The Trump administration has done a good job with promoting a free-market approach in many of its policies. However, they have taken a completely different tact to reduce prescription drug prices in the U.S., a departure which will prove costly to American families and innovation.
On Monday, President Donald Trump signed an executive order directing the administration to implement a “Most Favored Nation” policy for certain prescription drugs. MFN is a drug payment model that implements heavy handed price controls that will align U.S. drug prices with the lowest price offered in foreign countries, meaning the U.S. will pay the lowest price for pharmaceuticals when compared to other countries. This sounds great at face value, but will ultimately destroy the biopharmaceutical market, will harm patients, hinder future research and development, and result in fewer new life saving cures.
Trump failed to institute a similar MFN policy in November 2020, aimed at reducing Medicare spending. There is strong opposition to MFN in Congress, and for good reason. The rule, published by the Centers for Medicare and Medicaid Services, would have applied to Medicare Part B drugs and set an international pricing benchmark. The rule said that the U.S. price for high-cost drugs would be based on the lowest price paid by comparable countries. It faced immediate legal challenges in the District of Maryland (Association of Community Cancer Centers v. Azar), Northern District of California (Biotechnology Innovation Organization v. Azar), and Southern District of New York (Regeneron Pharmaceuticals v. U.S. Department of Health and Human Services). The proposal violated the Administrative Procedure Act’s requirement for public participation in rulemaking. The Biden administration withdrew the rule in January 2021.
MFN is nothing more than a destructive price control that will distort the market and result in fewer new drugs being developed. The goal of lowering drug prices is noble, but instituting price controls that will align U.S. prices with foreign countries will backfire and end up harming patients. CMS agrees that a MFN policy will create unneeded complications for patients, “If MFN participants choose not to provide MFN Model drugs or prescribe alternative therapies instead, beneficiaries may experience access to care impacts by having to find alternative care providers locally, having to travel to seek care from an excluded provider, receiving an alternative therapy that may have lower efficacy or greater risks, or postponing or forgoing treatment. There is significant uncertainty with these potential effects of the MFN Model.”
MFN completely undermines U.S. biopharmaceutical leadership on a global scale by destroying research and innovation, especially for patients living with rare and chronic diseases. This model would follow some of the worst policy blunders of the Biden administration. Price controls established under the Inflation Reduction Act’s Medicare drug price ‘negotiations,’ have already slashed investment in small-molecule drug development alone by 70%.
While the MFN model is based on a formula, rather than the IRA’s negotiation mandates, it remains a clear version of government price fixing for prescription drugs. This is inherently anti-competitive and prone to abuse. Instead of doubling down on price controls that hinder drug research and development, the administration and Congress should focus on repealing the devastating price control provisions the IRA created. Expanding the role of the federal government clearly isn’t the solution.
MFN is, in essence, a tax on an industry that supports more than 5 million jobs. The biopharmaceutical industry should be focused on developing record-breaking lifesaving drugs, not navigating a patchwork of foreign price control regimes. Any increase in Medicaid rebates is simply a mandatory transfer of funds from private corporations to the government. Manufacturers already face Medicaid rebates of more than 100% of the cost of the drug for some medicines.
Additionally, MFN would further fuel the perverse incentives that cause the 340B drug discount program to drive up healthcare costs. The 340B Drug Discount Program already distorts the market, resulting in higher prices and increases in Medicaid rebates for 340B patients, with twice the impact on non-340 B Medicaid patients.
CAPPING DRUG PRICES WILL CRIPPLE INNOVATION AND HARM PUBLIC HEALTH
Instead of instituting more price controls, Congress should reform the wasteful and fraudulent 340B Drug Discount Program, which was initially created to aid vulnerable patients. The program has strayed from its original intent. In 2023, 340B hit a record $66 billion in discounts from pharmaceutical manufacturers to hospitals. Savings are not being passed on to patients. The program needs massive reform, including increased transparency and oversight, a clear patient definition, and reduced duplicate discounting.
MFN might lower costs in the short term, but it will have devastating and irreversible impacts on drug research and development in the long term, which will not improve costs overall. Congress and the administration should focus efforts on reforming Medicaid and Medicare by reducing waste, fraud, and abuse within the system and improper payments to help push back the impending insolvency.
Christina Smith is the director of the Taxpayers Protection Alliance’s Consumer Center.
