Trump Drug Price Plan Risks Fallout for Medicaid, Beneficiaries

President Donald Trump’s proposal to peg American drug costs to prices paid in other countries risks upending Medicaid’s drug rebate program and could hamper beneficiaries’ ability to obtain needed medications, health policy watchers say.

Trump’s May executive order would require pharmaceutical companies to match US drug prices with the lowest prices found in comparable developed nations. The Centers for Medicare & Medicaid Services will have until June 11 to communicate their most-favored price targets with manufacturers.

Failure to comply with the directive could leave drugmakers subject to potential rules imposing most-favored-nation pricing, increased oversight and enforcement of drug industry business practices, and a possible amendment to the Federal Food, Drug, and Cosmetic Act that would open the door for prescription drugs to be imported from low-cost countries.

The proposal comes as Medicaid is under intense scrutiny. Reliance on the federal-state insurance program for the poor surged during the Covid-19 pandemic, and GOP lawmakers are looking to bring down costs by imposing work requirements and other policies that some estimate could leave millions without coverage and create new burdens for states.

Medicaid operates its own discount program requiring manufacturers to offer state Medicaid agencies the lowest available price for domestic drugs. In 2023, state Medicaid programs spent over $105 billion on prescriptions, $54 billion of which came back to states in the form of rebates from manufacturers.

Trump’s order doesn’t lay out how the price targets will be determined, and it leaves other key questions unanswered, lawyers say.

The executive order’s ambiguity raised eyebrows from drug pricing researcher Antonio Ciaccia, who said he fears extending an international best price unilaterally across the US health-care ecosystem would “arguably be the most disruptive thing that could ever occur.”

Discounts from the Medicaid drug rebate program are also extended to hospitals, federally qualified health centers, and several other types of health facilities that serve low-income populations under the 340B drug discount program, he said. In 2023, these entities purchased over $66.3 billion in covered outpatient drugs under the 340B program.

“The Medicaid drug rebate program and, by extension, the 340B program are built on the premise that those programs will receive best-in-class discounts in the marketplace,” said Ciaccia, CEO of the drug pricing research group 46brooklyn.

Any move to equalize the price would lead to a systemic collapse of those programs, he said.

Impact of Price Controls

The Medicaid drug rebate program is a partnership between the federal government and drug manufacturers to ensure the affordability of outpatient drugs.

Under the program, drug manufacturers agree to offer state Medicaid agencies the lowest drug price charged to any client—such as health providers, wholesalers, or insurers—in exchange for access to the program’s pool of 78.5 million beneficiaries.

If an unnatural price control like a most-favored-nation provision were allowed to enter the US market, it is almost certain to affect the choices of drugs available, said Meenakshi Datta, partner at Sidley Austin LLP and global co-leader of the firm’s health-care practice.

In that scenario, we could see drugmakers drop out of the Medicaid drug rebate program entirely, said William Sarraille, a regulatory consultant and retired senior member of the health-care practice group at Sidley Austin.

“Some small drug companies had already begun to question participation in Medicaid and Medicare even before MFN pricing was announced. For some group of smaller companies, the hits that could come from an MFN policy that drives down Medicaid Best Price sharply lower will be a bridge too far,” he said.

“Other companies that are too dependent on Medicaid and Medicare (and can’t terminate their participation in those programs) will be forced to try to minimize their Medicaid rebate and MFN obligations,” he added.

Those companies could employ multiple strategies to weather the impact of the policy, some of which would have harsh effects on Medicaid providers and their patients, said Sarraille.

“They may seek to raise price to customers whose sales affect Best Price, limit sales to providers that treat Medicaid populations (like 340B covered entities),” or “cut list prices to reduce Medicaid inflation rebate penalties (driving down Medicaid rebates).”

Manufacturers also could withdraw products from non-US markets so that no MFN alternative price is available. Products could be replaced with new “US-only” drugs that would not be subject to lower prices because they were never offered in “reference countries,” he said.

Affecting State Priorities

Imposing most-favored nation pricing on Medicaid could upend state finances in other ways.

Unlike countries that negotiate unilateral price concessions with manufacturers, the health-care ecosystem in the US relies on incentive structures that flow downstream from inflated drug prices, said Ciaccia. Price concessions are often offered to states in the form of rebates, which states use to fund a variety of priorities such as education, infrastructure improvements, and low-income assistance programs.

Any move to upend the rebate program would ultimately affect these priorities, Ciaccia said.

“Anything that relied upon Medicaid rebates as a source of funding would ultimately become crushed, because all the inflation penalties essentially evaporate, all the best price obligations, etc., all those things essentially start getting shrunk,” he said.

Still, despite international reference pricing’s potential impact on the Medicaid drug rebate program, “it shouldn’t be assumed the policy will be successfully implemented,” Sarraille said.

Similar moves were tried under the first Trump administration but were eventually halted by the courts on procedural grounds, he said.

“Though it is unlikely the Trump Administration will make these same mistakes a second time, the legal hurdles to implementing a MFN policy are substantial, and the second effort to impose referencing pricing will surely be tested in court, just as the first was,” he said.