Dueling US drug pricing policies could undercut Medicare savings

Clinical takeaway: How much Medicare actually saves under most-favored-nation pricing depends less on the benchmarking formula than on which manufacturers are exempt. Deals already cover two-thirds of the medicines studied. 

Americans have long paid more for prescription drugs than patients almost anywhere else. Medicare, which covers roughly 68 million older and disabled adults, largely buys those drugs at US prices. The administration's proposed remedy is most-favored-nation pricing, which would cap what Medicare pays for brand-name medicines at the prices charged in comparable high-income countries. Whether that approach delivers what it promises depends on how much of the market its rules actually reach. 

Medicare was barred from negotiating drug prices until the 2022 Inflation Reduction Act authorized negotiation for a small set of costly medicines. The first negotiated prices took effect this year, with more drugs added annually. The new most-favored-nation payment models reach much further, tying Medicare's prices to an international benchmark across broad classes of brand-name drugs. Meanwhile, the administration has been striking separate, nonpublic agreements with individual manufacturers that reportedly shield their products from the very models built to lower prices. A modelling study offers estimates of what Medicare could save under the combination of the latter two policies. 

In an initial phase, the models could cut Medicare drug spending by $5.2 billion, or 16.1%, under GLOBE, which covers hospital- and clinic-administered medicines, and by $6.4 billion, or 17.6%, under GUARD, which covers pharmacy medicines. Extending the rules to all beneficiaries would raise those figures to $21 billion and $25.5 billion. But the 17 manufacturers with reported agreements account for 131 of the 195 medicines studied, and exempting their products would cut projected savings by 71.3%, leaving $3.3 billion. 

Among the 138 medicines with available sales data, the estimated cut to Medicare spending ran a median of 3.8 times the medicine's annual sales in the country used to set its US reference price. For 73% of them, the cut would exceed the medicine's entire annual sales in that country. Tolerating a low foreign price would cost those manufacturers more in Medicare revenue than they earn from the foreign market itself. The reference prices sit far below Medicare's: the lowest international benchmark ran a median 71% under what Medicare pays, with South Korea, Norway, and Australia the countries most often setting the floor. 

The researchers analyzed 195 medicines accounting for $87.9 billion in annual Medicare spending across the two models. Because actual rebates are confidential, the team estimated Medicare's net prices and compared them against prices in the 19 reference countries, adjusted for purchasing power. 

The foreign-sales arithmetic, the authors argue, rewards raising prices abroad, delaying launches, converting public discounts into confidential rebates, or reformulating products so they escape referencing. Whether manufacturers follow those incentives will play out soon. CMS has proposed concrete start dates: October 2026, next month, for GLOBE and January 2027 for GUARD. Each is structured as a five-year demonstration applied to a randomized quarter of beneficiaries. The deals, meanwhile, keep accumulating. A further round announced August 31 brings the reported total to 26 companies, which the authors estimate would push the savings lost toward 80%. 

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

Source: Hwang TJ, et al. (2026 Sep 13) Lancet. Most-favoured-nation pricing for prescription drugs in US Medicare: a cohort study