Price Controls on Medicaid Would Be Disastrous and Fail to Cut Wasteful Spending
President Trump has made government efficiency a top priority. These efforts include eliminating improper payments and ensuring that only those who are eligible for government programs receive the benefits, including Medicaid. As President Trump said on “Meet the Press” on Sunday, May 4, 2025, “if illegal immigrants are in the mix, if people that aren’t supposed to be there, people that are non-citizens are in the mix, nobody wants that. Waste, fraud, and abuse. We’re not cutting Medicaid, we’re not cutting Medicare, and we’re not cutting Social Security.” Moving away from the goal of ensuring that Medicaid funds are not being wasted by attempting to find “savings” by imposing a most-favored nation (MFN) policy on Medicaid drug reimbursement would not only fail to resolve the inefficiencies in Medicaid but also lead to less innovation and fewer cures.
There is widespread opposition to MFN from organizations that are vital to extending the 2017 Trump tax cuts and enacting budget reconciliation. An August 11, 2020, letter to President Trump, signed by 63 federal and state groups, noted that the MFN policy “would have disastrous consequences to the economy and healthcare system.” The MFN policy uses prices controls in an attempt to lower pharmaceutical drug prices by requiring that the U.S. pay no more than the lowest prices found in 14 different countries, including Greece, Italy, and Japan. These countries have lower drug prices than the U.S. because they impose government-mandated price controls, and they also have less medical innovation and investment.
In 1990, $16.7 billion was invested in biopharmaceutical research, with European countries contributing 59.2 percent and the U.S. 40.8 percent. In 2017, biopharmaceutical investment reached $95.7 billion, with the U.S. investing 58.3 percent and European countries 41.7 percent. Adopting the MFN policy for Medicaid would jeopardize the United States’ position as the global leader in investment and innovation. It would also put American jobs in danger. Medical innovation directly or indirectly supports 4 million jobs and has $1.1 trillion in total economic impact. If drug price controls are implemented, this investment would diminish substantially, and jobs would be lost.
MFN would also increase costs in the 340B Drug Pricing Program by tens of billions of dollars. The program requires pharmaceutical manufacturers that participate in Medicaid to provide discounts on drugs, but those savings have been pocketed by special interest rather than passed on to patients. There will be increased costs for every level of government and employers.
President Trump’s April 15, 2025, executive order on drug pricing takes several positive steps to increase innovation and protect intellectual property. It notably does not include any suggestion that an MFN policy should be adopted.
In President Trump’s first term, the Council of Economic Advisers released a report in February 2020 on biopharmaceutical innovation. It concluded that U.S. consumers pay higher prices due to free-riding abroad and foreign price controls and reducing both would increase competition and lower drug prices for Americans. As the August 11, 2020, letter said, “Moving forward, we need policies that further encourage American innovation through trade and tax policies, such as renegotiated trade deals, a competitive business tax system and a more competitive environment.” The proponents of MFN in the President’s second term should read this report and trade negotiators should include drug pricing in their discussions with other countries.
Adopting MFN would restrict access to critical medicine and cures. Currently, manufacturers face a Medicaid rebate that covers 100 percent of the cost of a drug. Artificially driving down prices and implementing price controls would expand the number of medicines that would be covered by a 100 percent rebate and may mean that manufacturers stop offering these drugs to Medicaid to avoid losing money, leading to less access for Medicaid recipients.
Using MFN to find “savings” for reconciliation would have adverse consequences and fail to address longstanding problems with Medicaid. It is hard to imagine that members of Congress would be comfortable explaining to their constituents that they agreed to continue providing benefits to millions of ineligible people who should not receive Medicaid and instead imposed a policy on drug prices that will lead to fewer cures, increase the cost of the wasteful 340B program, threaten the development of new treatments and cures, and push drug innovation to other countries.
Members of Congress should take the opportunity to fix the inefficiencies in Medicaid through reconciliation and explain that spending on the program will continue to increase, but with less waste, fraud, and abuse. And they should push for increased market-based policies that encourage economic growth and innovation rather than adopting price controls.
