Most people would agree that the scientists and doctors who develop miracle cures for deadly and debilitating diseases are real heroes. Yet, their work is in peril.
How?
As an alternative to making cuts to Medicaid, President Trump has pushed Congress on a proposal that would impose a “most-favored nation” (MFN) policy on prescription drugs covered by Medicaid. The president has also issued an executive order directing the administrator of the Centers for Medicare and Medicaid Services and other officials to communicate the most-favored-nation price targets to pharmaceutical manufacturers. Ultimately, any MFN policy would stifle private investment in research and development.
Meanwhile, the administration is cutting research funding at the National Institutes of Health, $1.8 billion so far. These cuts are hitting public research institutions, including universities, which are credited with a significant amount of biomedical R&D in the United States.
The combination of policies threatens to squeeze biomedical investment from two sides, right and left, private and public, at once.
One problem with MFN is that almost all the “most-favored” nations feature single-payer healthcare markets that are warped by socialist price controls. In the 1980s and 1990s, before instituting social price controls, European nations led the world in biopharmaceutical innovation. By the late 1990s, when Europe introduced anti-innovation policies, the United States overtook Europe as the leader.
MFN price controls inevitably will spill over into other programs for medicines reimbursed based on metrics reported by manufacturers, including commercial plans and other public programs.
It should be evident that importing socialist price controls is inconsistent with producing medicines in an environment of increasing R&D costs. Indeed, a reduction of $2.6 billion in available R&D funding is estimated to result in one fewer drug being developed.
Additionally, research examining our experience with the Inflation Reduction Act has revealed that lower expected financial returns in the biomedical industry lead to reduced investments in innovation, contrary to preexisting empirical research and observed in the short term. Adopting an MFN policy would further dampen the financial incentive for researchers to engage in the development of new treatments.
To mitigate the effects of its MFN and tariff policies on drug research and development, the administration could bolster funding to research institutions through the National Institutes of Health, which is regarded as the world’s premier biomedical research agency.
Recently, the federal government has provided nearly 55 percent of all academic funds for research and development. The National Institutes of Health has spent 80 percent of its $48 billion budget on grants to research institutions, including universities and medical schools. In 2023, federal R&D at universities by the Department of Health and Human Services, which includes NIH, totaled $33.1 billion.
Instead of increasing grants to universities, NIH is aiming to cut research grants. Universities would be hard-pressed to replace lost funding with private sources to maintain their R&D functions.
On top of this, the president has threatened to impose tariffs on medicines and drug ingredients, which would put an extra firm squeeze on patients and researchers. Imposing such tariffs in combination with instituting an MFN policy and cutting NIH research grants could be a death blow — literally — for patients. For researchers, these tariffs would be another force to dampen the financial returns associated with biopharmaceutical R&D, thereby discouraging scientists from developing new medicines.
The combination of adopting an MFN policy while imposing NIH funding cuts — especially during a time of rapidly rising research costs — should be reconsidered for the sake of the American scientists who develop miracle cures and of the patients who depend on them.