U.S. flag and medicines are seen in this illustration taken, June 27, 2024. REUTERS/Dado Ruvic/Illustration/File Photo

(Reuters) -The U.S. government on Thursday unveiled a new program to cut prescription drug costs for Medicaid patients by tying prices to those paid in other countries.

The announcement follows previous agreements between the White House and pharmaceutical companies to reduce drug prices for Americans, who often pay significantly more for the same medications than patients in other developed countries.

The new program, called the Generous Model, will launch in 2026 and allow participating state Medicaid programs to purchase drugs at internationally aligned prices, the Centers for Medicare and Medicaid Services (CMS) said. It is voluntary for both states and drug manufacturers.

Under the program, manufacturers will provide additional rebates to states to ensure drug prices match the lowest levels in eight other developed countries — the United Kingdom, France, Germany, Italy, Canada, Japan, Denmark and Switzerland.

CMS will negotiate standard coverage rules with each participating manufacturer, which states joining the program will adopt to access lower prices. In return, states agree not to seek additional discounts on those drugs.

Medicaid is a public health insurance program, which provides coverage to low-income Americans, including children, pregnant women, elderly adults and people with disabilities.

Total Medicaid spending on prescription drugs topped $100 billion in 2024, up $10 billion from 2022. Even after manufacturer rebates, the program spent $60 billion, according to CMS, underscoring the need for reform.

Manufacturers that want to participate in the new program must apply by March 31, 2026, while states can begin applying in December 2025, CMS said, adding that there is no minimum number of manufacturers or states required for the program to proceed.

The program will run for five years, ending December 31, 2030. Participation agreements can be renewed annually. CMS retains the right to modify the program or end it early if needed.

(Reporting by Kamal Choudhury in Bengaluru; Editing by Shilpi Majumdar)