Top Ten 2026: Drug Pricing & Reimbursement—Key Legal Challenges Ahead

Based on AHLA's annual Health Law Connections article, this special ten-part series brings together thought leaders from across the health law field to discuss the top ten issues of 2026. In the sixth episode, Mary R. Kohler, Founder & Principal, Kohler Health Law PC, speaks with Kristie C. Gurley, Partner, Covington & Burling LLP, about the targeted reform and broad shifts that U.S. drug pricing is currently undergoing. They discuss issues related to Inflation Reduction Act implementation, litigation, the Trump Administration’s approach to drug pricing, pharmacy benefit managers, and 340B. From AHLA’s Life Sciences Practice Group.

Watch this episode: https://www.youtube.com/watch?v=dIdgAUQA7to

Read AHLA's Top Ten 2026 article: https://www.americanhealthlaw.org/content-library/connections-magazine/article/a879dda5-35f9-46fb-ad45-1b0799343d74/Health-Law-Forecast-2026

Access all episodes in AHLA's Top Ten 2026 podcast series: https://www.americanhealthlaw.org/education-events/speaking-of-health-law-podcasts/top-ten-issues-in-health-law-podcast-series

Learn more about AHLA’s Life Sciences Practice Group: https://www.americanhealthlaw.org/practice-groups/practice-groups/life-sciences

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Transcript

SPEAKER_00 0:01

Welcome to AHLA's annual Top 10 Series, where we discuss the major health law trends and developments of 2026. Learn more about AHLA at americanhealthlaw.org.

SPEAKER_02 0:16

Hi, welcome to episode six of AHLA's Top 10 Series Podcast. I'm your host today, Mary Kohler. I am a solo practitioner who was a former in-house counsel and now work with biotechs on issues related to products and development through commercial. And I'm a vice chair of AHLA's life science practice group. And I'm here today with a pricing expert, Christy Gurley, who's from Covington. And Christy, I don't think I can do your background justice. So why don't you tell our audience a little bit about yourself?

SPEAKER_01 0:57

All right. Thank you, Mary. And I'm very glad to be joining you today for AHLA's top 10 series. There are certainly plenty happening in health law for 2026. So I'm excited to talk about one of what I think is the most closely watched issues on the health law agenda, and that's drug pricings and updates that are happening in the year that lies ahead. I'll flag at the outset that my views are my own and do not represent those of my firm or my clients. But again, I'm Christy Gurley. I'm a partner at Covington and Burling based out of our Washington, D.C. office. I advise life sciences clients, mainly innovative biopharmaceutical manufacturers, on health law issues, including coverage, reimbursement, and market access considerations. I was in the private sector for a long time before going into government to work in the Office of General Counsel at the U.S. Department of Health and Human Services. This was under the Biden administration. I served as one of the lead attorneys advising on drug pricing issues for the Centers for Medicare and Medicaid Services, or CMS. I was part of the inaugural team that supported implementation of the Medicare Drug Price Negotiation Program, as well as the inflation rebate programs under Part B and Part D. I also supported Medicaid efforts and drug pricing models under the Innovation Center, including the voluntary cell and gene therapy access model. I returned to the private sector just after President Trump took office in January 2025. And it was certainly a dynamic time to return to the private sector. President Trump has been active on the drug pricing front, continuing certain Biden era policies while launching new initiatives. And we certainly have seen active drug pricing issues before courts across the United States, being considered by Congress, being developed at the state level, and being pursued by various enforcement agencies. So my current practice involves advising life sciences companies on legal issues across the drug pricing landscape. And I think as we look forward to 2026, it's certainly poised to be an impactful year, not only for pharmaceutical manufacturers, but payers, providers, and others in the US healthcare system. Thank you, Barry.

SPEAKER_02 2:50

I told you I couldn't do that, Justice. I should tell everyone too that Christy wrote a great article for our top 10, um our top 10 article, and it's called Drug Pricing and Reimbursement, Key Legal Issues and Challenges Ahead. So without further ado, let's jump into this. Christy, you start with this notion that the US drug pricing system has undergone both targeted reform and broad shifts. Can you tell our audience a little bit more about that and walk them through what you see?

