The US pharmaceutical industry’s leading trade association has filed a federal lawsuit challenging President Donald Trump’s plans to reduce Medicare drug costs by linking manufacturer rebates to lower prices charged in other developed countries.
The Pharmaceutical Research and Manufacturers of America (PhRMA) filed its complaint on October 7 in the US District Court for the District of Columbia, arguing that the administration’s new drug pricing rule exceeds the authority granted to federal regulators by Congress.
The lawsuit targets the Global Benchmark for Efficient Drug Pricing (GLOBE) model, which introduces a most-favoured-nation pricing mechanism for certain medicines covered by Medicare Part B.
PhRMA argues that the Centers for Medicare & Medicaid Services (CMS) is attempting to fundamentally restructure Medicare’s drug payment and rebate system without the necessary congressional approval.
The Trump administration maintains that the programme falls within its statutory authority to test innovative healthcare payment models.
The dispute could establish important limits on the federal government’s ability to introduce major drug pricing reforms through administrative rulemaking rather than new legislation.
What Is Trump’s GLOBE Drug Pricing Rule?
The GLOBE model is designed to reduce Medicare spending on certain medicines administered in hospitals, doctors’ offices and other outpatient healthcare settings.
These treatments are generally covered by Medicare Part B, which pays for physician services and certain drugs administered under medical supervision.
Under GLOBE, pharmaceutical manufacturers would be required to pay rebates calculated using international drug price benchmarks. The programme modifies the existing Medicare Part B drug inflation rebate framework rather than simply replacing the prices paid to healthcare providers.
The benchmarks draw on drug prices in 19 economically comparable countries, including the United Kingdom, Germany, France, Canada and Japan.
The approach incorporates most-favoured-nation pricing principles intended to prevent US government healthcare programmes from bearing substantially higher drug costs than comparable wealthy countries.
The administration argues that American taxpayers and patients have historically faced higher pharmaceutical costs than consumers overseas.
By incorporating international price comparisons into Medicare rebates, officials hope to encourage manufacturers to reduce prices and limit federal healthcare expenditure.
The final GLOBE rule was published on September 30 following an earlier proposal and public consultation process.
The model is scheduled to begin on January 1, 2027, with reduced beneficiary coinsurance taking effect from April 1.
Its five-year performance period will run until March 2032, while rebate reconciliation will continue into 2034.
The programme will operate in selected geographic areas covering approximately 25% of Original Medicare beneficiaries rather than applying universally across the entire Medicare population.
Its scope has also been substantially reduced following separate pricing agreements between the White House and major pharmaceutical manufacturers.
PhRMA Claims Medicare Regulators Exceeded Their Authority
The central legal argument concerns the statutory powers of CMS and the Center for Medicare and Medicaid Innovation, which operates under the Department of Health and Human Services (HHS).
PhRMA’s complaint challenges the rule under Section 1115A of the Social Security Act, which authorises the innovation centre to test alternative healthcare payment and service delivery models.
The association argues that GLOBE exceeds this authority by imposing mandatory manufacturer rebates linked to international drug prices rather than conducting a permissible experiment within the statutory framework.
PhRMA further alleges that CMS has unlawfully altered Medicare’s existing rebate structure and expanded civil monetary penalties beyond the powers authorised by Congress.
The complaint also raises constitutional concerns involving the separation of powers and limits on the authority Congress may delegate to federal agencies.
PhRMA maintains that Congress authorised CMS to test new payment models, not to rewrite Medicare’s pricing framework.
According to the association, the administration is attempting to introduce a system that Congress has not enacted through legislation.
PhRMA president and CEO Stephen Ubl argues that the rule exceeds CMS’s legal powers and could undermine pharmaceutical innovation.
The lawsuit names Health Secretary Robert F. Kennedy Jr., HHS, CMS Administrator Dr Mehmet Oz and other officials involved in implementing the programme.
The case therefore raises a significant administrative law question: how far can a federal agency extend an experimental payment programme before it exceeds the authority delegated to it by Congress? Similar questions about federal regulatory decision-making have emerged in other sectors, including a recent lawsuit brought by 15 US states challenging the FAA’s environmental assessment of commercial drone deliveries.
Trump Administration Defends Medicare Pricing Powers
The administration disputes the industry’s interpretation of federal law.
In the final rule, HHS maintained that CMS was acting within a statutory framework specifically designed to permit innovative payment models.
The government argues that the programme represents a lawful exercise of authority granted by Congress to test methods of reducing Medicare expenditure.
The administration also maintains that international benchmarking is a legitimate way to address higher US medicine prices and reduce costs for Medicare beneficiaries.
This distinction is central to the litigation.
Federal agencies can exercise substantial discretion when implementing legislation, but they cannot independently exercise powers that Congress has not authorised.
PhRMA is effectively asking the court to determine whether the GLOBE model remains within the boundaries of an authorised experiment or constitutes an unlawful restructuring of Medicare’s payment system.
The outcome could influence how future administrations use regulatory powers to pursue healthcare reforms without obtaining new legislation.
It may also affect the extent to which CMS can rely on its innovation centre to introduce substantial changes to established reimbursement and rebate arrangements.
