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How would Trump's plans affect Medicare negotiation and drug rebates compared with Biden's approach?
Executive Summary
Donald Trump’s recent drug-pricing deals hinge on direct manufacturer agreements, international reference pricing and targeted discounts for Medicare and Medicaid beneficiaries, whereas President Biden’s approach institutionalized Medicare negotiation under the Inflation Reduction Act to set maximum fair prices for selected high-expenditure drugs. Trump’s model emphasizes negotiated manufacturer discounts and MFN-style links to lower foreign prices, backed by individual deals with companies like Eli Lilly and Novo Nordisk, while Biden’s framework creates an ongoing federal negotiation regime with statutory processes and selected drugs for forced price limits [1] [2]. Both claim patient and fiscal savings, but important questions remain about interactions with existing rebate programs, state Medicaid impacts, and long-term costs and coverage trade-offs [3] [4].
1. How Trump’s deals reshape price cuts and patient access — promises, pilots and limits
Trump’s announced deals with Eli Lilly and Novo Nordisk commit manufacturers to lower prices for some obesity drugs and to new copay caps for Medicare beneficiaries, promising $50 monthly copays for approved GLP-1 therapies and a public-facing discount portal, TrumpRx.gov; Medicare coverage for certain treatments is slated to begin in mid‑2026 under those agreements [1]. Advocates highlight immediate, visible savings for enrollees and broader use of international price comparisons to compel cuts, but analysts warn these deals raise unanswered questions about scope, duration, and whether lower list prices substitute for or complicate the existing Medicaid rebate architecture that already produces deep net discounts [1] [3]. The deals are targeted and transactional rather than systemwide reforms, leaving open whether they will scale beyond participating manufacturers or drug classes [1].
2. Biden’s IRA mechanism: structured negotiation, statutory process, measurable early savings
The Inflation Reduction Act established a statutory Medicare Drug Price Negotiation Program that selects high-expenditure Part B and Part D drugs for a formal negotiation process run by HHS, with negotiated maximum fair prices and annual updates tied to CPI adjustments [2] [5]. Early rounds chose initial drugs and produced estimated savings — analysts projected roughly $6 billion in Medicare savings and $1.5 billion for beneficiaries in 2026, and some negotiated cuts of 38–79 percent for specific medicines in the first cycle [4] [6]. The IRA approach is systemic and legally codified, designed to be durable across administrations unless altered by legislation or litigation; pharmaceutical lawsuits have challenged aspects but have not yet permanently blocked implementation in key rulings [2] [7].
3. The rebate and Medicaid puzzle: will MFN-style deals help or hurt state programs?
Analysts caution that Trump’s MFN-style deals and direct manufacturer discounts could interact unpredictably with the Medicaid Drug Rebate Program, which already requires manufacturers to pay substantial rebates to federal and state programs and provides open formulary protections for nearly all FDA-approved drugs [3]. If MFN arrangements substitute for existing rebates, states could lose supplemental protections or see higher net costs; if they supplement rebates, manufacturers’ net prices may compress further but fiscal impacts on federal and state budgets are unclear [3]. The lack of published mechanics for how MFN prices and Trump’s contract terms map onto Medicaid rebate statutory calculations leaves material uncertainty for state budgets and beneficiary access [3].
4. Comparative effectiveness and international benchmarks: why U.S. prices still stand apart
KFF and HHS analyses show Medicare’s negotiated prices remain higher than many peer nations, with Medicare prices averaging about 2.8 times prices in 11 comparable countries and international benchmarks like Japan and Australia often much lower [4]. Biden’s IRA creates a U.S. negotiation mechanism that narrows some gaps but does not replicate longstanding foreign price-setting systems; Trump’s explicit use of lowest foreign price comparisons aims to accelerate convergence to lower international levels, but implementations so far are limited to selected manufacturers and drug classes and may not achieve broad systemwide parity [4] [1]. The comparative context explains why political pressure is high on both administrations to produce visible consumer savings while preserving supply and innovation.
5. Bottom line: savings claims, legal and budgetary trade-offs, and what to watch next
Both approaches claim patient savings: Biden’s IRA offers a statutory negotiation path with documented early savings, while Trump’s deals promise immediate manufacturer discounts and copay caps for targeted drugs [6] [1]. Key differences are structural: Biden’s program creates ongoing federal negotiation authority for selected drugs, whereas Trump relies on bilateral deals and international reference pricing tied to participating manufacturers. Critical unresolved issues include legal challenges, the programs’ interactions with Medicaid rebates, how negotiated prices affect formularies and access, and whether manufacturer participation scales beyond headline deals—these unknowns determine whether projected short-term savings translate into durable systemwide cost reductions [3] [8]. Watch HHS rulemaking, state Medicaid fiscal analyses, and court rulings for the next decisive signals [5] [3].