SPEAKER_01 3:26

Sure. And we were pleased to, I co-authored the article with my colleague Victoria Cork. And we were very pleased, but challenged, to try to capture everything that was happening in the drug pricing space. And I think I think it prints out to just a single page. But I think when we look at the current state of US drug pricing dynamics, there are maybe a couple of clear through lines to highlight. The United States, of course, accounts for the largest share of drug spending and innovation in the world. In 2024, I was looking at the figures earlier. The US spent approximately$5.3 trillion on healthcare, and this accounts for 18% of the US GDP. The largest portions of this went to things like hospital care, that's a little over 30%, and physician services, a little over 20%. But a meaningful part was spent on drug products themselves, including prescription drugs, constituting about 9% of that healthcare spending. So I think this means that what we're spending on drug products matters. There's a broad recognition in the US that we prioritize innovation and patient access to innovative medicines. At the same time, stakeholders across the political spectrum are debating when and how we pay for those innovative medicines and what, if anything, should change. So the government is very active on this front. They were active in 2025, and I think they'll continue to be in 2026, both from a policy and enforcement perspective. Maybe we can take those concepts each in turn. I think on the enforcement front, we certainly see a heightened enforcement environment looking at the past year and the year ahead. Last year was, of course, a record-breaking year for federal government settlements and judgments under the False Claims Act, which essentially prohibits entities from making or causing false claims to be made to the government. DOJ said that in over$6.8 billion in settlements and judgments, over 80% related to health care fraud allegations. And the government has announced increased scrutiny in this space, prioritized enforcement around things like drug pricing and price reporting and potential kickbacks, set up a new or reinstituted from the first administration, the HHS DOJ working group to focus on these issues. And they're certainly pursuing policies related to drug pricing as well. So I think when we when we talk about the US drug pricing ecosystem, we have as one clear through line under the current administration an expectation of ongoing government scrutiny of drug channel activities. And this kind of in an effort to ensure that US drug spending is going where it should. But then on the policy front, we see another through line as the government grapples with what it's paying for drugs of the first instance. A few years ago, I think we would have thought of the drug pricing legal infrastructure as something that was relatively static, at least since 2003, when the Medicare Modernization Act set up the Part D benefit under Medicare. Certainly changes under the Affordable Care Act in 2010 as well. But for the most part, when we think about US drug spending, it's pretty static from a legal perspective. In Medicare, we have Part B reimbursement that's set by statute, generally ASP plus 6%. On the Part D side, we have Part D reimbursement negotiated by plans with manufacturers, and then a statutory prohibition on federal interference in those negotiations. And for Medicaid, there's plenty of flexibility in state program reimbursement, but a statutory mandate for manufacturers to pay large rebates back to those programs. I think what we've seen in recent years is a policy shift to change what how drugs are paid for in the United States. That is certainly true when the IRA was enacted in August 2022. It changed that status quo and set up new programs for how certain drugs would be priced and reimbursed for the Medicare program with spillover effects for Medicaid in the commercial sector. And then, of course, under the Trump administration administration, there's a push for even more activities to reflect the president's most favored nation drug pricing priorities, certainly activity at the state levels as well. So I think when we say targeted reforms and broad shifts in this article, we're really talking about the many discrete efforts to change drug pricing in the United States, but also this broader movement to better balance how drug spending is balanced with the U.S. innovation.

SPEAKER_02 7:22

Yes. As someone who worked a lot with the Part B program reimbursed drugs, I certainly understand that side, the medical benefit. But let's talk a little bit about the Part T side and about the Inflation Reduction Act that you mentioned. You think that this year is going to be a milestone year for the program? Do you want to dig into that a little bit more as to how you what you see and why you think that?

