Unfortunately, the Trump administration has proposed a cure that’s worse than the disease. It’s called “most-favored nation,” or MFN. The idea is that the U.S. list price for medications shouldn’t be higher than that of any rich foreign country.
Rather than a rule or law, which probably would not stand up to judicial scrutiny, the president’s executive order of May 12 uses a bald threat: If drug manufacturers don’t adopt MFN, they will face huge tariffs.
Regulation or threat, MFN will have massive unintended effects all along the highly complex and interactive drug supply chain. In the end, Americans will have less access to the best medicines and will get sicker.
More than half of gross spending on pharmaceuticals goes to entities other than pharmaceutical manufacturers. When list prices are controlled by the government, the reverberations are felt throughout the chain of stakeholders, whose revenues, which are generally a proportion of the list price, will also be reduced.
Those stakeholders won’t sit idly by. Take pharmacy benefit managers (PBMs), who work for health insurers. PBMs receive rebates and fees tied to the list price of a medicine. That creates perverse incentives, leading the PBMs often to prefer drugs with higher prices.
However, if the price of a drug in the United States is tied to that of the drug in, say, Italy, then PBMs will receive less. That may cause the drug to be removed from a formulary or placed on a tier that requires patients to spend a bigger share of the price.
Similarly, providers such as hospitals and medical specialists will see their revenues from affected drugs decline and have less incentive to prescribe these therapies, even if they are more effective.
“You can have the cheapest drug in the world, but if providers don’t prescribe it, then it creates an economic challenge,” said Jessica Cortez, a principal at the research firm Avalere Health. “It would be like having the cheapest brand in the world, but no grocery stores selling it.”
Also, the more than 50,000 hospitals and clinics that participate in the federal 340B program, which provides large discounts, will lose critical revenue, leading them to reduce services to low-income patients.
This is not conjecture. Consider the drug Xifan, for liver disease, which was selected for Medicare price “negotiation” (a euphemism for government price-setting) starting in 2027. In apparent response, its maker, Bausch Health, removed the medicine and its entire catalogue of pharmaceuticals from the 340B program and the Medicaid Drug Rebate Program.
Bausch did not explain its action, which may also have been a reaction to Medicaid inflation caps, but the clear catalyst was price controls similar to those that would be imposed under MFN. Bausch’s action “suggests more drugmakers may rethink whether to provide their medicines to these widely used programs,” STAT reported.
The best answer to concerns about drug affordability is to focus not on list prices in Spain or Japan but on what a patient has to shell out at the drugstore at home. Because nearly everyone in the United States is insured, smart public policy should focus on limiting co-pays and co-insurance, that is, patients’ out-of-pocket costs.
The Inflation Reduction Act of 2022 put the first hard cap — $2,100 next year — on what a Medicare patient spends on drugs annually. Starting next year, the cap for the Affordable Care Act Marketplace is $21,200 per family for all health expenses, including drugs.
Those figures are too high. If President Trump wants to make drugs more affordable for Americans, he’ll turn his attention to something much simpler and less disruptive: preventing insurers from extracting excessive and unfair amounts from patients’ pockets.