Trump delivers on MFN with far-reaching Medicare and Medicaid models
President Donald Trump issued an executive order early on in Trump 47 that set the course for most-favored-nation (MFN) pricing for drugs in America. He tried to do this in a small way in Trump 45, but the Biden administration pulled back on it. In part, it was not well thought out, and it came out at the tail end of his first administration.
Since the executive order, Trump notched drug price deals with 16 of the 17 top brand drug makers. The drug makers said they would grant MFN pricing in Medicaid for all drugs and would introduce new drugs at MFN prices in America. He also got lower self-pay prices. Now, with an announcement just before Christmas, he has delivered further on his promise by announcing three new models that officially move toward MFN pricing in America. The proposals here for models to test MFN are much more thorough. At least for now, MFN is limited to Medicare and Medicaid, but they represent a seismic change for drug policy in America.
MFN essentially ties prices in America to the prices paid by other developed countries. I would note that federal and state supplemental rebates in Medicaid are already very generous, meaning MFN in Medicaid may not amount to much if any savings.
Here are the specifics on the models:
The GENErating cost Reductions fOr U.S. Medicaid Model, or GENEROUS model, would establish MFN in Medicaid. GENEROUS would run in Medicaid from calendar years 2026 to 2030. It will cover all drugs in Medicaid and all populations in states that participate and for drugs of participating brand manufacturers. The MFN is based on eight developed-world countries’ prices. The MFN price in America will be the second lowest country-specific manufacturer-reported net price, adjusted by gross domestic product per capita at purchasing power parity. Without getting into too much detail, the adjustment seeks to recognize differences in standards of living and purchasing power of different currencies from country to country. So, the final MFN price will not exactly equal those of other countries. Drugs that are part of the model will have standardized coverage criteria in all state Medicaid programs that participate.
The Global Benchmark for Efficient Drug Pricing Model, or GLOBE Model, will cover Part B drugs. It is mandatory for drug makers participating in Medicare Part B. The model will run from October 1, 2026 to September 30, 2031, with rebate invoicing and reconciliation continuing into 2033. The model will cover about 25% of all Medicare beneficiaries using Part B drugs (mainly cancer drugs and physician-administered or infused drugs). Only certain drugs are covered from seven USP therapeutic categories. It excludes drugs with annual Part B spending below $100 million and drugs subject to CMS-negotiated maximum fair prices. Most importantly, the 20% cost-sharing in both traditional Medicare fee-for-service (FFS) and Medicare Advantage (MA) will be based on the final net cost post rebates. This is a huge victory for embattled consumers with cancer and other high-cost drugs. The agency estimates that the Part B model will save $11.9 billion in net spending over seven years.
The Guarding U.S. Medicare Against Rising Drug Costs Model, or GUARD Model, would cover Part D drugs. It is mandatory for drug makers participating in Part D. The model will run from January 1, 2027 to December 31, 2031, with rebate invoicing and reconciliation continuing into 2033. The model will cover about 25% of all Medicare beneficiaries using Part D drugs (usually retail drugs picked up at the drug store). Only certain drugs in 17 USP therapeutic classes. It excludes drugs with annual Part D spending below $69 million and drugs subject to CMS-negotiated maximum fair prices.
For both GLOBE and GUARD, there will be 19 developed-world countries on which the MFN pricing is based (the 8 in GENEROUS are a subset of the GLOBE/GUARD countries). MFN for these models will be the higher of two benchmarks:
- The first is using pricing data available to CMS from public and proprietary sources to determine the lowest per unit GDP (PPP) country level price. In essence, this is the lowest international price from commercially available data sources.
- The second is using pricing data calculated and voluntarily reported by eligible manufacturers to CMS to determine the across country volume-weighted average GDP (PPP) adjusted net price per HCPCS billing unit. In essence, this is the average international price.
Determining these prices is not well detailed, but the average international price is likely higher.
The MFN controversy
The announcement of MFN by President Trump has focused light on what the policy would do to innovation in the Big Pharma brand drug manufacturing sector.