SPEAKER_01 7:48

Sure. I think when the Inflation Reduction Act or the IRA was enacted, uh, Congress contemplated and set forth a regime of phased-in implementation. So there were three main programs established under the IRA. First, redesign of the Part D benefit. That's largely been put in place, was uh primarily put in place by 2025. That put forth things like the out-of-pocket cap of$2,000, which increases each year for inflation, uh, elimination of the catastrophic coverage phase, new manufactured discount obligations, and new plan liabilities. All of that was kind of rolled out and established by 2025 or so. The IRA also set forth new inflation rebate programs for Medicare. Inflation rebates are, of course, something we're familiar with in other segments, but this was new for Medicare, uh, where prices that, if for products where prices increase faster than the rate of inflation, uh, a rebate would be owed to the Medicare Trust Fund. The invoicing, although that obligation started in 2022, invoicing really just started in late 2025. So that's another program that has been kind of phased in on implementation. But I think one of the most significant proposals for the IRA was the Medicare Drug Price Negotiation Program. This is new authority for CMS to select each year products that are required to go through government negotiation for CMS to set the applicable prices for Medicare. And because these prices affect Medicaid best price, it affects that program as well. For the negotiation program in particular, 2026 is an important year for the program for a number of reasons. I'll highlight two. First, this is the year that the statute set forth as the program actually taking effect for the first time in the US healthcare market. So starting this past January 1st, the prices set by CMS under the program became the prices that Part D plans actually reimburse pharmacies. And for manufacturers that sell their drugs into the US market, that's also the date that the manufacturers owe a refund to pharmacies if their acquisition cost exceeds that government set reimbursement rate. This implementation effort has taken a lot of work by both CMS and manufacturers and other entities in the healthcare system. CMS set up a massive infrastructure to make all this happen. They set up the Medicare transaction facilitator, which transfers data, allows for payment options from manufacturers to pharmacies and some mechanisms to deduplicate the drugs and the claims for which manufacturers are also paying 340B discounts. This is an important requirement under the statute, but one that is certainly facing a lot of challenges in implementation. The second area I'll highlight though for 2026 is another planned expansion of the program by Congress. This was a design of the program, which essentially started off with 10 drugs covered under Part D. That was the first cycle of negotiations. And those are the prices that are putting into play, putting getting put into place right now. The second cycle involved 15 drugs under Part D. But this next upcoming cycle, the drug products were just announced. This next cycle will be the first time that the program expands from just Part D to include Part B covered drugs as well. So we expect the agency to do a lot of policymaking activity to support implementation in the provider setting. Certainly going to be a massive effort. And they're expanding the program to renegotiation as well. So drugs that have gone through the cycle once can now be selected for renegotiation. And that'll be happening in this cycle this year. So I think, Mary, it's going to be interesting to see how the program proceeds, whether this next cycle will look similar to or different from prior cycles. And of course, there's meaningful uncertainty across all of this as to what aspects of the program will stay around long term, given litigation activities surrounding the program.

SPEAKER_02 11:28

Yes, there have been a lot of litigation around this, hasn't it? Do you want to dig into that a little bit? And where does that stand now? It seems like so much is changing so fast. So where are these cases?

SPEAKER_01 11:40

Yeah, the legal challenges are ongoing. The first cases were filed even before the first drugs were selected for round one of the programs. So they've been filed across a range of circuits and alleging a range of issues with the programs. A lot of litigants have brought forth constitutional arguments under the takings clause, due process, First Amendment, separation of powers principles, and other statutory arguments. I think, you know, of course, to date the program has not been enjoined, but appeals are pending, so it remains to be seen how the legal challenges will play out.

SPEAKER_02 12:11

Yes, indeed. Now, switching gears, I think everyone's aware that last year the Trump administration has its own ideas on drug pricing reform as well. And you mentioned it a little bit earlier. And given some of given the news cycle, I think some of these changes actually dwarfed everything you said is going on with IRA. Can you give us a little bit more about that and walk us through what happened, especially toward the end of last year?

