The Trump administration recently released an executive order directing Medicare and Medicaid drug reimbursement to be based on prices in other countries, using a model called Most Favored Nation (MFN) pricing. While this may sound good, a less flattering name could be the Most Dictatorial Nation model, as other nations’ prices are set by government dictate, not a competitive market. The truth is that MFN is a shortcut to drug shortages, delayed innovation, higher prices, and administrative gamesmanship in the 340B drug pricing program.
By tying U.S. Medicaid prices to the lowest prices abroad, manufacturers are incentivized to delay or deny drugs to lower-priced countries so they cannot influence the U.S. price floor. We have already seen this with European reference pricing where poorer countries are deprioritized in drug launches.
While some may not be concerned with depriving other countries of medicine, the lack of U.S. pharma exports will limit resources for researching new medicines for the American market as well. Not only will it needlessly deprive many poorer countries of medicine, but Medicaid patients in the U.S. will also start seeing essential drugs "temporarily unavailable" while manufacturers scramble to game the international reference index.
Pharmaceutical research runs on risk-adjusted revenue and requires returns on investment to function. Slashing prices through artificial benchmarking obliterates the return on investment for cutting-edge therapies, particularly for rare diseases and biologics, where development costs are high and markets are small. The result is less investment in new medicines, resulting in fewer breakthroughs, fewer clinical trials, and fewer new medicines.
MFN will also exacerbate problems in the 340B drug pricing program. While it was intended to serve low-income Americans, it is already treated as a revenue source by many hospitals. Many hospitals and contract pharmacies already exploit this program, pocketing windfalls meant for low-income patients, all while hiding behind a safety-net narrative. MFN would be gasoline thrown on that fire. Slashing Medicaid drug prices widens the gap between what hospitals pay and what they get reimbursed, adding additional incentives to pocket more money from the 340B program. Instead of helping the underserved, MFN would encourage hospital systems to get paid twice. First, from federal discounts, and second, from commercial markups, all without passing the savings on to needy patients.
The dirty secret of price controls is that someone always pays in the end. If Medicaid prices are forced down via MFN, manufacturers will increase prices elsewhere to balance their books, most likely starting with the private market. Employers, insurers, and anyone with commercial insurance will pay the difference through higher list prices, fewer drug options, and tougher prior authorizations. While politicians brag about “beating Big Pharma,” patients quietly get fleeced.
MFN is political theater masquerading as reform. It shifts costs instead of cutting them, punishes innovation instead of rewarding it, and lines the pockets of institutions already gaming the system. Americans won’t see cheaper drugs—they’ll see scarcer ones as new cures become less common. And the most vulnerable patients, the very people this policy claims to help, will be the first to suffer. If the goal is sustainable access to life-saving medicines, MFN is not just the wrong tool—it’s a poison pill for the future of American health care. Price controls have a long history of backfiring, and in this case, it will be patients who will suffer.
