Most-Favored-Nation Drug Pricing Has Reached Medicaid. It Should Stop There.
On September 18, the White House announced that every state in the country had joined President Trump's plan to bring "most-favored-nation" drug pricing to Medicaid.[1][2] The headline ran ahead of the facts. All 50 states, Washington, D.C., and Puerto Rico had applied to the program, called GENEROUS, but only 40 states and Puerto Rico had signed participation agreements; the rest have until September 30.[1] Several states told STAT they were still deciding.[3]
Still, for the first time, what America's largest public insurer pays for brand-name drugs will be pegged to what patients pay in Britain, Germany, and Japan. The administration says the change will save $64.3 billion over ten years.[1]
My view is this: Medicaid is the one place in American health care where this idea belongs. It must stop there. And the way the administration has built it, through deals no one outside government can read, undercuts the very case for it.
What does GENEROUS actually do?
GENEROUS (short for GENErating cost Reductions fOr U.S. Medicaid) is a voluntary pilot run by the CMS Innovation Center. It was announced in November 2025 and launched in January 2026 for a five-year run.[4][5] Drugmakers that join pay state Medicaid programs supplemental rebates large enough that the final price of selected brand-name drugs matches an international benchmark: roughly the second-lowest price the manufacturer charges across eight wealthy countries, adjusted for national income.[5]
Behind the model sit private agreements with drugmakers, starting with Pfizer in September 2025. The White House says 26 manufacturers, covering roughly 90 percent of the branded market, are now on board.[6] What those companies promised, and what they received in return, has never been made public.
How did we get here?
The Omnibus Budget Reconciliation Act of 1990 created the Medicaid Drug Rebate Program, which requires manufacturers to rebate at least 23.1 percent of a brand drug's average price (more if they have given another buyer a better deal), plus penalties when prices outpace inflation.[7]
That history carries a warning. The economist Fiona Scott Morton found that after the 1990 "best price" rule took effect, some drugmakers responded by raising prices for other buyers.[8] Later work found that a 10-point increase in Medicaid's share of a drug's market was associated with roughly 10 percent higher prices for everyone else.[9] Tie one buyer's price to a benchmark, and companies will manage the benchmark.
Trump first tried foreign reference pricing in 2020, in Medicare Part B; federal courts blocked it within weeks.[10] Congress instead let Medicare negotiate prices for a few drugs in 2022; the first ten took effect this January.[11] In May 2025, a new executive order revived the most-favored-nation idea.[12] GENEROUS is its first large-scale result.
What do the numbers show?
The frustration behind this policy is legitimate: a 2024 RAND analysis for the Department of Health and Human Services found that U.S. prices for brand-name drugs were at least 3.22 times those in 33 other wealthy countries, even after accounting for estimated rebates.[13] Generics tell the opposite story: Americans pay about 67 cents for every dollar paid abroad.[13]
U.S. drug prices as a share of prices in 33 other OECD countries, 2022 (100% = parity)
Drug type | U.S. price vs. other wealthy nations |
Brand-name drugs, list prices | 422% |
Brand-name drugs, net of estimated U.S. rebates | 322% |
All drugs | 278% |
Unbranded generics | 67% |
Source: RAND Corporation for HHS ASPE, 2024. [13]
But Medicaid is not where Americans overpay most. In fiscal year 2024, Medicaid spent $106.4 billion on outpatient drugs and collected $58.4 billion back in rebates, a 54.9 percent discount off the sticker price.[14] For brand drugs subject to the best-price rule, statutory and state supplemental rebates together already reach about 84 percent.[5] Medicaid is, in effect, already the most-favored customer in America.
Medicaid outpatient drug spending, fiscal year 2024
Measure | Amount |
Gross spending at the pharmacy | $106.4 billion |
Rebates paid back by manufacturers | $58.4 billion |
Net spending | $48.0 billion |
Share of gross spending recovered | 54.9% |
Source: MACPAC, MACStats, February 2026. [14]
Why is Medicaid the right exception?
A market-based health system still needs a safety net, and the safety net is where government purchasing power is most legitimate. In Medicaid, Washington is not a regulator setting prices on private transactions. It is the customer, spending taxpayer money on behalf of low-income patients who have no bargaining power of their own, and Congress decided in 1990 that this customer should get the best price in the market. Benchmarking that price against peer nations extends a principle that has governed the program for a generation.
It is worth being precise about what that justification is. It is not patient relief: Medicaid enrollees already pay almost nothing at the pharmacy and will barely notice the change. It is stewardship of public money. That also answers the obvious objection that Washington is the customer in Medicare, too. The difference is scale. Medicaid's entire net drug bill, $48 billion in 2024, is a small slice of the roughly $804 billion Americans spent on brand-name drugs in 2025.[14][15] Pegging Medicare, or the whole market, to foreign prices would reach into the revenue that funds research in a way a Medicaid benchmark cannot.
None of this makes the Medicaid version free. The research on the 1990 rule applies here too: companies may shift some costs onto other buyers[9] or hold back launches abroad, and any lost revenue costs some innovation. The case for the exception is that, at Medicaid's scale and inside an existing rebate system, those costs are small and the savings go to taxpayers. That is a judgment worth testing, which is why the terms need to be public.
