A new modelling study suggests that US Medicare “Most-Favored-Nation” policies on drug prices would cut Medicare spending on brand name drugs, but potentially incentivize companies to increase prices or delay new drug launches elsewhere.

Efforts to control the cost of United States government spending on drugs culminated in a “most-favored-nation” policy,  a Trump administration initiative that ties what Medicare pays for medicines to prices charged in other high-income countries.

But a new analysis from researchers at Harvard University, the London School of Economics, and the University of Zurich, outlines that while the policy would decrease costs in the US, prices could soar elsewhere.

For about 75% of the medicines analyzed, the resulting Medicare savings would amount to almost four times the annual profits from the medicine’s sales in the country used to benchmark the price. 

“To avoid losing that much revenue, manufacturers would have a strong incentive to raise prices outside the US or delay launches,” The Lancet wrote in a statement.

Already, the policies have helped a pharmaceutical company secure higher drug prices in Japan in March 2026. Astellas Pharma, a Tokyo-based drug company, argued that domestic drug costs could influence US pricing under the most-favored nation policy, leading Japanese officials to award the drugmaker a higher price than typical. 

The study authors also pointed to market withdrawal of a cholesterol drug in Denmark, and US-UK pharmaceutical trade agreements as disruptions to access and pricing as a result of the policy.

“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,” said Dr Thomas Hwang, the lead study author and professor at Brigham and Women’s Hospital and Harvard Medical School. “But this is colliding with the reality that other countries have limited budget room to give.”

Attempts to cut Medicare drug spending 

“People living in the United States have long paid more for medicines than virtually anywhere else in the world,” said study author Dr Aaron Kesselheim, also a researcher at Harvard’s Brigham and Women’s Hospital.

To understand how these policies would impact pricing in the US and elsewhere, the researchers analysed 195 patented medicines that together account for $87.9 billion of Medicare’s annual spending through its two programs: GLOBE, which covers medicines given in hospitals and clinics, and GUARD, which covers those in pharmacies. Both are most-favored nation (MFN) pricing models under the Trump Administration’s executive order to combat Medicare drug pricing.

The researchers estimated savings by comparing how much Medicare is currently spending to prices in 19 countries referenced in the MFN executive order. They then modelled two scenarios: expanding MFN to include all Medicare beneficiaries instead of the current 25%, and excluding manufacturers with confidential deals. 

Without any exemptions, the researchers estimate Medicare could save $5.2 billion (16%) under GLOBE and $6.4 billion (18%) under GUARD during its initial phase. Expanding the rules to cover all Medicare beneficiaries could raise these savings to $21 billion and $25.5 billion. 

Under these payment models, the lowest price used as an international benchmark was found to be 71% lower than what Medicare pays, with South Korea, Norway, and Australia as the most common countries referenced by Medicare to set pricing.

“The most-favored-nation pricing models were meant to address this gap,” said Kesselheim in reference to how much more the US pays for drugs. “[B]ut their scope is limited by various exemptions and will likely face legal challenges,” said Kesselheim. These exemptions- where companies strike side deals with Medicare, are likely to undercut government savings from MFN. 

The study estimates that reported confidential deals between manufacturers and the Trump administration could cut the policy’s overall Medicare savings: for the initial group of 17 manufacturers with announced agreements, the study’s projected savings would be cut by 71%.

“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 Hwang.

Concerns for global pharmaceutical market

The MFN policy ties what Medicare pays to prices charged in other high-income countries, leading the researchers to argue that the policy could unintentionally drive prices up outside of the US. 

That’s because for the 138 medicines analyzed in the study, the estimated Medicare savings are nearly four times larger than that medicine’s total annual sales in the country used as the price benchmark.

“For most of these medicines, keeping prices low in other countries would cost manufacturers more in lost Medicare revenue than they earn from selling there, creating a strong incentive to raise prices or block them from being visible to Medicare for referencing,” the Lancet said in a press statement. 

“Manufacturers could try to do that by developing different formulations, converting existing discounts into confidential rebates, or delaying launches.”

Dr Kerstin Vokinger of ETH and University of Zurich noted that “policies in the US may impact access to medicines globally. Policymakers should ensure that availability of important medicines is not delayed as a result,” the study author said.

Confidential deals may wipe out Medicare savings

Medicare covers around 68 million older and disabled Americans- and the program was historically barred from negotiating medicine prices directly with manufacturers until the Biden-era 2022 Inflation Reduction Act authorised it to negotiate prices for a small number of costly medicines. 

The Trump administration’s MFN policy goes further, aligning what Medicare pays for brand-name medicines with prices in comparable high-income countries, after adjusting for purchasing power. Under the GLOBE and GUARD pricing models, a randomly selected 25% of Medicare beneficiaries would be covered over a five-year period.

Yet even with the 16-18% savings reduction through MFN, the cost gap in what the US pays versus other countries persists, the authors write. 

Confidential deals between manufacturers and Medicare also jeopardize savings, they write. These deals are excluded from MFN rules, meaning actual savings are likely lower–roughly 4-6% instead.

The authors did acknowledge study limitations, including reliance on public databases, which may not reflect other countries’ confidential discounts. They also relied on historical data, which may not capture newly approved medicines–and could not predict how manufacturers or insurers will ultimately respond to the MFN rules. 

Image Credits: WHO, PBS News, KFF .