.).

International Pricing Data Reporting Schedule

The MFN price is updated annually based on a defined reporting period:

Model Year	International Pricing Reporting Period	Data Due to CMS	States Receive MFN Prices	State Implementation Window	Price Guarantee
2026 (Year 1)	Oct 1, 2024 – Sep 30, 2025	Within 30 days of PA execution	Upon PA execution	2026	≥12 months from SRA effective date
2027 (Year 2)	Apr 1, 2025 – Mar 31, 2026	May 31, 2026	June 30, 2026	Jan 1 – Dec 31, 2027	≥12 months from SRA effective date
2028 (Year 3)	Apr 1, 2026 – Mar 31, 2027	May 31, 2027	June 30, 2027	Jan 1 – Dec 31, 2028	≥12 months from SRA effective date

The 12-month price guarantee accommodates variations in state PDL update cycles and supplemental rebate purchasing pool timelines. If enhanced MFN prices become available during a period when a state has already implemented a prior MFN price, the state may elect to adopt the enhanced price.

Legal Agreement Structure

Agreement	Parties	Deadline	Key Function
Manufacturer Participation Agreement (PA)	CMS ↔ Manufacturer	June 30, 2026	Formalizes Key Terms; commits manufacturer to MFN pricing for all associated labeler codes
Supplemental Rebate Agreement (SRA)	Manufacturer ↔ State	Rolling (as needed)	Executes GNUP-based rebates for state-selected CODs under CMS-negotiated Key Terms
State Participation Agreement (PA)	CMS ↔ State	August 31, 2026	Formalizes state participation; requires FFS + managed care alignment; mandates SPA authority

Manufacturers must provide MFN rebates retroactive to January 1, 2026 for states participating in the model, regardless of when the manufacturer PA is executed (as long as it is before June 30, 2026).

Key Terms Framework and Coverage Policy

The Key Terms negotiated between CMS and each manufacturer are the central operational documents of GENEROUS. They include:

• Drug Coverage Access Policy (negotiable): Prior authorization criteria, step therapy, quantity limits, PDL placement—the sole term explicitly identified as negotiable with manufacturers
• Drugs Included in Model: All single source and innovator multiple source CODs across all associated labeler codes; states select individual CODs for SRA execution
• Medicaid Unit Rebate Amount (URA): Continues to be calculated by CMCS and provided to states; not altered by GENEROUS
• GNUP: Second-lowest PPP-adjusted international net price; effectuated via WAC-minus formula
• MFN Countries: G-7 ex-U.S. plus Denmark and Switzerland; fixed for five-year model period
• Termination, Renewals, Renegotiation: Annual renewal eligible through December 31, 2030; CMS may renegotiate coverage criteria if FDA labeling changes or new clinical evidence warrants

States must apply the negotiated coverage criteria uniformly across both FFS and Medicaid managed care beneficiaries. States contracting with MCOs must ensure managed care contracts, rates, and memoranda of understanding reflect model Key Terms. States that carve out model drugs from managed care contracts must still ensure MCOs apply model prior authorization criteria for coordinating care.

If multiple manufacturers offer MFN pricing for the same drug class, states selecting products from more than one manufacturer cannot disfavor one manufacturer over another—a non-discrimination provision with direct PDL management implications.

Model Timeline

Milestone	Target Date
Manufacturer RFA Released	November 2025
State LOI Target Submission (non-binding)	January 15, 2026
Manufacturer RFA Submission Period Closes	April 30, 2026
CMS–Manufacturer Negotiations	December 2025 – June 30, 2026
Manufacturer Participation Agreements Due	June 30, 2026
State RFA Due	July 31, 2026
State Participation Agreements Due	August 31, 2026
State Application Finalization Deadline	September 30, 2026
Model Performance Period End	December 31, 2030

Quality and Performance Monitoring

CMS proposes primarily claims-based quality measurement, consistent with Section 1115A(b)(4) requirements for patient-level outcomes and patient-centeredness criteria. The monitoring framework tracks:

• Changes in Medicaid FFS and managed care prescribing patterns (drug substitution, therapeutic alternative utilization, high-risk prescribing)
• Changes in state PDLs and utilization management criteria for model drugs
• Patient experience measures for prescription drugs, including medication access and refill rates
• Hospital admission and emergency room visit rates
• Quality and length of life impact assessments
• Medication adherence via proportion of days covered (PDC)
• Generic drug substitution rates

An independent contractor engaged by CMMI will develop the monitoring strategy, conduct the evaluation, and audit manufacturer-reported international pricing data to verify GNUP calculations. CMS may waive or modify applicability of other CMMI model requirements for GENEROUS participants to prevent confounding in evaluation data.

CMS reserves the right to terminate a state's PA for poor performance, program integrity issues, or non-compliance. Manufacturers may similarly be terminated for poor performance, new safety or efficacy data regarding a COD, or program integrity violations. Both manufacturer and state PAs are eligible for annual renewal through December 31, 2030, with the five-year model test period running from January 1, 2026 through December 31, 2030.