Why should it stop at Medicaid?
Because outside the safety net, most-favored-nation pricing is a price control, and price controls on drugs carry a cost that never shows up on a receipt: medicines that are never invented.
The Congressional Budget Office, which has no stake in the industry, has modeled this. H.R. 3, the 2019 House bill that would have tied prices to 120 percent of the average in six foreign countries, was projected to mean about 8 fewer new drugs in its first decade and about 30 fewer in the next.[16] Even the narrower Inflation Reduction Act was projected to cost 13 new drugs over 30 years.[17] University of Chicago economists estimated far larger losses, 135 fewer drugs from one 2021 proposal, but assumed research responds to revenue about three times more strongly than CBO's model does.[18][19] Even the conservative figure, thirty-eight medicines over two decades, is thirty-eight treatments someone will not get. (I have written about what NIH cuts would do to the public half of the pipeline; price controls threaten the private half.)
The reason is structural. By the White House's own 2018 estimate, Americans generate more than 70 percent of the profits on patented drugs across wealthy countries while accounting for about a third of their combined income.[20] The United States pays for the world's pharmaceutical pipeline. Import other nations' prices, and no one is left to pay for the next drug.
Companies also respond in ways that hurt patients abroad. Research across 25 markets shows manufacturers delay or skip launches where prices are low and regulated,[21][22] and CBO expects the same response to international reference pricing in the United States.[23] A benchmark tied to foreign prices gives companies every reason to hold new drugs back from cheaper countries rather than let a low price abroad drag down the price at home. The American price does not fall; patients abroad simply wait. There is a better way to close the gap, which I return to below: wealthy nations paying a fairer share of research costs through open negotiation, not companies withholding medicines to protect a benchmark.
The White House says its most-favored-nation deals will save more than $600 billion across all markets.[2] If that figure is real, it is precisely the kind of revenue cut CBO warns about. If it is not, it is one more number no one can check.
The best argument on the other side deserves a direct answer. High prices hurt people now, not in some modeled future. Patients ration insulin, split pills, and leave prescriptions at the counter because they cannot afford them, and the patients paying the most at the pharmacy are not on Medicaid; they are the uninsured and commercially insured people with high deductibles. A policy that protects future cures while today's patients go without is not obviously the humane one.
That is a serious point, and doing nothing is not an option. But price controls are the wrong tool for the pharmacy-counter problem. Much of what patients pay out of pocket is driven by list prices, deductibles, and middlemen, not by the net price a manufacturer keeps. The better fixes target those directly: rebates that reach patients instead of pharmacy benefit managers, and faster competition from generics and biosimilars, which already fill 89 percent of prescriptions at a fraction of the cost.[15]
Isn't this all just PR?
The sharpest objection to GENEROUS comes not from industry but from skeptics who call it theater. Medicaid already recovers more than half its gross drug spending in rebates, so the room for new savings is small. KFF notes that $64.3 billion over a decade works out to about $6.4 billion a year, and that it is "unclear what assumptions were made" to produce the figure.[5] Two White House documents released the same day disagree on whether the deals cover 89 or 90 percent of the branded market.[2][6] And the "all 50 states" headline, it turned out, counted applications rather than signatures.[1][3]
On the facts, the critique is largely right. It is wrong about what follows from them.
If GENEROUS were only a press release, it would be harmless. It is not. The Washington Post, after reviewing contracts it obtained, reported that the deals include inducements for companies to raise prices overseas and promises of protection from tariffs.[24] Senator Ron Wyden says that after six written requests he has "not seen a single page" of the agreements.[25] That is the real problem: not that the savings may be small, but that no one outside the administration can check them. Data should settle this debate, and there is no data here to settle it with.
There is an irony, too. The part of the deals that could matter most, pressure on wealthy countries to pay a fairer share of research costs, is exactly the part hidden from view. Done in the open, that is good policy. Done in secret, no one can tell whether it means fairer prices abroad or simply medicines withheld from patients there. And policy made by confidential contract can be unmade by the next administration without a single vote.
Who wins and who loses?
Taxpayers win, to whatever extent the savings are real. Drugmakers win too, trading modest Medicaid concessions for tariff relief and good headlines. Medicaid patients will notice almost nothing.
The losers are harder to see: privately insured patients who may absorb cost-shifting, as some did after 1990;[8][9] patients abroad who may wait longer; and, if the model spreads, the largest group with no voice at all: future patients who need medicines that a price-controlled market decides not to develop.
What should happen next?
Codify it, in public. Congress should write GENEROUS into law with published terms, a CBO score, and independent audits. Unverifiable savings should not count.
Draw the line at the safety net. Keep foreign reference pricing out of Medicare and the commercial market, where it cuts into the revenue that funds research.