SPEAKER_01 12:42

Sure. When President Trump took office for his second term, there I think there were two big open drug pricing questions. First, would he keep the IRA program around? It was enacted under President Biden. Um that first question was answered pretty quickly. The president committed to keeping the program running, and we've certainly seen that happen and announced during the second cycle that they would try to eclipse the Biden administration savings from the first cycle. So the IRA is certainly ongoing under President Trump's second administration. But the other big open question was whether the president would revisit his most favored nation's policies, which was something he focused on a lot in the first administration. I think President Trump has long emphasized his views that prices in the U.S. are too high compared to the rest of the world and called for reform so that the lowest prices in other countries could be imported into the United States. There's a lot of concerns about these policies from both a policy perspective and a legal perspective, how they affect what effect these policies could have on innovation. But this is something he did move forward with in his first administration. Toward the end of 2020, President Trump issued a broad drug pricing model that would have set reimbursement based on most favored nation pricing in the Part B space. This effort was enjoined by courts, and of course, the Biden administration went in a different direction. But pretty soon after taking office for his second term, the president again called for most favored nation pricing. The president issued an executive order in May of last year calling on manufacturers to make significant progress on MFN pricing or else be subject to a range of consequences, one of which included potential MFN most favored nation rulemaking. Last July, the president sent letters to CEOs of major pharmaceutical companies, again calling on them to take action. And this time the letters outlined very specific expectations. The president called for MFN in the Medicaid program, MFN for new launches across markets of the United States, manufacturers to offer direct to consumer programs that made products available in a direct-to-consumer setting, and an obligation to repatriate revenue from abroad, where revenue increases in other countries resulted from U.S. trade policy efforts. And I think we've now seen many manufacturers actually respond to these letters by making commitments. This started with public commitments last fall that went on to the end of the year, and even continuing into 2026. But the administration did follow through with formal policies as well. As I mentioned, there's a statutory infrastructure governing drug pricing in the United States. And generally, that can only really change by statute, like Congress did with the IRA. But CMS also has a more limited authority to quote test payment models in a limited fashion. One example under the Biden administration was the cell and gene therapy access model. This allowed manufacturers of these highly innovative cell and gene therapies to negotiate terms with CMS for standardized access across the United States Medicaid programs in exchange for certain rebates, including outcome-based rebates for those products. That voluntary model is ongoing for therapies that qualify. And the Trump administration is using a similar kind of model in one sense. In November, the Trump administration issued the generous model, which allows manufacturers to negotiate MFN rebates in exchange for standardized access policies. The administration indicated its expectation that manufacturers that make voluntary agreements to offer MFN prices in Medicaid will do so through this generous model, which will likely be implemented over the course of 2026 and for a few more years after. But more controversially, President Trump is also revisiting his idea from the first administration to mandate MFN prices. This time it looks a little bit different, but in December, the administration issued proposed rules to set up very broad models that would essentially mandate MFN-based rebates for the Medicare program, both Part B and Part D. The proposed rules are highly controversial, both in scope and design. And I expect these models will probably be subject to legal challenges as well.

SPEAKER_02 16:42

I find this fascinating because from my perspective, I think it changes so much about the way that drugs are administered and delivered to patients. And I'm just wondering what you see in terms of impacts on PBMs and other players in the supply chain as these things move forward.

SPEAKER_01 17:03

Yeah, PBMs are certainly central to this conversation. I think maybe to start with one of the commitments manufacturers are making in the direct-to-patient offerings. We're set to see some of those through a new government platform called Trump RX. Some of these direct-to-consumer proposals have the effect of essentially cutting out the middleman, which is something the president has called for. Cash pay programs, of course, operate outside of the insurance benefit, but there are calls for more action generally to do more to kind of cut through the traditional drug channel. And PBMs are essential to that. But there's a lot happening in the PBM space more broadly. I think in the past few years, there's been growing scrutiny over the role of PBMs in the drug channel. They have traditionally served the role of setting up and managing prescription drug benefits, but often serve as a broker without necessarily fiduciary obligations between employers, payers, drug manufacturers, and pharmacies to do things like setting up drug formularies, negotiating manufacture discounts and rebates, creating pharmacy networks and managing reimbursement and dispensing fees. So there's been a lot of scrutiny of PBMs playing these roles. I'll mention two areas. The first is scrutiny of the structure of PBMs. The biggest PBMs are, of course, both horizontally and vertically integrated, and they're under common ownership with large retail chains, specialty pharmacies, payers, in some cases providers, and other services. They're even getting into the biosimilar manufacturing space themselves. So there's a lot of scrutiny over the structure of these large and sprawling PBMs and the control they have over their environment. But there's scrutiny of PBM activity as well. There's concern that all of the consolidation and the lack of transparency is hurting patient access and driving up healthcare system expenditures. And concerns over these activities are leading to proposals like legislative reform in Congress right now. The FTC, of course, has been active. They've issued reports and initiated investigations into PBM activities. And states are highly active as well. There are attorney general lawsuits calling into question these practices, especially spread pricing and the impact on state Medicaid programs and state laws that would require more transparency, prohibit spread pricing and other things like audit rights. And I think probably the most timely update on the PBM front comes from a recent initiative by the Trump administration. Last spring, President Trump issued a number of executive orders, one of which called on the Department of Labor to improve employer health plan fiduciary transparency into direct and indirect compensation by PBMs. The labor department just issued a proposed rule responding to this request. Essentially, under the proposed rule for ERISA covered self-insured group health plans, the proposal would require PBMs to adopt new levels of transparency to plan fiduciaries. This will include disclosing direct and indirect compensation, including manufacture rebates, administrative fees, spread pricing revenue, pharmacy clawbacks, remuneration tied to drug list prices, and compensation from other things like broker fees and other financial relationships. So this rule is big and long and potentially impactful. It would call for a new level of transparency affecting many PBM relationships, but it'll remain to be seen whether and how this gets finalized. I think, Barry, all this is to say is that PBM scrutiny is active and probably here to stay. I expect we'll see more on this in 2026.

