Exaggerated MFN cost-saving estimates imperil U.S. innovation and investment

The Administration’s Council of Economic Advisors (CEA) has released an analysis of savings expected from its “Most Favored Nation” deals with pharmaceutical manufacturers, but the methodology and assumptions raise serious questions about the findings. 

The report looks at the 10-year impact of its MFN policies, ignoring that the current MFN deals are only three-year agreements.

Notably, the assessment bakes in two contradictory ideas. It projects an environment where prices for new medicines in the United States drop by 30% within a 10-year period while also asserting that innovation will be unaffected.

But such a dramatic reduction in prices would lead, inevitably, to less money available for research and development, and the report offered no details on how that deficit might be filled.

This has prompted widespread skepticism about the findings:

• “There’s just no way to verify it by the information that’s public so far,” Washington University law professor Rachel Sachs told STAT News.

• “But [the Council of Economic Advisors analysis] is more hope than policy. In an already risky business, the MFN efforts are more risk—and risk weighted to the downside. That provides no real hope of improved innovation incentives,” argued Douglas Holtz-Eakin, the president of the American Action Forum, in a blog post.

• “The assumptions about commercial decision-making around price and access, in the United States and, particularly, abroad, are profoundly unrealistic,” said Brian Reid in the Cost Curve newsletter.

There are other concerns with the data, too. Projected savings in Medicaid are likely exaggerated because the report didn’t assess actual Medicaid discounts but rather used a crude underestimate of existing price concessions. And the report frequently compared TrumpRx prices to list prices, rather than the actual prices that patients might pay through other cash-pay channels.

BIO’s View: The report claims “a net positive effect for incentives to innovate,” but a closer look at the numbers that the authors used—and the assumptions underlying those numbers—suggests something closer to wishful thinking. Other countries massively undervalue innovation, which is why European companies had 44% of the world’s clinical trials in 2009 and only 21% by 2024.

Importing those prices will not make medicines more affordable for Americans; it will, however, undermine a sector that has delivered breakthroughs to patients while fueling economic growth in research and manufacturing from coast to coast. It’s time to simplify the system — with smarter solutions that ensure medicines are accessible and more affordable for American patients.

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