Trump’s worst idea since tariffs

Trump officials are pitching Republicans on a “most-favored nation" drug-pricing regime for Medicaid. While the details are hazy, the idea is for Medicaid to pay drug makers the lowest price charged by other developed countries. Mr. Trump proposed a similar scheme for Medicare Part B drugs at the end of his first term, and it was a bad idea then too.

Some Republicans see this as a path of less political resistance to achieve some $880 billion in Medicaid savings that is the target of their reconciliation outline. But savings from Mr. Trump’s drug plan would be negligible, and the scheme would harm innovation and raise prices for Americans with private insurance.

Medicaid already receives hefty discounts for drugs under statutory formulas that require manufacturers to kick back a share of a medicine’s price to states in a rebate. Medicaid rebates in 2023 amounted to 52% of the program’s drug spending. Because Democrats in 2021 removed a cap on these rebates, state Medicaid programs may pay nothing for some drugs.

Drugs accounted for less than 4% of Medicaid spending ($21.2 billion) in 2023. The feds spent 10 times more on hospital payments. Even if Republicans required drug makers to give away medicines to Medicaid, savings wouldn’t come close to $880 billion.

Drugs actually reduce Medicaid spending by preventing complications that require expensive hospital care. Take hepatitis C antiviral drugs, which have a 95% cure rate. A treatment course can cost upward of $24,000. But the Congressional Budget Office estimates that expanding Medicaid patient access to these drugs would save $7 billion over a decade.

Trying to wring more money out of drug makers might cause some companies to stop participating in Medicaid. Patients would then suffer from less access to novel treatments, as they do in countries with socialized health systems that impose price controls. Some drug makers already lose money on medicines they sell to Medicaid, but they compensate by raising prices in the commercial market.

Eton Pharmaceuticals recently increased prices on a medicine that treats a rare growth disorder in children to $14,705 from $5,882 per vial. The reason? About half of children who take the drug are on Medicaid. The company said it would lose about $100,000 annually for each Medicaid patient. Even after raising prices for commercial payers, Eton says the medicine is “barely profitable."

Medicaid drug rebates are already layered on top of steep discounts that drug makers are required to give hospitals under the federal 340B program. That program is a cash cow for hospitals, which charge commercial insurers more than twice as much as the hospitals’ cost of acquiring a medicine. Hospitals pocket the difference. Because the 340B discounts are tied to Medicaid prices, Mr. Trump’s plan would be a double whammy for drug makers and a windfall for hospitals.

Something would have to give, and it would be investment in new potential cures. The Inflation Reduction Act’s Medicare price controls and inflation rebates are already prompting drug makers to reduce spending on research and development, especially on riskier medicines. Contract research organizations that assist with pharmaceutical trials are reporting cancellations and project delays.

Meanwhile, Chinese companies are announcing biotech breakthroughs almost every day, including in fields that the U.S. pioneered such as CAR-T cell therapies. Some Republicans want to spend tens of billion of dollars to ensure that the U.S. doesn’t lose its biotech edge to China. How about not handcuffing American innovation with bad policy?

Drug price controls are a Democratic perennial. If Republicans go along with Mr. Trump’s most-favored-nation plan, Democrats will invariably extend it to Medicare and the commercial market next time they control Congress. If Republicans lack the courage to reform Medicaid, they should at least do no harm.