On September 13, 2020, United States President Donald Trump signed an Executive Order (EO) to create a “most favored nation” drug pricing system in Medicare. Under the EO, the Secretary of Health and Human Services (HHS) shall create a demonstration program through which Medicare would pay no more money for a drug than the lowest price in countries in the Organization for Economic Cooperation and Development (OECD).The HHS Secretary can use a combination of rulemaking and a Center for Medicare and Medicaid Innovation (CMMI) demonstration. It’s likely that this EO has a long road ahead before it is fully implemented.
This EO follows more than a month of back-and-forth conversations between the Trump Administration and industry, the EO being the result of a failure to reach an agreement.
Most Favored Nation Definition
The “most-favored-nation price” means the lowest price, after adjusting for volume and differences in national gross domestic product (GDP), for a pharmaceutical product that the manufacturer sells in any member country of the OECD that has a comparable per-capita GDP. This seems to leave the door open for Medicare to pay higher prices than other countries, based on other GDPs as they relate to America’s. The EO states that Medicare should not pay more for drugs than the most-favored-nation price and that Medicare “should insist on, at a minimum, the lowest price at which the manufacturer sells that drug to any other developed nation.”
The EO points the HHS Secretary to being taking steps to implement a rulemaking plan to test a payment model pursuant to which Medicare would pay “for certain high-cost prescription drugs and biological products covered by Medicare Part B, no more than the most-favored-nation price.” The model would be testing whether paying no more than the most-favored-nation price would reduce poor clinical outcomes and increased expenditures associated with high drug costs.
While it is unclear what the scope of the policy will be, in order to comply with Medicare statute, the policy will need to be implemented as a demonstration. Current law does not appear to allow the wholesale implementation of such a policy at this stage. Instead, HHS is likely to use waiver authority and rulemaking to create a demonstration. A lot of implementation details remain to be determined.
As he likes to do, President Trump announced his signing of the Executive Order on Twitter, saying “My Most Favored Nation order will ensure that our Country gets the same low price Big Pharma gives to other countries. The days of global freeriding at America’s expense are over…” followed by “…and prices are coming down FAST! Also just ended all rebates to middlemen, further reducing prices.”
PhRMA Reaction to the Executive Order
Stephen J. Ubl, President and CEO of Pharmaceutical Research and Manufacturers of America (PhRMA) released a statement on the Executive Order, not supporting this Executive Order, instead calling it “irresponsible and unworkable.” The entire statement is below.
“PhRMA is committed to working with all stakeholders, including elected officials across the ideological spectrum, to find market-based, competitive reforms to the challenges facing our health care system and patients. The focus of any reforms must be on lowering costs for patients, ensuring patients’ access to medicines, addressing the misaligned incentives in the pharmaceutical supply chain and protecting the critical work being done to end COVID-19. Unfortunately, instead of pursuing these reforms the White House has doubled down on a reckless attack on the very companies working around the clock to beat COVID-19.
The Administration has chosen to pursue the most favored nation policy – an irresponsible and unworkable policy that will give foreign governments a say in how America provides access to treatments and cures for seniors and people struggling with devastating diseases. What’s worse is that they are now expanding the policy to include medicines in both Medicare Part B and Part D, an overreach that further threatens America’s innovation leadership and puts access to medicines for tens of millions of seniors at risk. Rather than emulating countries that allow politicians to arbitrarily decide what medicines are worth and what diseases are worth investing in, we should use existing trade enforcement tools to prevent them from freeloading off American innovation.
We must not gamble on America’s need for continued medical progress, for a strong U.S. economy or on our ability to win the fight against the COVID-19 pandemic.”