Understanding the GENEROUS Model: A New Approach to Lowering Medicaid Drug Costs

Prescription drug spending has climbed steadily in recent years, forcing state and federal governments to find more aggressive ways to manage costs. To tackle this, the Centers for Medicare & Medicaid Services (CMS) has introduced the GENEROUS (GENErating cost Reductions fOr U.S. Medicaid) Model. This initiative aims to align U.S. Medicaid drug prices with those paid in other developed nations, potentially saving billions of dollars over the next decade.

What Exactly Is the GENEROUS Model?

Launched by the CMS Innovation Center in January 2026, the GENEROUS model is a drug payment strategy designed to lower Medicaid spending through supplemental drug rebates. The core logic is based on the “most-favored-nation” (MFN) premise: the U.S. Should not pay higher prices for prescription drugs than other comparable nations.

Under this model, CMS negotiates supplemental rebates with manufacturers to bring the net price of certain “model drugs” (brand-name, single-source, or innovator multiple-source drugs) in line with international prices. This is part of a broader set of Trump administration initiatives where manufacturers provide MFN pricing in exchange for a three-year reprieve from tariffs.

How the MFN Pricing Works

The process for determining the price of a drug under the GENEROUS model is highly specific. CMS calculates the MFN price using international pricing data from eight countries:

• United Kingdom
• France
• Germany
• Italy
• Canada
• Japan
• Denmark
• Switzerland

The MFN price is defined as the second lowest reported net price among these countries, after accounting for rebates and discounts. CMS then adjusts this price using a purchasing power parity method based on gross domestic product (GDP) per capita. The resulting figure becomes the target net price that Medicaid aims to achieve through supplemental rebates.

Timeline and Participation Requirements

The GENEROUS model is voluntary for both the pharmaceutical industry and the states. However, the window for participation is limited:

• Manufacturers: Must apply to participate by June 11, 2026. It is expected that the 17 pharmaceutical companies (including Pfizer and AstraZeneca) that have already signed MFN agreements will join.
• States: Must submit their applications by July 31, 2026, and execute a participation agreement with CMS by August 31, 2026.

The model is set to operate for five years, ending in 2030, though participants may voluntarily terminate their involvement, and key terms may be renegotiated.

The Impact on Drug Access and Coverage

Beyond pricing, the GENEROUS model introduces uniform coverage criteria. CMS and manufacturers negotiate standardized utilization controls, such as step therapy or prior authorization. While this could reduce the administrative burden for states—who currently negotiate their own individual supplemental rebate agreements (SRAs)—it also means the criteria for accessing a drug could become broader or more restrictive than what currently exists in specific states.

while the model targets program expenditures, it does not change out-of-pocket costs for Medicaid enrollees, which remain limited to nominal amounts by federal law.

Will It Actually Save Money?

While the White House estimates an average annual saving of $6.43 billion (roughly 14% of annual Medicaid prescription drug spending), the actual impact is uncertain due to several variables.

The Role of Existing Rebates

Medicaid already secures significant discounts. Between FY 2019 and FY 2024, existing rebates reduced gross Medicaid prescription drug spending by an average of 53%. For brand-name drugs specifically, a FY 2020 analysis found an overall rebate of 62%. Because these discounts are already substantial, the additional savings from the GENEROUS model may be limited for some drugs.

New vs. Established Drugs

The amount of savings depends heavily on the type of drug:

• Newer Drugs: Drugs with few competitors often have smaller existing rebates. For example, the HIV treatment Biktarvy had an estimated Medicaid rebate of only 24% in 2019. These drugs are likely to see the biggest price drops under the MFN approach.
• Established Drugs: Drugs with more competition often already have high rebates. The anticoagulant Eliquis had an estimated 100% Medicaid rebate in 2019, meaning the program already pays little to nothing for it. For these drugs, the GENEROUS model offers minimal additional savings.

State-by-State Variation

Not all states start from the same baseline. MACPAC data from FY 2024 shows a massive gap in how much states currently save through rebates. In states like Kentucky, Oregon, South Dakota, and Virginia, rebates reduced gross spending by less than 40%. In contrast, states like Delaware, Mississippi, Nevada, and Wyoming saw reductions of over 90%.

Conclusion: A High-Stakes Experiment

The GENEROUS model represents a bold attempt to curb the “U.S. Price premium” on prescription drugs. Its success depends entirely on participation. If a large number of states and manufacturers opt in—and if the model includes the most expensive, high-utilization drugs like Humira, Stelara, or Ozempic—the savings could be transformative. However, the confidentiality of rebate data and the volatility of international pricing mean that the true financial impact will only become clear as the model unfolds through 2030.