Rule Could Affect as Few as Four Drugmakers
Despite the legal challenge, the final GLOBE programme is considerably narrower than originally proposed.
The Trump administration has reached voluntary pricing agreements with more than two dozen pharmaceutical manufacturers, including Pfizer, Eli Lilly and Novo Nordisk. Major pharmaceutical companies are also facing litigation on other fronts, including Pfizer and Moderna’s unsuccessful attempts to dismiss Bayer’s mRNA patent infringement lawsuits.
Under the final rule, CMS intends to waive GLOBE participation requirements for manufacturers covered by qualifying agreements.
Consequently, the programme could apply to as few as four drugmakers.
HHS now estimates that GLOBE will reduce Medicare Part B expenditure by approximately $440 million over seven years.
That compares with an earlier projection of approximately $11.9 billion in savings under the proposed version of the rule.
The final rule’s projected savings have therefore fallen sharply alongside the introduction of exemptions for manufacturers with qualifying pricing agreements. However, HHS has not publicly explained the full reasons for the difference between the proposed and final estimates.
The reduction illustrates how substantially the expected financial impact of the programme has changed since it was proposed.
Nevertheless, PhRMA maintains that the rule presents a significant legal risk even if its immediate application is limited.
The association is concerned that the pricing mechanism could remain available after existing voluntary agreements expire or be expanded in future.
What Would GLOBE Mean for Medicare Patients?
The parties also disagree about the extent to which the programme would benefit patients.
PhRMA estimates that only 0.3% of Medicare Part B beneficiaries would have experienced lower out-of-pocket costs under the proposed model, with fewer expected to benefit under the narrower final rule.
That figure represents the pharmaceutical industry’s assessment rather than an independent judicial or government finding.
CMS maintains that the model could reduce patient costs and Medicare expenditure while preserving or improving the quality of care.
The competing assessments illustrate the wider disagreement over whether international reference pricing can produce meaningful savings without affecting pharmaceutical innovation or access to treatment.
The dispute is therefore not limited to the amount Medicare pays for medicines. It also concerns how the financial consequences of drug pricing reform are distributed between manufacturers, the federal government and patients.
Why Is the Pharmaceutical Industry Challenging a Limited Rule?
The lawsuit reflects concerns about the longer-term implications of international reference pricing.
Pharmaceutical manufacturers have traditionally opposed policies that directly link US medicine prices to those negotiated or available in foreign markets. Drug pricing disputes have also reached the courts through competition litigation, including a recent case in which Novartis defeated allegations that its patent strategy unlawfully delayed generic competition for Entresto and inflated medicine prices.
Industry representatives argue that such mechanisms could undermine incentives for pharmaceutical research and development and introduce uncertainty into investment decisions.
The administration, by contrast, maintains that international benchmarking is necessary to address high American drug prices and reduce the financial burden on public healthcare programmes.
Rachel Turow, a lawyer at Skadden who is not involved in the litigation, told Reuters that the case could be viewed as an attempt to prevent future administrations from introducing broader drug price controls through similar regulatory mechanisms.
The industry’s concern is therefore not limited to the immediate financial impact of GLOBE.
A judicial ruling confirming broad CMS authority could provide a legal foundation for more extensive international price benchmarking in future Medicare programmes.
Conversely, a ruling against the administration could restrict the government’s ability to introduce comparable reforms without explicit congressional authorisation.
Previous Trump Drug Pricing Rule Was Blocked in 2020
The latest lawsuit follows an earlier legal challenge to the Trump administration’s attempts to introduce international reference pricing.
In December 2020, a federal court blocked the Trump administration’s earlier most-favoured-nation Medicare pricing rule after finding that the government had failed to comply with procedural requirements under the Administrative Procedure Act.
The administration had introduced that measure without following the usual notice-and-comment process.
Unlike the earlier initiative, GLOBE was introduced through notice-and-comment rulemaking, including publication of a proposed rule and consideration of public responses.
The latest challenge therefore places greater emphasis on whether CMS possesses the statutory authority to implement the pricing model.
The distinction is legally important.
A regulation may comply with procedural requirements while still being invalid if the agency responsible for issuing it has exceeded the powers Congress delegated to it.
The court must therefore examine the scope of CMS’s statutory authority rather than simply whether the administration followed the correct rulemaking procedures.
What Happens Next in the Medicare Drug Pricing Lawsuit?
The litigation will proceed in the US District Court for the District of Columbia, where PhRMA is seeking to invalidate the GLOBE rule.
The administration is expected to defend the programme as a lawful exercise of CMS’s authority to test innovative payment models designed to reduce Medicare expenditure.
PhRMA will argue that mandatory rebates based on international drug prices go beyond experimentation and amount to an unauthorised alteration of Medicare’s statutory framework.
Although GLOBE’s immediate financial impact is considerably smaller than originally projected, the legal principles at stake extend beyond the current programme.
The central question is whether CMS’s authority to test payment models under Section 1115A extends far enough to support mandatory rebates calculated using international price benchmarks.
The court’s answer could shape the boundaries of federal drug pricing regulation and determine how far future administrations can use Medicare’s existing statutory powers to pursue significant pharmaceutical pricing reforms without returning to Congress.