Over the last month, the White House has widely touted pricing agreements from two drug manufacturers — Pfizer and AstraZeneca — which it claims will result in substantial prescription drug cost savings for state Medicaid programs. According to the White House, under these agreements, the manufacturers will provide “Most Favored Nation (MFN)” prices, based on lower international prices paid by other nations, to all state Medicaid programs. This follows from a May 2025 executive order promoting MFN pricing.
However, beyond two short fact sheets issued by the White House so far, neither the Trump Administration nor the manufacturers have released any details about the agreements. That leaves many unanswered questions, making it impossible to assess whether these agreements are likely to produce cost savings for state Medicaid programs as state Medicaid programs already receive sizable rebates from drug manufacturers that result in very low net prices. Moreover, depending on how these pricing agreements are structured, they could actually risk increasing Medicaid prescription drug costs or reducing current access to prescription drugs among individuals and families covered by Medicaid.
The biggest questions all revolve around how this MFN pricing will interact with the existing Medicaid Drug Rebate Program (MDRP). Under the highly effective MDRP, drug manufacturers must pay rebates to the federal government and states as a condition of having their drugs covered by Medicaid. For brand-name drugs, the rebates apply to both fee-for-service and Medicaid managed care and consist of two mandatory components. First, under a basic rebate, manufacturers must pay an amount equal to the greater of a minimum rebate of 23.1 percent of the average price paid by wholesalers for drugs or by retail pharmacies purchasing directly from manufacturers (known as the Average Manufacturer Price or AMP) or the largest “best price” discount provided to most other private purchasers. Second, manufacturers must also pay an additional rebate if their prices rise faster than general inflation. In addition to the rebates required under federal law, states may negotiate voluntary supplemental rebates from manufacturers.
Due to the success of the MDRP, a groundbreaking 2021 Congressional Budget Office study found that compared to other federal programs and agencies, including the Department of Veterans Affairs, Medicaid obtained the lowest prescription drug prices, net of rebates and discounts, in 2017. For example, on average, Medicaid obtained average rebates equal to 77 percent of the average Medicaid retail price for brand-name drugs overall, rebates equal to 60 percent of the average Medicaid retail price for specialty drugs, and 63 percent of the average retail price for high price drugs. For non-specialty drugs, the rebates equaled 86 percent of the average retail price. Data from the Medicaid and CHIP Payment and Access Commission (MACPAC) also show that Medicaid rebates paid by manufacturers under the MDRP reduced overall gross federal and state Medicaid prescription drug spending by 51.2 percent — or $53.7 billion — in fiscal year 2023. (Based on federal administrative Medicaid expenditure data, the rebates required by the MDRP accounted for nearly all of the rebates paid by manufacturers, with supplemental rebates accounting for only about 10 percent of total rebates in 2023).
Here are some of the key unanswered questions related to the MFN pricing agreements with Pfizer and AstraZeneca:
Will MFN pricing substitute for the rebates — the basic rebate and the inflation-related rebate — that are otherwise required to be paid under the MDRP? This would raise serious concerns. First, the agreements may not result in net prices that are lower than the prices, net of rebates, currently available under the MDRP because the MDRP rebates are so substantial. Second, they could potentially result in net prices that exceed current net prices. For example, according to the 2021 CBO study, the inflation-related rebates accounted for about half of the total average rebates (and 31 percent of the retail price for specialty drugs, 24 percent for high price drugs, and 43 percent for non-specialty drugs). But any discounts based on MFN prices would not by themselves incorporate such inflation-related rebates. Notably, the press releases do not mention if and how manufacturers would furnish any guarantee that state Medicaid programs would obtain lower net prices under these agreements.
In addition, under the MDRP, states are subject to an open formulary protection under which nearly all FDA-approved drugs must be covered except for a very limited number of drug classes. If the MFN pricing agreements are somehow entirely replacing the MDRP rebates, would states no longer be subject to this critical open formulary protection? (The Trump Administration previously encouraged states to apply for waivers eliminating the open formulary protection in its first term, which are discussed here and here.) That would raise the risk that states could then be given the authority to eliminate coverage for certain needed drugs solely based on cost. Puerto Rico’s Medicaid program did not participate in the MDRP until 2023 (as it is not mandatory for the territories); it did not cover any curative therapies treating Hepatitis C until 2020 even though those drugs entered the market starting in 2014.
Will the MFN pricing be instead incorporated into the formulas for calculating the rebates that are required to be paid under the MDRP? This also raises serious concerns and could result in net prices that either are not lower than current prices, net of rebates, or exceed current net prices. For example, according to CBO, best price is an important contributor to why basic rebates contributed to roughly half the size of rebates paid by manufacturers. If the MFN pricing is somehow substituting for best price, the fact sheets on the agreements do not mention any guarantee that states would still receive basic rebates based on best price (as currently calculated) if the resulting basic rebates would be higher than any rebates or discounts based on MFN pricing. Similarly, because both elements of the MDRP-required rebates are based on AMP, if AMP is newly determined based on lower MFN pricing, that could considerably reduce or eliminate the inflation-related rebates that manufacturers must currently pay (as AMP is part of the calculation to determine if annual price increases are exceeding general inflation).
Will the MFN pricing be instead used to determine supplemental rebates that the manufacturers will agree to pay to state Medicaid programs? As noted, states can negotiate additional rebates with drug manufacturers on top of the rebates that manufacturers are required to pay under the MDRP. States typically agree to place manufacturers’ drugs on their preferred drug lists (which often do not impose prior authorization requirements as is the case for non-preferred drugs) in exchange for such rebates. Most states also participate in multi-state purchasing pools that negotiate on their behalf. This supplemental rebate approach would be more benign and more likely to result in prescription drug savings for state Medicaid programs. In this case, the agreements could possibly entail the manufacturers agreeing to pay supplemental rebate amounts equal to the difference between the total rebates required under the MDRP and the MFN price (if the MFN price is lower than the net price, after MDRP rebates). In other words, if the MFN price is lower, states would be provided additional rebates. This would have the benefit of not affecting the underlying structure of the MDRP, the formulas used to determine rebate amounts under the MDRP, or the open formulary protection. However, even if this is the approach taken by the agreements, such agreements would only produce Medicaid prescription drug savings if the MFN price ends up being lower than the current net price, after taking into account both MDRP-required rebates and existing supplemental rebates negotiated by states. There is no guarantee to states that any supplemental rebates using MFN prices would either exceed or be no less than those available today.
There are many other questions. For example, how would the MFN price be determined? Does the Trump Administration intend to implement MFN pricing in Medicaid through statutory changes, waivers or Center for Medicare and Medicaid Innovation (CMMI) demonstration projects? Would the MFN pricing be mandatory or optional for state Medicaid programs? How long would MFN pricing be available to state Medicaid programs under these agreements? Would state Medicaid programs be required to provide “preferred” status for these manufacturers’ drugs in exchange for MFN-based pricing? Does the MFN pricing apply to all drugs produced by the manufacturer? Would the manufacturers provide pricing data to state Medicaid programs that allow Medicaid programs to confirm that any MFN-based pricing, including alongside a savings guarantee, would result in lower net costs?
None of these questions are addressed by the two fact sheets and no additional information has been provided by the White House or the two manufacturers to-date.
Finally, there is always the possibility that these agreements never become detailed plans and programs that are actually implemented in Medicaid. It is possible, of course, that the agreements do not become more concrete. This scenario would be similar to how the Trump Administration touted a proposal to provide $200 drug discount cards to Medicare beneficiaries in the fall of 2020. But there was little progress in its development before the end of the Trump Administration’s first term and it was never implemented.