Because formal regulatory guidance hasn't yet been issued, implementation details and timing remain subject to change. The patented, branded drug tariffs, some of which remain as high as 100%, are unchanged by this announcement.
Open questions and scope uncertainty
Because the announcement was made through a social media post rather than through an official government notice, several important questions remain unanswered.
- Finished drugs versus ingredients: It's unclear whether the proposed tariffs would apply solely to finished generic drug products or would extend to active pharmaceutical ingredients (APIs) that are imported and then formulated into finished drugs domestically.
- Biosimilars: There's no indication yet whether biosimilars would be included within the scope of the proposal or addressed separately from small molecule generics.
- Industry response: Industry stakeholders, including the Association for Accessible Medicines (AAM), have indicated they're seeking additional clarification regarding the proposal before assessing its operational and financial impact.
Market context
Generic drugs account for approximately 90% of prescriptions filled in the US. To understand the potential impact on pharmacy benefit costs, it's essential to look at the current market structure. The generic drug industry already operates on very thin profit margins. According to the AAM, US generic sales value has declined by $6.4 billion over the past five years, even as prescription volume and new generic launches have grown. Manufacturers are increasingly forced to exit markets where they're selling at a loss. Because of this dynamic, there's speculation that tariffs in the 100-200% range on many generic products are functionally equivalent to a market exit notice.
Why employers should care
While no immediate cost impact is anticipated, plan sponsors should monitor developments closely for several reasons:
- Generic drugs play a critical role in controlling overall pharmacy benefit costs.
- Changes to generic drug pricing could affect future pharmacy trend projections.
- Future PBM guarantees and contracting arrangements could be influenced by these market changes.
- Supply chain disruptions could create availability concerns for certain medications.
- Employers may need to revisit pharmacy budget assumptions if significant market changes occur after 2028.
Considerations for PBM contracting and pharmacy strategy
Although it is too early to predict specific outcomes, plan sponsors may wish to evaluate the following areas during future pharmacy benefit reviews:
- Guaranteed generic discount provisions extending beyond 2028.
- Contract language addressing regulatory or market-driven pricing changes, such as reservation of rights.
- Generic pricing methodologies, including maximum allowable cost (MAC) pricing arrangements.
- Pharmacy trend assumptions included in long-term budget projections.
- Therapeutic categories that may have greater exposure to overseas manufacturing.
These considerations may be particularly relevant during 2027 and 2028 PBM procurement, renewal and RFP discussions.
What should plan sponsors do today?
No immediate benefit changes are necessary
The announced 0% tariff rate simply continues the current treatment of imported generic drugs through July 31, 2028. Generic pricing for plan year 2026 and 2027 budgets are not directly affected by this announcement. Plan sponsors don't need to make any plan design or formulary changes solely in response to this announcement.
Medium- and long-term watch items, 2027 through 2028 renewal cycles
- Flag this issue for any 2027 or 2028 PBM contract negotiation or RFP process, particularly for guaranteed generic discount rate commitments that extend past August 2028.
- Review PBM agreements specifically for force majeure or regulatory exemption clauses that could allow PBMs to walk away or reduce guarantees.
- Adjust budget projections to account for potential generic inflation and model various generic cost scenarios.
- Evaluate the plan's current generic utilization and identify exposure to therapeutic classes most vulnerable to foreign supply chain disruptions.
Gallagher will continue to monitor developments and provide updates as formal regulatory guidance is released.
