President Trump MFN Drug Price for Medicare Executive Order

President Trump is expected to sign an executive order today directing his administration to pursue a “Most Favored Nation” approach to prescription drug prices paid by Medicare. Instead of prices being negotiated as is currently the case, President Trump wants Medicare to pay the lowest price paid by foreign countries. CEI health care policy expert Jeremy Nighohossian explains the downsides of this approach.

“As with many industries, the United States is on the frontier of innovation in the development of life-saving drugs and technology. Foreign countries have been taking advantage of our ingenuity and investments for decades by paying drug companies much less than Americans.

“The countries that President Trump wants to emulate set their prices according to bureaucratic formulas. A Most Favored Nation approach will import the judgments of the foreign analysts who employ the lowest possible evaluations for those drugs.

“Unfortunately, many of these nations face drug shortages due in part to pricing their drugs below market prices, and should the United States choose the lowest price among these nations, it will risk experiencing the worst shortages among these nations as well.

“In the long run, using government to force price reductions will also reduce economic incentives for researchers to develop the drugs of the future.

“The better solution to foreign freeloading is to push other countries to institute more market-oriented price determination methods.”