President Donald Trump, accompanied by Health and Human Services Secretary Robert F. Kennedy Jr., … More
Since President Trump issued an executive order in May that he claimed would lower prescription drug prices in the United States “almost immediately by 30% to 80%,” the administration has released no details regarding how the “most favored nation” plan would be implemented. Such particulars may never emerge and without them a most favored nation model is likely a non-starter.
The president’s order aspires to implement a model known as most favored nation that ties the prices of prescription medicines in the U.S. to the lowest found among comparably wealthy nations. But even pharmaceutical executives, who represent the stakeholder most affected by the order, say the administration hasn’t yet furnished them with details. At a Goldman Sachs Global Healthcare Conference last month, several pharmaceutical company executives noted a lack of clarity from the Trump administration as to how the program would be implemented.
The only thing that’s been made public about the most favored nation model is that the lowest price will be selected among comparably wealthy nations with at least 60% of the U.S. gross domestic product per capita. Specifically, according to a press release issued by the White House in late May, President Trump expects drug manufacturers to commit to “aligning the prices of branded products” with the “lowest price of a set of economic peer countries.”
However, this only indicates who the comparator nations are. It doesn’t list actual most favored nation price targets, which the executive order had promised HHS Secretary Robert F. Kennedy Jr. would “communicate to pharmaceutical manufacturers to bring prices for American patients in line with comparably developed nations.” It also doesn’t say whether calculations would account for differences in purchasing power between nations, not just GDP per capita. For a meaningful comparison, one needs to know how much a country’s currency can buy in terms of goods and services.
If not the federal government, then perhaps drug companies themselves could calculate the price targets. But this raises questions about which types of prices they’d use, publicly available list or proprietary net prices. If the latter, it’s unclear whether this would violate contractual obligations.
And it gets much more complicated for pharmaceutical firms. In calculating prescription drug price comparisons, simply computing the differences between prices isn’t sufficient. Utilization disparities between nations must be weighted to yield an accurate, commensurate calculation. And differences in dosing and formulation must be accounted for.
Since the executive order is to apply to branded medicines that do not currently have generic or biosimilar competition, it’s unknown what to do if a particular drug doesn’t have such competition in the U.S. but has generic or biosimilar competition in the most favored nation. This is a typical phenomenon among relatively high-cost biologics like the rheumatoid arthritis drug, Enbrel, and its referenced biosimilars which have been on the market across Europe for years and yet won’t be in the U.S. until the end of this decade.
Finally, the substantial differences in timing of approvals and launches of prescription drugs across countries make it hard if not impossible to create an international price index. Many recently approved branded medicines in the U.S. haven’t yet been approved in other peer countries, let alone had their price determined by a government authority.
The executive order’s lack of details extends to the direct-to-consumer platform that it says would be established, through which American patients could buy their drugs directly from manufacturers who sell to Americans at the most favored nation price. HHS Secretary Kennedy was instructed to assist in creating such a mechanism. But how this would work remains a mystery to executives in the industry. Moreover, most drug companies aren’t accustomed to selling their products directly to patients. And so, it would be quite an endeavor to build a platform from scratch.
In the executive order, the president says that following the calculation of target prices, if drug companies don’t doesn’t voluntarily reduce prices the administration would “propose a rulemaking plan to impose most-favored-nation pricing.” But the document doesn’t disclose how—through which policy vehicle—the administration intends to pursue a rulemaking plan.
One possibility is pursuit of a so-called demonstration project in the Medicare program. The executive branch has broad latitude to set up demonstration or pilot projects as it sees fit, under the authority granted the Center for Medicare and Medicaid Innovation by the Affordable Care Act. Here, CMMI’s purpose is to test novel payment methods as well as care models, with the dual aim of lowering healthcare costs and improving the quality of care delivered to patients.
But past experience shows the considerable limitations to what CMMI has been able to accomplish. There have been dozens of models proposed since the founding of CMMI. However, some of the proposed models, including ones on international price referencing, never got tested. And the majority of models that did get implemented failed to yield cost savings. Indeed, thus far only two have been made a permanent part of a public program: A diabetes and an accountable care organization demonstration project became permanent fixtures in Medicare. Most models ultimately get canceled, including recently a value-based insurance design initiative in Medicare Advantage.
There are also logistical questions around the pursuit of a CMMI model for most favored nation drug pricing that need to be clarified. Would it be a voluntary or mandatory model? Until now, the vast majority of CMMI projects have been voluntary. The question becomes would healthcare providers in the so-called buy-and-bill space want to volunteer to participate in a system in which they potentially could get reimbursed less than the price at which they purchased products. If a most favored nation demonstration project were to be mandatory, this could lead to court challenges from physician groups in addition to the pharmaceutical industry.
And then there’s the issue of what the timeframe would be. Originally, the first Trump administration laid out a five-year period of gradual conversion towards an international price index that constituted a blend of U.S. and overseas prices. It appears that the second administration is far less patient and wants to achieve results as soon as possible.
In announcing the most favored nation plan, President Trump posted on his social media platform in May that the prices of prescription medicines would fall “almost immediately” from 30% to 80% off of their current levels. But at this point in time, it’s unknown how this would be achieved and whether the logistical and legal challenges could be overcome.
