Everybody Loses with Most Favored Nation Reference Pricing. . .Except China.
Vital Transformation
Key takeaways
If MFN were adopted in Medicare and Medicaid, based upon our preliminary estimate, it could lead to 1.3 million fewer jobs over ten years.
$2.8 trillion in lost earnings over 10 years due to MFN being applied to Medicare, resulting in $700 billion in reduced tax revenue.
By undermining the U.S. economic environment, MFN risks accelerating the movement of U.S. biopharma research and development to China.
On May 12, 2025, the Trump Administration issued an Executive Order (EO) entitled “Delivering Most-Favored-Nation Prescription Drug Pricing To American Patients”. In it, President Trump acknowledges that Americans pay too much for medicines while other countries don’t pay enough. This imbalance means U.S. patients are subsidizing global drug development, and President Trump wants it to stop.
On the surface, how can one argue? According to a February 2024 report of the Assistant Secretary for Planning and Evaluation (ASPE) of the U.S. Department of Health & Human Services (HHS), “In 2022, U.S. prices across all drugs (brands and generics) were nearly three times as high as prices in 33 OECD comparison countries. For every dollar paid in other countries for drugs, consumers in the U.S. pay $2.78. The gap is widening over time.”
The current administration’s “Most Favored Nation” (MFN) executive order is short on implementation details, punting most of the rule-making to HHS and other government agencies. However, this is not the first time a Trump Administration has tried MFN reference pricing.
During the final days of the previous Trump Administration, the Centers for Medicare & Medicaid Services issued rulemaking for the implementation of MFN in Medicare Part B as a demonstration. It was blocked in federal court by an injunction in response to a complaint filed by the Biotechnology Innovation Organization(BIO), California Life Sciences, and Biocom California, ultimately leading to the rule being rescinded by CMS in 2021. However, if we assume that the new MFN is similar to the original filed in 2019, we expect an MFN price to be taken from the lowest found in a cohort of countries that are within 60% of U.S. GDP per capita, using the pricing taken from the February 2024 RAND report for the Assistant Secretary for Planning and Evaluation (ASPE) U.S. Department of Health & Human Services.
Vital Transformation (VT) is in the process of calculating MFN’s impacts upon the global biopharma ecosystem if adopted wholesale into U.S. Medicare Parts B and D. The release of that report is imminent. However, VT recently completed an assessment of an implementation of MFN upon the top 50 drugs by expenditure in Medicaid using data from the report referenced above and the CMS dashboard, as was originally reported to Inside Health Policy to be the scope of MFN. VT’s impact assessment of MFN for Medicaid (as well as the 340B program), can be found here. Findings show that if MFN pricing were adopted for the top 50 drugs in Medicaid, it would lead to over 440,000 fewer jobs in the United States and a loss of over $356 billion in taxes paid over 10 years.
A recent report by Berkeley Research Group finds that the net costs of the combined programs of Medicare Parts B & D are roughly two times larger than the combined programs of Medicaid and 340B. If we assume that the impact of reduced revenues due to MFN for the top 50 drugs by expenditure in Medicare is both linear and roughly similar to that for Medicaid & 340B, we can do a bit of ‘back of the envelope’ math and scale-up our now released Medicaid impact assessment.