For years, pharmaceutical companies have used a well-crafted legal loophole to delay pricing reforms and keep drug costs high—even for Medicare recipients. While the government has taken major strides to lower prescription prices in recent years, particularly through the Inflation Reduction Act of 2022, one often-overlooked tactic has allowed drugmakers to sidestep cost-saving regulations: strategic drug reformulation.
But now, that loophole is set to close.
The Centers for Medicare & Medicaid Services (CMS) recently issued new guidance that will dramatically change how drugs are selected for Medicare price negotiations. This long-awaited shift will curtail Big Pharma’s ability to “game the system” by making minor tweaks to existing drugs—tweaks that have historically bought companies years of additional exclusivity and billions in extra profit.
If you take brand-name medications—especially high-cost drugs for chronic conditions like diabetes, arthritis, or heart disease—this change could directly affect your prescription bill. Here’s what you need to know about the loophole, why it matters, and how closing it might finally put money back in your pocket.
How the Reformulation Loophole Worked
The loophole centers around how Medicare determines when a drug becomes eligible for price negotiation. Under the law, Medicare can only begin negotiating the price of a drug once it has been on the market for a set number of years—nine years for small-molecule drugs, and thirteen years for biologics.
However, drugmakers found a clever way to delay this clock.
Instead of selling the same drug indefinitely, companies would release slightly altered versions—sometimes with new delivery systems (like an inhaler instead of a tablet), extended-release formulas, or minor changes to the active ingredients. While these tweaks didn’t always improve the drug’s effectiveness, they were enough to classify the reformulation as a “new” product in the eyes of the FDA.
That meant the pricing clock reset. And the original, now-older version of the drug would often be withdrawn from the market, leaving the reformulated one as the only option—at full, brand-name price.
The result? Many high-cost medications avoided Medicare negotiation for decades, even though their core ingredients had been in use for years. Consumers continued paying premium prices, and Medicare’s hands were tied.
Real-World Examples: Familiar Drugs, Familiar Tricks
This practice isn’t some fringe strategy. It has been a core component of pharmaceutical pricing for years. In fact, it’s part of a broader business model sometimes referred to as “product hopping.”
Take the case of AbbVie’s Humira, one of the world’s best-selling drugs for rheumatoid arthritis. Over the years, the company introduced several variations, including a new formulation with fewer injections and a higher concentration of the drug. Each update extended exclusivity, while generic competitors struggled to catch up.
Another example is GSK’s Advair, a widely prescribed inhaler for asthma and COPD. When its patent expiration loomed, GSK released a similar product, Breo Ellipta, effectively shifting patients to a new version just before generic competition could lower prices for the original.
This strategy has cost the healthcare system billions—and retirees on fixed incomes have paid the price.
CMS Steps In: A Loophole No More
In early 2025, CMS issued revised guidance to prevent these types of reformulations from resetting the drug negotiation clock. Under the new rules, Medicare will treat “line extensions” of existing drugs as part of the original drug family, rather than standalone products.
That means if a company reformulates a drug that’s already approaching the negotiation window, it won’t be able to avoid scrutiny simply by tweaking the formula. Both the original and the new versions will be considered eligible for price discussions based on the original drug’s approval date.
This change will go into effect for the third cycle of drug price negotiations, set to begin in 2026, and will apply retroactively to previously approved line extensions. It represents one of the most aggressive efforts yet to crack down on strategic patenting and pricing delays.
What It Means for Your Drug Costs
If you’re on Medicare and take brand-name medications, this policy change could save you money—potentially a lot of it.
The first 10 drugs selected for Medicare price negotiation in 2023 were all blockbusters, with price tags often exceeding $500 per month. Many of those drugs—like Januvia, Xarelto, and Eliquis—had been on the market for more than a decade but escaped earlier negotiation because of regulatory delays or minor reformulations.
Now that those types of loopholes are being closed, more drugs will enter the negotiation pool sooner. That means lower negotiated prices and smaller out-of-pocket costs for Medicare beneficiaries.
The exact savings will vary, depending on your prescription plan and which medications you take. However, the White House has projected that once fully implemented, Medicare drug negotiations could save seniors and taxpayers tens of billions of dollars over the next decade.
Resistance from the Pharmaceutical Industry
Predictably, the pharmaceutical lobby isn’t taking this change lightly. Major trade organizations like PhRMA (the Pharmaceutical Research and Manufacturers of America) have already voiced strong opposition, arguing that the new CMS rule will stifle innovation and penalize companies for improving existing drugs.
Several drugmakers have filed lawsuits challenging the broader Medicare negotiation program, calling it a violation of their constitutional rights. Some claim that the policy amounts to government-mandated price fixing and could discourage investment in new therapies.
But advocates for the reform argue that the balance of power has tilted too far for too long. They say closing the reformulation loophole isn’t about punishing innovation—it’s about stopping manipulation.
For patients, the stakes are high. While pharmaceutical companies debate legal technicalities, many Americans are choosing between prescription refills and rent.
The Bigger Picture: Medicare’s Evolving Role
The reformulation loophole is just one part of a much larger effort to rein in drug costs across the U.S. healthcare system. Under the Inflation Reduction Act and related initiatives, Medicare has been granted unprecedented authority to:
- Negotiate directly with drug manufacturers on behalf of its beneficiaries.
- Cap out-of-pocket insulin costs at $35 per month.
- Limit total out-of-pocket drug spending to $2,000 per year for Medicare Part D enrollees, beginning in 2025.
- Ensure pharmaceutical companies pay rebates to Medicare if drug prices rise faster than inflation.
Together, these changes represent a seismic shift in how the U.S. manages prescription drug pricing—and how much retirees pay for vital medications.
Closing the reformulation loophole is a critical piece of the puzzle. It ensures that the system cannot be easily gamed and that price relief arrives faster for the people who need it most.
What Retirees Should Do Next
As these changes roll out, Medicare beneficiaries should be proactive about their coverage. During open enrollment periods, it’s a good idea to:
- Review your Part D plan to ensure your medications are covered at the best available prices.
- Ask your pharmacist or doctor whether any of your prescriptions are slated for Medicare price negotiation.
- Consider switching to generics or negotiated brand-name drugs if available.
- Follow Medicare news updates, especially around the release of the annual negotiation list.
The Medicare website and your local State Health Insurance Assistance Program (SHIP) are excellent resources for personalized advice.
The closure of Big Pharma’s reformulation loophole is more than a bureaucratic rule change—it’s a decisive move toward fairness and affordability in an industry that’s long been criticized for both. For the millions of Americans who depend on Medicare, it signals hope: hope for lower drug prices, more transparent policy, and a healthcare system that puts patients before profit margins.
For decades, a handful of drugmakers found ways to delay, dodge, and derail pricing reform. But with CMS closing this loophole, the rules are changing. And for seniors stretched thin by monthly copays and rising premiums, that change could make all the difference.