Federal Update: Trump Administration Demands Manufacturers Take Action on Most-Favored-Nation Pricing Scheme

On May 12, President Trump signed an executive order titled “Delivering Most-Favored-Nation Prescription Drug Pricing to American Patients,” directing the administration to take several actions to compel drug manufacturers to lower prices based on what they charge in other developed countries. The order directs the Department of Health and Human Services (HHS) to establish a most-favored-nation (MFN) price target that would apply to the prices charged to the Medicare and Medicaid programs. HHS communicated MFN price targets to drug manufacturers in May, clarifying that reference prices were generated for all branded drugs or biologics that do not have generic or biosimilar competition. The MFN price represents the lowest price in any country that is part of the Organization for Economic Cooperation and Development (OECD) with a gross domestic product (GDP) per capita of at least 60 percent of the U.S. GDP per capita. HHS will also facilitate direct-to-consumer (DTC) purchasing programs that allow drug manufacturers to sell products at the MFN price target to individuals or businesses. The executive order directs HHS to take action against drug manufacturers that fail to voluntarily make MFN prices available to government health programs. 

This week, the Trump administration released letters that were sent to 17 manufacturers outlining steps they should take to make the MFN price available to consumers. Manufacturers are expected to take the following steps within the next 60 days:

• Extend the MFN price to every Medicaid patient.
• Contract with the United States to guarantee that Medicare, Medicaid, and commercial payers receive the MFN price for newly launched drugs. 
• Participate in DTC or direct-to-business (DTB) distribution models for high-volume, high-rebate prescription drugs so all Americans get the same low MFN prices that manufacturers already offer to third-party payers.
• Work with the US Trade Representative and Department of Commerce to repatriate increased foreign revenue in the form of lower drug prices for Americans. 

Many questions remain about the MFN policy. 

• What health programs and drugs are affected? 
  The executive order focused on making the MFN prices available to Medicare and Medicaid, while also having HHS facilitate DTC arrangements that could be available to any individual consumer who is willing to pay cash. The CEO letters appear to depart slightly from this formula. Manufacturers are required to make the MFP available for all applicable Medicaid claims. They must also agree to make the MFP price available at launch to Medicare, Medicaid, and commercial payers. Finally, the administration introduced a direct-to-business system without providing further information.
   
• What actions will the administration take to compel manufacturers to implement MFN prices? 
  The president promised manufacturers that, if they do not voluntarily lower drug prices by September 29, “we will deploy every tool in our arsenal to protect American families from continued abusive drug pricing practices.” The executive order pointed to actions the administration may take, including HHS rulemaking to impose MFN price targets, expanding the FDA’s wholesale drug importation program, pursuing enforcement actions against anti-competitive practices, modifying or revoking drug approvals, and levying retaliatory tariffs.
   
• Does the administration have the authority to do this? The executive order directs HHS to implement the MFN price through rulemaking if manufacturers don’t voluntarily lower their prices. HHS could seek to establish MFN payment models through the Centers for Medicare and Medicaid Innovation (CMMI). However, reimbursement mechanisms for federal healthcare programs are established by statute. HHS is barred from negotiating prices for most drugs under the Medicare program, except for drugs that have been selected under the Medicare Drug Negotiation Program. The administration would almost certainly face legal challenges arguing that it does not have the statutory authority to establish new payment models. 
   
• How does this interact with the Medicaid Drug Rebate Program? States are already offered the lowest prices in the country for covered outpatient drugs due to the Medicaid Drug Rebate Program. Would the MFN price replace the current rebate system with one where Medicaid pays lower upfront costs? With fewer rebate dollars, how will states offset costs in the rest of their Medicaid programs?
   
• How will the MFP interact with the 340B program? Like the Medicaid Drug Rebate Program, 340B covered entities are entitled to discounts on covered drugs. Under the program, manufacturers of brand medications must offer larger discounts, known as sub-ceiling prices, if the manufacturer’s best price for a drug is lower than its Average Manufacturer Price (AMP) minus 23.1%. Given the disparity between brand medication prices in the US and comparator countries, it’s reasonable to assume that brand manufacturers will be required to offer significant discounts to Medicaid. Will the Trump administration carve out MFN prices from the calculation of 340B discounts?
   

• How does the MFN price interact with tariffs? On July 27, President Trump announced a trade deal with the European Union (EU) that places a 15% tariff on pharmaceutical imports. EU countries are a major manufacturing hub for many of the brand drugs subject to MFN price targets. Other tariffs levied on countries like India and China will impact active pharmaceutical ingredients and raw materials that are key to producing medications. Will the administration condition lower tariffs on companies’ compliance with MFN pricing?

   

View Executive OrderView HHS Press Release
 

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