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.
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Justin Leventhal is a senior policy analyst for the American Consumer Institute, a nonprofit education and research organization. For more information about the Institute, follow us on X @ConsumerPal.