Medicaid Is Not A Test Lab For Foreign Price Controls

“Instead of doubling down on price controls, Republicans should get serious about structural ... More Medicaid reform,” writes health policy expert Sally Pipes. In a desperate bid to claim fiscal discipline without touching entitlements, President Donald J. Trump is pushing congressional Republicans to adopt a “most favored nation” (MFN) drug pricing model for Medicaid. This policy would tie Medicaid reimbursements to the lowest prices paid in other developed countries—countries where government officials dictate drug prices under threat of coercion, patent confiscation, or market exclusion. Let’s be clear: MFN is price fixing. It is not market reform. It is not a tough negotiating tactic. Republicans who fall for this scheme are abandoning any pretense of free-market principles. Medicaid doesn’t need price controls from other countries; it already imposes them here. Under the program’s existing “Best Price” rule, manufacturers must offer Medicaid the lowest price they give to any other buyer, plus pay steep, mandatory rebates. The result? Medicaid receives average discounts exceeding 50%. For many drugs, manufacturers are already forced to sell at a loss—what’s euphemistically called a “negative price.” That means the government not only takes the medicine, it also demands a cash payment for doing so. MFN would make this problem exponentially worse by anchoring Medicaid’s drug pricing to markets where prices are dictated by bureaucratic fiat. In practice, this could force companies to stop offering their drugs in Medicaid entirely. And thanks to federal law, exiting Medicaid also means forfeiting Medicare Part B coverage. One act of economic illiteracy would therefore sabotage both Medicaid and Medicare simultaneously. MFN proponents like to frame the policy as a way to stop “foreign freeloading.” But there’s nothing tough or strategic about adopting the failed price-fixing systems of Europe or Canada. International reference pricing is not a neutral benchmark. Countries like France and the UK don’t “negotiate” prices—they dictate them. When manufacturers refuse, they are locked out of the market entirely and risk patent theft through compulsory licensing. In Germany, a drug’s price is set after one year based on whether a government board deems it “more effective” than existing options—a bureaucratic exercise so flawed that it regularly rejects FDA drugs that physicians consider groundbreaking. Importing foreign price controls is not a clever budget tactic. It’s surrendering to extortion. Proponents of MFN like to gloss over its long-term effects. But we don’t have to speculate—decades of data already show what price controls do to innovation. It costs over $2.6 billion to develop a new drug largely because the failure rate is staggering; fewer than 8 in 100 drugs that enter clinical trials ever reach patients. Yet more than two in three new medicines are developed in the United States because our system still allows innovators to earn a return on successful products. That incentive structure is precisely what MFN would destroy. The Congressional Budget Office has noted that “the amount of money that drug companies devote to R&D is determined by the amount of revenue they expect to earn from a new drug.” By slashing expected returns, MFN would decimate research and development budgets—meaning fewer new cures and treatments, and more preventable deaths. MFN would also deepen the dysfunction of the 340B program—a cronyist distortion of the drug market that has ballooned beyond its original mission and inflates costs for employers and taxpayers. 340B prices are pegged to Medicaid rebate formulas. Cut Medicaid prices through MFN, and 340B discounts expand automatically. That means hospitals and clinics participating in the program—most of which resell those discounted drugs to private insurers at massive markups—reap even larger windfalls. Instead of doubling down on price controls, Republicans should get serious about structural Medicaid reform. Rep. Chip Roy, R-Texas, and 19 of his House colleagues have outlined exactly the right approach: restore fiscal responsibility to Medicaid through block grants or per-capita caps, tighten eligibility verification, and align incentives with outcomes. Without serious reform, Medicaid’s current trajectory will necessitate massive tax hikes and benefit cuts across the board. That’s the choice. It’s either real reform now—or fiscal collapse and rationing later. The MFN proposal isn’t tough on foreign freeloaders. It’s soft on math, hostile to innovation, and blind to the realities of drug development. It would make Medicaid more expensive, less effective, and more dangerous—not just to patients, but to the future of American medicine. The real solution isn’t to copy the failures of other countries. It’s to lead with principle—and reform. Source: https://www.forbes.com/sites/sallypipes/2025/05/03/medicaid-is-not-a-test-lab-for-foreign-price-controls/