The Trump administration has been mum in recent weeks on its "most favored nation" drug pricing plan, which broadly aims to link U.S. prices for medicines to the lowest prices in other developed countries.
It's unclear what those prices will be, how they'll be determined, or how the administration will bring them about.
The administration simply promises that they'll be lower for patients.
That promise can be construed as ingenuine, according to a new report from the Pioneer Institute.
And that's because the MFN plan utterly fails to address the real driving force of high out-of-pocket costs for medicine — namely, pharmacy benefit managers.
PBMs negotiate with pharmaceutical manufacturers over which drugs their insurer clients will cover — and at what price.
Three PBMs control roughly 80% of the market.
Their main sources of leverage are the formulary, or list of covered drugs, and the number of patients they represent.
Prime placement on a formulary can mean lots of sales for a drug company.
By contrast, burying a drug on a formulary and subjecting patients to heavy cost-sharing obligations can result in minimal sales for its manufacturer.
They wield this leverage by insisting on rebates and discounts as a condition of prime formulary placement.
The bigger the rebate or discount they can claim, the bigger their take. So they have an incentive to prefer drugs with high list prices from which they can claim to have negotiated big discounts.
Price controls — like those contemplated by the MFN plan outlined in a May 12 executive order from President Donald Trump — complicate that business model.
The Pioneer report floats a hypothetical.
Four million Medicare beneficiaries take the blood-thinner Eliquis, one of the first ten drugs subject to price controls in Medicare Part D starting in January 2026 thanks to the Inflation Reduction Act of 2022.
The drug had a list price of $520 for a 30-day supply in 2021. The IRA's price controls have set its new price at $230 for a 30-day supply.
Assume that Eliquis's manufacturer had been paying PBMs a $150 rebate — a reasonable assumption, given that some academic studies conclude that rebates approach half the list price of a drug.
Under this scenario, PBMs received $600 million a month in rebate revenue just from this drug for those 4 million beneficiaries.
If government price controls like those under MFN drop the list price by half, the rebates are almost certain to decline, too. PBMs could be out hundreds of millions of dollars a month.
They must recoup that loss somehow.
From all indications, their preferred strategy is to hike patient out-of-pocket costs on price-controlled drugs.
That's exactly what's happened to seniors as their Medicare Part D drug plans prepare for the price controls that will take effect next year.
Pioneer's researchers found that out-of-pocket costs for nine of the first 10 medicines subject to these price controls rose by an average of 32%. (See: "Prescription Drug Price Controls.")
The lesson to draw from this analysis is that, without significant changes to PBMs' business practices, government price controls may actually drive up costs for patients.
The same thinking applies to the Trump administration's MFN proposal.
If the administration caps U.S. prices at some percentage of the lower prices in force in other countries, then the PBMs that gatekeep which drugs they have access to will engage in the same sort of chicanery to protect their margins.
In the end, insurers and PBMs may save some money thanks to the price controls. But ordinary patients won't.
PBMs claim roughly 42% of every dollar spent on brand-name medicines in the commercial market, in the form of rebates and fees.
If our leaders want to make drugs more affordable for individual Americans, they need to take on PBMs — and dismantle the incentive structure that enables them to thrive at patients' expense.
They can start by requiring PBMs to pass along the savings they negotiate to consumers at the pharmacy counter.
Sally C. Pipes is President, CEO, and Thomas W. Smith Fellow in Health Care Policy at the Pacific Research Institute. Her latest book is "The World's Medicine Chest: How America Achieved Pharmaceutical Supremacy — and How to Keep It" (Encounter 2025). Follow her on X @sallypipes. Read Sally Pipes' Reports — More Here.
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