Medicare's new drug pricing plan could backfire, driving up prices worldwide, study warns

A new modeling study published in The Lancet suggests the Trump administration's proposed "Most-Favoured-Nation" pricing policy could reshape pharmaceutical markets worldwide, potentially driving manufacturers to raise drug prices outside the United States or delay launches in other countries to avoid steep Medicare rebates.

The policy, implemented through two payment models known as GLOBE and GUARD, ties what Medicare pays for brand-name medicines to prices charged in other high-income countries, adjusted for purchasing power. GLOBE covers medicines administered in hospitals and clinics, while GUARD applies to medicines purchased at pharmacies. Under both models, a randomly selected 25% of Medicare beneficiaries would be covered over a five-year period, with the potential to expand to all beneficiaries.

Researchers analyzed 195 patented medicines accounting for $87.9 billion in Medicare's annual spending. Because manufacturers' actual rebates and discounts are confidential, the team estimated Medicare's net prices for these drugs and compared them with prices in 19 reference countries under the proposed rules. Without exemptions, the study estimates Medicare could save $5.2 billion, or 16%, under GLOBE and $6.4 billion, or 18%, under GUARD during the policy's initial phase — figures that could climb to $21 billion and $25.5 billion, respectively, if expanded to all Medicare beneficiaries.

But those projected savings depend heavily on manufacturer participation. An initial group of 17 pharmaceutical companies reportedly struck confidential deals with the Trump administration that include exemptions from the GLOBE and GUARD rules. Those companies account for 131 of the 195 medicines studied, or 67%. Excluding those medicines would cut the policy's overall savings by 71%, leaving just $3.3 billion, or 28.7% of the original estimate.

"The Trump administration's Most-Favoured-Nation pricing models have the potential to deliver real savings to the US federal government and taxpayers. But if manufacturers can evade participation in these models by striking side deals, most of those savings might not be realised," said Thomas Hwang of Brigham and Women's Hospital, the study's lead author.

A more recent round of deals announced Aug. 31 brings the reported tally to 26 companies, according to Hwang, who said updated estimates suggest exemptions could push lost savings from 71% to nearly 80%. "Because these deals aren't public, it is challenging for policymakers and the public to judge whether Most-Favoured-Nation pricing is delivering what was promised," he said.

The study also found that for roughly three in four medicines with available sales data, the estimated cut to Medicare spending would exceed that drug's entire annual sales in the country used to set its U.S. reference price — on average, nearly four times the annual sales figure. Researchers said that gap could give manufacturers a strong financial incentive to raise prices abroad, develop alternative formulations, convert existing discounts into confidential rebates, or delay launches outside the U.S. to keep prices from being visible for Medicare referencing.

South Korea, Norway and Australia were the countries most commonly used by Medicare to set reference pricing, according to the study, with the lowest benchmark price found to be 71% below what Medicare currently pays.

Study co-author Kerstin Vokinger, of ETH Zurich and the University of Zurich in Switzerland, said the ripple effects could extend well beyond U.S. borders. "Policies in the US may impact access to medicines globally. Policymakers should ensure that availability of important medicines is not delayed as a result," she said.

Hwang noted that other countries may have limited room to absorb the pressure. "Referenced countries, from Germany to Japan to Australia, are facing substantial pressure from the US administration and industry to raise prices and spending on medicines," he said. "But this is colliding with the reality that other countries have limited budget room to give."

The findings arrive against the backdrop of a broader push to control Medicare drug spending that began with the 2022 Inflation Reduction Act, which for the first time authorized Medicare to negotiate prices directly with manufacturers for a limited set of costly drugs.

The debate over how — and whether — manufacturer rebates translate into savings for patients and payers has similarly persisted for years across the drug supply chain.

The study's authors acknowledged limitations, including reliance on modeled Medicare net prices and publicly available international price data that may not reflect other countries' confidential discounts. They also cautioned that the medicine list, based on historical Medicare data, may not capture newly approved drugs or account for how manufacturers and insurers will ultimately respond to the rules in practice.