Medicaid Could Save $$ Under ‘Most Favored Nation’ Pricing, Study Finds

A new program to base Medicaid drug prices on the lowest drug prices in other countries — known as “most favored nation” (MFN) pricing — could result in substantial savings, researchers found.

The payment model, known as Generating Cost Reductions for U.S. Medicaid (GENEROUS), was found to result in estimated savings exceeding total existing supplemental Medicaid rebates for 47 states and Washington, D.C., with savings totaling $8.6 billion (34.7% of net spending), reported Thomas Hwang, MD, of Brigham and Women’s Hospital in Boston, and colleagues in a research letter published in JAMA.

Currently, state Medicaid programs receive drug rebates from manufacturers as required by law, and states can also negotiate supplemental rebates with manufacturers in exchange for favorable formulary position and fewer coverage restrictions. The researchers found that the estimated savings from the GENEROUS payment model would be equivalent to increasing the statutory minimum Medicaid rebate from 23.1% to 49.2%.

The Centers for Medicare & Medicaid Services (CMS) announced the GENEROUS model in November 2025 and launched it in January; it will run for 5 years. A total of 17 pharmaceutical companies had agreed to participate as of May in exchange for protection from pharmaceutical tariffs. State participation is also voluntary.

To analyze the potential effects of the GENEROUS model, Hwang and team focused on drugs with annual Medicaid spending of at least $100 million that were approved in both the U.S. and at least one reference country. They excluded drugs with generic or biosimilar competition.

The study included 82 brand-name drugs accounting for $43 billion in annual gross Medicaid spending and $25.2 billion in estimated net spending after Medicaid rebates. Most drugs (90.2%) had lower prices in the reference countries than the net prices in Medicaid, the investigators found.

“Participating companies with signed agreements with the administration accounted for 87.8% of total Medicaid spending and 93.9% of estimated savings,” the authors wrote. “The payment model would not affect cost sharing for Medicaid beneficiaries, which is generally limited to nominal amounts.”

The study had several limitations, including the fact that the researchers used state-level supplemental rebate data, which are confidential. They also assumed existing supplemental rebates would be fully replaced by rebates from the GENEROUS model, which likely underestimates potential savings because states could choose to retain certain supplemental rebates.

Hwang and team noted that MFN pricing schemes are also vulnerable to manufacturer gaming “because manufacturers can delay launch in the reference countries and develop country-specific formulations to prevent establishment of a reference price. Reference countries may also seek to conceal true transaction prices.”

CMS could address some of these concerns by referencing the average net price, which could sidestep confidentiality requirements for individual prices, they suggested. On the other hand, Congress would need to approximately double the statutory rebate for included drugs to obtain equivalent savings.

“Policymakers should closely monitor potential effects of the GENEROUS payment model on drug prices in other countries and for other payers,” they concluded.