Conservatives have long recognized the dangers of price controls. Such policies distort markets, undermine innovation, and limit consumer choice.
Yet reportedly, President Trump is urging congressional Republicans to toss aside their opposition to government price-setting and include a "most favored nation" pricing model for Medicaid drug payments, tying the prices the government pays to the lowest rates set by foreign governments.
Today, Medicaid already secures the "best price" in the American drug market. Manufacturer rebates -- negotiated through a statutorily mandated formula -- typically reduce Medicaid drug costs by over 50%. In some cases, these rebates even exceed 100% of a drug's cost, meaning that manufacturers effectively pay the government when patients access their medications.
This pricing structure, while aggressive, is at least grounded in domestic market conditions. Substituting international reference prices into this rebate system would radically upend the dynamic.
Many of the countries used as reference points in MFN policies -- Canada, France, Germany -- impose rigid price ceilings on medicines, well below those set by market mechanisms. If these international prices become the basis for Medicaid rebates, the number of drugs subjected to negative prices could grow exponentially. That would impose unsustainable costs on manufacturers and introduce serious market distortions. No industry can function when it must pay the government every time a consumer uses its product.
These distortions wouldn’t stop at Medicaid. Because the Medicaid rebate formula also sets 340B prices, deeper rebates under an MFN framework would trigger even steeper 340B discounts. That would worsen the program's existing perverse incentives. Hospitals can acquire drugs at heavy discounts and resell them – often to Medicare or commercially insured patients – at much higher prices, with no obligation to use the profits to help low-income patients. The wider the discount spread, the greater the incentive to exploit the system, fueling consolidation and driving up healthcare costs.
Adopting MFN pricing in Medicaid could even lead manufacturers to withdraw from the program. If companies are forced to pay the government for the privilege of supplying drugs to the Medicaid population, many may choose not to participate. That would create substantial access challenges while also triggering ripple effects in Medicare Part B, which requires drug manufacturers to participate in both Medicaid and 340B to remain eligible for reimbursement. The end result would be a smaller, less innovative, and less responsive pharmaceutical marketplace -- exactly the outcome conservatives have long worked to avoid.
The irony is that MFN pricing is being proposed to address a real and legitimate problem: global pharmaceutical free-riding. American consumers and taxpayers shoulder the highest share of drug development costs, while other wealthy countries impose strict price caps that allow them to enjoy the fruits of American innovation without paying their fair share. This is unjust. But the solution is not to mimic their failed systems. The United States should instead use its considerable economic and diplomatic leverage to raise prices abroad.
President Trump has shown that American negotiators are more than capable of defending national interests in trade disputes. That same resolve should be applied here. The U.S. could file formal trade disputes through international bodies, introduce targeted tariffs on strategically valuable European exports, impose financial sanctions, or restrict diplomatic and investment ties. These are strategies rooted in strength, not surrender. They would protect American patients while restoring balance to the global system.
Fortunately, conservatives in Congress have already developed a smarter, market-based strategy for saving Medicaid money – one that avoids destructive price controls. The plan, detailed in a letter organized by Rep. Chip Roy, emphasizes flexibility, competition, and oversight. It encourages states to adopt value-based contracting, grants greater freedom to design formularies that reward cost-effective prescribing, and targets abuses in the pharmacy benefit manager industry.
These reforms empower states to be better stewards of Medicaid dollars without compromising access or innovation. They preserve market incentives while rooting out waste, duplication, and inefficiency.
The proposal also modernizes core program operations by giving states new tools to streamline eligibility and enrollment – an essential step toward reducing improper payments and fraud. It expands opportunities for state-driven innovation through waivers and demonstration projects, allowing states to improve care delivery for vulnerable populations while maintaining the program’s foundational structure. This flexibility enables states to tailor benefits, provider payments, and service delivery models to local needs – consistent with the principles of federalism and local control.
Just as importantly, the plan enhances Medicaid’s long-term sustainability by increasing fiscal accountability. It strengthens reporting requirements and equips CMS with tools to better oversee managed care contracts –ensuring that dollars are spent on patient care, not bureaucracy. These reforms reflect core conservative values: protecting taxpayers, empowering state leadership, and restoring integrity to public assistance programs.
The MFN model, by contrast, would impose a blunt and destructive pricing mechanism that would make U.S. policy hostage to the decisions of foreign governments. Worse, it would send a signal that America is willing to abandon its leadership in pharmaceutical innovation in favor of short-term budget gimmicks.
The stakes are too high to go down this path. Republicans should reject MFN pricing and embrace the stronger, market-based alternative to trim Medicaid spending. Reform should reward innovation, not punish it.
