What would Trump’s ‘most favored nation’ pricing mean for prescription drugs?

On July 31, the Trump administration called on drug manufacturers to lower prescription drug prices in the U.S. to "most favored nation" – or MFN – pricing, the lowest cost paid for the same medications in other countries.

The steps, outlined in an executive order, include:

- Providing MFN prices to all Medicaid beneficiaries.

- Requiring manufacturers to stipulate that they will not offer other developed nations better prices for new drugs than those offered in the U.S.

- Providing manufacturers with an avenue to sell medicines directly to patients at a price no higher than the best available in developed nations.

- Using trade policy to support manufacturers in raising prices internationally provided that higher revenues abroad are reinvested directly into lowering prices for Americans.

The order suggests that if drug companies don't voluntarily adopt MFN pricing, the U.S. Department of Health and Human Services may consider rulemaking to impose it and potentially allow drug importation from countries with lower prices.

A panel of experts from Avalere Health broke down how MFN pricing could shift the health care landscape during a recent webinar.

One of the most significant pieces of the executive order is the creation of a direct-to-consumer channel to sell prescription drugs at MFN pricing, said Jessica Cortez, principal at Avalere Health.

“When we say direct to consumer, we’re not talking about Super Bowl TV ads,” she said. “We’re talking about creating an alternate channel where consumers could buy prescription drugs at MFN prices. What the administration is pushing here is more ambitious, creating a parallel lane where consumers bypass pharmacy benefit managers and insurance company formularies.”

The direct-to-consumer push with MFN pricing “connects with something much bigger,” Cortez said.

“The administration’s DTC push isn’t happening in a vacuum,” she said. “It aligns with a more patient-centric trend.”

MFN could lead to an adverse effect

But health care providers and pharmaceutical companies could see an adverse effect of the MFN order.

If MFN is applied to drugs in Medicare Part B, “provider reimbursement is on the chopping block,” Cortez said. The result could be that pharma innovation also could shrink, and that fewer sites of care would be willing to carry drug therapies impacted by MFN pricing.

“You can have the cheapest drug in the world but if providers don’t prescribe it, then it creates an economic challenge,” she said. “It would be like having the cheapest bread in the world but no grocery stores selling it.”

Pricing system becoming more complex

“The drug pricing ecosystem in the U.S. is increasingly becoming more convoluted and complex,” said Michael Ciaramentaro, Avalere Health managing director. “Medicaid gets its own set of pricing, Medicare fee-for-service gets its own set of pricing. Portions of the market are carved out.”

Along with the pressure to lower drug prices, pharmaceutical companies will be impacted by tariffs, he said, with many of the supplemental supplies that go into pharmaceutical manufacturing – such as packaging – already subject to tariffs.  “The idea of moving production to the U.S. – with its labor laws and environmental laws – dictates that production in the U.S. will be more expansive than production in other countries.

“Pharmaceutical products are being squeezed over time and MFN is a continuation of this trend,” he said. “The issue is that there are fewer options for manufacturers to adjust their strategy. The key question and the extent that this really matters will be how broadly MFN will be implemented.”

Ciaramentaro gave some predictions on how MFN will impact the prescription drug market.

1. The broader that MFN is applied, the more lives impacted by it and the more drugs affected by it, the greater the financial pressure to payors and PBMs.
2. It’s uncertain which drugs MFN will be applied to, and MFN creates incentives for plans to stop covering those drugs.
3. As payors are harmed by MFN, premiums will increase, or coverage will be reduced.

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Susan Rupe is managing editor for InsuranceNewsNet. She formerly served as communications director for an insurance agents' association and was an award-winning newspaper reporter and editor. Contact her at [email protected].