Full Breakdown
Trump Administration’s “Most-Favoured-Nation” Pricing Models Could Reshape Medicare Drug Spending
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Core Proposal
The Trump administration has introduced two “Most-Favoured-Nation” (MFN) pricing frameworks—GLOBE for medicines administered in hospitals and clinics, and GUARD for drugs purchased at pharmacies. Under both models, Medicare would pay no more than the lowest price observed for a given brand-name medicine in a set of 19 comparable high-income countries, after adjusting for purchasing-power differences. The policy would initially apply to a randomly selected 25 % of Medicare beneficiaries over five years, with the possibility of later expansion to the entire program.
Background & Context
Medicare, the U.S. federal health-insurance program for roughly 68 million older and disabled Americans, was historically prohibited from negotiating drug prices directly with manufacturers. The 2022 Inflation Reduction Act granted limited negotiation authority for a small group of high-cost medicines, but the new MFN approach would extend price referencing to the broader Medicare formulary by tying U.S. payments to international benchmarks.
Study Findings: Projected Savings and Manufacturer Incentives
A modelling study of 195 patented medicines—accounting for $87.9 billion of Medicare’s annual drug spending ($32.7 billion under GLOBE and $55.2 billion under GUARD)—estimated the financial impact of the MFN rules.
- Baseline savings: In the initial phase covering about one-quarter of beneficiaries, researchers projected Medicare could save $5.2 billion (16 %) under GLOBE and $6.4 billion (18 %) under GUARD.
- Expanded coverage: Extending the rules to all beneficiaries could raise total savings to roughly $21 billion (GLOBE) and $25.5 billion (GUARD).
- Price differentials: The lowest international benchmark price was, on average, 71 % lower than current Medicare payments, with South Korea, Norway and Australia most frequently serving as reference points.
For the 138 medicines with sales data, the estimated cut to Medicare spending was about 3.8 times larger than the medicine’s total annual sales in the reference country. In 73 % of these cases (101 of 138), the projected reduction exceeded the entire sales volume in that country, creating a strong incentive for manufacturers to raise prices abroad, delay launches, or employ confidential rebates to avoid low-price referencing.
Potential Savings With and Without Exemptions
The study identified an “initial group” of 17 pharmaceutical companies that have reportedly reached confidential agreements with the administration, granting them exemptions from the MFN rules. These firms account for 131 of the 195 medicines examined (67 %). Removing the exempted medicines would shrink projected savings by 71 %, leaving only $0.9 billion (GLOBE) and $2.4 billion (GUARD), a combined $3.3 billion (28.7 % of the original estimate).
Limitations and Gaps
The researchers note several sources of uncertainty:
- Price data – Medicare net prices were modelled; international prices came from public databases that may miss confidential discounts.
- Medicine selection – The analysis relied on historical Medicare data, potentially omitting newly approved drugs.
- Behavioral response – The study cannot predict how manufacturers or insurers will react, including changes to launch strategies or pricing structures in reference markets.
These constraints mean the projected savings are estimates rather than definitive forecasts.
Why It Matters
If implemented without exemptions, the MFN models could substantially lower Medicare’s prescription-drug outlays, delivering billions of dollars in savings for the federal program and its beneficiaries. However, the identified exemptions could erode most of those gains, highlighting the influence of confidential negotiations between the administration and large manufacturers. The incentive structure may also prompt pharmaceutical companies to adjust global pricing, launch timing, or formulation strategies, potentially affecting drug availability and costs in both the United States and the referenced high-income nations.