President Trump recently boasted that all 50 state Medicaid programs, along with the DC and Puerto Rico programs, are now using Most Favored Drug (MFN) pricing. MFN pricing requires pharmaceutical companies to charge American consumers a price equal to or below the lowest price they charge one of 19 reference countries. MFN is a response to the longstanding complaint that Americans pay more for pharmaceuticals made by American companies than consumers in other countries. One of the reasons foreigners often pay less for prescription drugs is because their governments impose price controls.
MFN pricing thus has an obvious appeal, and to be fair, price controls do reduce prices, at least in the short term. The benefits, and some of the drawbacks, of MFN are demonstrated by a modeling study of Medicare MFN published in The Lancet. The study examined the effects of MFN pricing on a randomly selected 25% of Medicare beneficiaries over a five-year period. The model used 195 patented pharmaceuticals which account for $87.9 billion in Medicare spending. Since Medicare prices and rebates are confidential, the study estimated Medicare’s net prices for the selected drugs and compared them to the prices in the 19 reference countries.