Make other countries pay their share. Use trade negotiations, openly, to press wealthy nations to pay a fairer share of research costs.[20]
Finish the PBM reforms. Congress has already required that pharmacy benefit managers in Medicare Part D be paid flat fees rather than a cut of list prices, starting in 2028.[26] Extend that to commercial plans and ban spread pricing in Medicaid; the three largest PBMs process nearly 80 percent of U.S. prescriptions.[27]
Let competition do the work. Generics already fill most prescriptions for less than 12 percent of U.S. drug spending.[15] Speed generic and biosimilar approvals, rein in patent thickets like the 247 patent applications filed around Humira,[28] and end the pay-for-delay settlements a 2010 FTC study estimated cost consumers $3.5 billion a year.[29]
The bottom line
Medicaid is the one place in American health care where the government can bargain hard without reaching into the revenue that funds tomorrow's medicines. Everywhere else, a price control buys a cheaper drug today with a missing drug tomorrow. Keep GENEROUS inside the safety net, drag it into the light, and let competition handle the rest.
A deal no one can read is not a policy. It is a promise, and promises expire.
References
Centers for Medicare & Medicaid Services. CMS announces participants in landmark Medicaid drug payment model to bring down drug costs for most vulnerable Americans. Published September 18, 2026. Accessed September 29, 2026. https://www.cms.gov/newsroom/press-releases/cms-announces-participants-landmark-medicaid-drug-payment-model-bring-down-drug-costs-most
The White House. Fact sheet: President Donald J. Trump announces lower drug prices for all 50 state Medicaid programs. Published September 18, 2026. Accessed September 29, 2026. https://www.whitehouse.gov/fact-sheets/2026/09/fact-sheet-president-donald-j-trump-announces-lower-drug-prices-for-all-50-state-medicaid-programs/
Payne D. Trump boast on drug pricing policy overstated state-level interest in federal program. STAT. Published September 24, 2026. Accessed September 29, 2026. https://www.statnews.com/2026/09/24/trump-medicaid-generous-model-state-interest/
Centers for Medicare & Medicaid Services. CMS announces new drug payment model to strengthen Medicaid and better serve vulnerable Americans. Published November 6, 2025. Accessed September 29, 2026. https://www.cms.gov/newsroom/press-releases/cms-announces-new-drug-payment-model-strengthen-medicaid-better-serve-vulnerable-americans
Williams E, Rudowitz R, Euhus R. A look at the GENEROUS model and factors that could impact Medicaid drug costs. KFF. Published May 8, 2026. Accessed September 29, 2026. https://www.kff.org/medicaid/a-look-at-the-generous-model-and-factors-that-could-impact-medicaid-drug-costs/
The White House. President Trump extends most favored nation drug pricing to every Medicaid program in America. Published September 18, 2026. Accessed September 29, 2026. https://www.whitehouse.gov/releases/2026/09/president-trump-extends-most-favored-nation-pricing-to-every-medicaid-program-in-america/
Williams E. What are the implications of the recent elimination of the Medicaid prescription drug rebate cap? KFF. Published January 16, 2024. Updated August 9, 2025. Accessed September 29, 2026. https://www.kff.org/medicaid/what-are-the-implications-of-the-recent-elimination-of-the-medicaid-prescription-drug-rebate-cap/
Scott Morton F. The strategic response by pharmaceutical firms to the Medicaid most-favored-customer rules. RAND J Econ. 1997;28(2):269-290.
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Centers for Medicare & Medicaid Services. Most Favored Nation (MFN) Model. Accessed September 29, 2026. https://www.cms.gov/priorities/innovation/innovation-models/most-favored-nation-model
Centers for Medicare & Medicaid Services. Medicare Drug Price Negotiation Program: negotiated prices for initial price applicability year 2026. Published August 15, 2024. Accessed September 29, 2026. https://www.cms.gov/newsroom/fact-sheets/medicare-drug-price-negotiation-program-negotiated-prices-initial-price-applicability-year-2026
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Medicaid and CHIP Payment and Access Commission. Exhibit 28. Medicaid gross spending and rebates for drugs by delivery system, FY 2024. MACStats: Medicaid and CHIP Data Book. February 2026. Accessed September 29, 2026. https://www.macpac.gov/wp-content/uploads/2026/01/EXHIBIT-28.-Medicaid-Gross-Spending-and-Rebates-for-Drugs-by-Delivery-System-FY-2024.pdf
Generic, biosimilar medicines saved US health care $496B in 2025. Center for Biosimilars. Published September 24, 2026. Accessed September 29, 2026. https://www.centerforbiosimilars.com/view/generic-biosimilar-medicines-saved-us-health-care-496b-in-2025
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Democrats again demand Trump's drug-price contracts following Post report. Washington Post. Published September 23, 2026. Accessed September 29, 2026. https://www.washingtonpost.com/health/2026/09/23/democrats-again-demand-trumps-drug-price-contracts-following-post-report/
KFF. What to know about pharmacy benefit managers (PBMs) and federal efforts at regulation. Updated February 9, 2026. Accessed September 29, 2026. https://www.kff.org/other-health/what-to-know-about-pharmacy-benefit-managers-pbms-and-federal-efforts-at-regulation/
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Featured image: Woodard's Pharmacy, a full-service pharmacy and lunch counter in Hertford, North Carolina. Photo: Carol M. Highsmith, 2017. Library of Congress, Prints and Photographs Division (no known restrictions on publication).