SPEAKER_02 20:33

I think you're right about that. And I've got one last question. Certainly not the um smallest question, maybe a little spicy for some of our listeners, but what's going on with 340B?

SPEAKER_01 20:49

I think, Mary, there is a lot of scrutiny there as well. I think different organizations from think tanks, research platforms, Congress, uh, Senator Cassidy in particular led a years-long investigation into how covered entities use 340B revenues. And across different entities, there's a call for reform. I think these concerns are not new. The 340B program was created in 1992 to essentially allow certain healthcare facilities that serve low-income patients to purchase outpatient drugs at a discount. It was intended to allow these facilities to stretch scarce federal resources as far as possible. And it did so by requiring manufacturers that participate in the Medicaid program to provide set 340B discounts to these entities. But the program has grown considerably, I think, due to a number of factors, now reaching almost$70 billion, I think, in drug purchases. There are a lot of concerns about the scope here, about whether the 340B program truly benefits low income and uninsured patients, with studies suggesting that it does not. And so, really, there's a lot of calls for reform, reform and action in the litigation space, in particular at the state level as well, regarding. The scope of these programs. But I think a key issue that's pretty new for 2026 in a way is duplication. Before a few years ago, the 340B program overlapped with just one other federal program by statute, that was the Medicaid program. And the idea was that manufacturers shouldn't have to pay duplicate discounts under both the Medicaid drug rebate program, where we have a statutory rebate obligation, and the 340B program, a statutory discount obligation. Dedupation of Medicaid and 340B claims has always been challenging. But with the Inflation Reduction Act, the deduplication obligation essentially quadrupled as a matter of law. Now there are provisions that require deduplication for inflation rebates in Part D, inflation rebates in Part B, and under the negotiation program. So these programs that have been phased in and rolled out over the past few years now have a live and active deduplication obligation, which is challenging. We've seen the government make policies for Part B Medicare inflation rebates, some policies and some ongoing efforts in Part D inflation rebates to address these issues, but there are certainly criticisms. And now, notably, we also saw HERSA, the entity that administers the 340B program, issue in 2025 a rebate pilot that would actually allow manufacturers of negotiation programs selected drugs to do that deduplication and get the data needed to make sure they're not paying duplicate 340B discounts and uh refunds for their selected drugs under the negotiation program. That pilot was put on hold at the end of 2025, even as many called for its expansion. So I think things continue to evolve in that space as well. And we expect to see the future of the pilot program and many policies on the 340B program as a whole, they'll continue to be an area of focus for 2026.

SPEAKER_02 23:52

Wow. Well, you have surely packed a lot of knowledge into the last 25 minutes. So I want to thank you for this. And I know it's not just you alone, the whole team at Covington behind you that helped put all of this together. So thank you for coming on the show today. And to everyone out there, I hope you learned as much as I did. And this is Mary Kohler with the Life Sciences Practice Group saying goodbye.

SPEAKER_00 24:22

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