What do proponents of MFN say in general. They argue that the rest of the free-world is “free-riding” on Americans, which pay the lion’s share of profits (some 70%) for Big Pharma due to excessively high prices for innovator drugs in America compared to what citizens in other developed countries pay. They say brand drug makers have the highest profit margins in the healthcare sector – often 20% per year – and are excessive. The arguments have merit. And the arguments seem to already be helping change things. The president has won at least one concession where prices in the UK now will rise on some drugs and some drug makers appear to be introducing higher prices in foreign markets anticipating a change in America’s approach. Some foreign countries are planning for greater budgets on brand drugs for future drugs as well. In proponents’ mind it is possible to give savings to Americans and force up prices somewhat abroad some on existing drugs and a great deal on future drugs.
What do opponents of MFN say in general. Opponents, including the brand makers, argue that innovation will be stifled under MFN as research and development (R&D) investment will evaporate if prices fall dramatically in the U.S. They also say it would be unfair to brand makers who have relied on American prices to recoup investment in innovation on existing drugs. As well, opponents argue that Americans have much broader access to innovator drugs than in other developed healthcare systems. I am not sure this is truly the case given high price is a major bar to access, but fair enough. Last, they argue it is very unlikely existing drug pricing will rise in other nations. They question as well how much that would occur on future drugs.
The retrospective and prospective application nuance
But there is a more nuanced debate on MFN as well. The arguments from proponents and opponents of MFN you just heard were on the MFN pricing concept in general – applying MFN in America to existing drugs as well as new ones in the future. The nuance: could there be a middle ground of prospective MFN (which would apply MFN only to future drugs to the market) but does not do so to existing ones (which would be retrospective MFN).
The conservative Paragon Institute, which holds great sway within the Trump administration, argues that a prospective (not retrospective) MFN strategy should be adopted. Paragon argues that applying MFN pricing retrospectively to drugs in the U.S. would likely not mean higher prices abroad (as current drug prices have already been negotiated) and innovation would plummet. As well, Paragon says an aggressive retrospective approach could cede future innovation research to China, which is not hobbled by free market dynamics.
Paragon argues prospective negotiations would mean higher prices in the future abroad and other developed countries picking up their fair share of innovation costs. This is because leverage between brand makers and foreign healthcare systems would suddenly exist – no access to novel drugs if the countries hold out for prices that are too low.
So what is Trump proposing?
So, what is the Trump administration proposing with all that has been announced. Well, it is confusing.
When Trump announced the results of his negotiations with over a dozen brand drug makers, the press releases spoke of America getting most-favored-nation (MFN) pricing on future drugs in Medicaid, Medicare, and apparently commercial coverage. That speaks to prospective MFN.
At the same time, those announcements also said Medicaid would receive MFN on existing drugs. That is retrospective MFN.
The announced GENEROUS model for Medicaid gives MFN on existing drugs – so again that is retrospective MFN, but it would also capture new drugs to the market as well in the five-year pilot – so prospective MFN too.
The GLOBE and GUARD models for Medicare gives MFN on exiting drugs too – so again retrospective MFN, but it would also capture new drugs to the market as well in the five-year pilot – so prospective MFN too.
As a proponent of the free market, I don’t totally dismiss the idea that innovation could be hampered. But I also know that Brand Pharma makes the highest margins of any healthcare entity and businesses tend to reinvent themselves when faced with existential change. Insurers saw this with minimum medical loss ratio mandates. Further, some of the innovation dollars spent are to protect margins and not game changing. And it has to be said that even if innovation suffered, lower price has the halo effect of getting needed drugs to many with chronic disease states. Today, some resort to splitting pills or going without, which has huge implications for their health.
That said, I see the possibility of a combination of prospective MFN to comprehensively reset the worldwide drug pricing table moving forward and phasing in MFN (perhaps over five to ten years) on existing drugs to tackle concerns on retrospective MFN. This could balance innovation fallout and needed relief for Americans.
In general, I hope the president continues down this course and implements all the far-reaching reforms he has proposed. We desperately need reform in all lines of business, including the employer world. Here is hoping the president puts together a coherent agenda for healthcare generally as well.
#drugpricing #irp #mfn #branddrugmakers
— Marc S. Ryan
