President Trump Issues Most Favored Nations EO
  • The EO directs the HHS Secretary to implement a demonstration in which Medicare pays no more than the lowest price in other OECD countries for drugs in Parts B and D.
  • The “most-favored-nation price” allows for flexibility to account for GDP and volume differences between countries.
  • A lengthy implementation process, likely fraught by litigation, awaits the MFN policy.
Earlier today, President Donald Trump issued an executive order (EO) to create a “most favored nations” (MFN) pricing system in Medicare. The EO directs the Secretary of Health and Human Services (HHS) to create a demonstration program through which Medicare would pay prices no higher than the lowest price in OECD countries. The HHS Secretary may implement the EO through a combination of rulemaking and a Center for Medicare and Medicaid Innovation (CMMI) demonstration, and the policy may face a long road to true adoption.
 
  • Background. In late July, President Trump announced four executive orders designed to lower drug prices. Three were released on July 24, with the final one, Lowering Drug Prices by Putting America First, was held pending negotiations between the White House and the pharmaceutical industry to find an alternative arrangement. Today’s EO rescinds that order, whose text was released today, and builds upon it by adding drugs in Part D as well as Part B. The administration started considering an international reference pricing scheme in late 2018, releasing an advance notice of proposed rulemaking (ANPRM), but was never followed by a formal proposed rule.
 
In a tweet prior to the release of the EO, President Trump said that he “Just signed a new Executive Order to LOWER DRUG PRICES! 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 and prices are coming down FAST!” This comes after over a month of back-and-forth between the administration and pharmaceutical companies, with the President signing the new order after failing to reach a deal.
 
It is unclear what the ultimate scope of the MFN policy will be. 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. The 2018 ANPRM, if implemented, would have included 50 percent of Medicare Part B spending and would have lasted for five years.
 
In addition, a possible rulemaking process and implementation could be protracted. Assuming the use of a notice of proposed rulemaking, the rule would be open for comment for 30 to 60 days (the 2018 ANPRM had a 60-day comment period). With 51 days to go until the 2020 presidential election, it is possible that the comment period will not be closed by election day, and rulemaking would likely not be final by the beginning of a second term for President Trump or the inauguration of former Vice President Joe Biden. Agencies can issue interim final rules, which go into effect without notice-and-comment; however, such exceptions are limited to agencies having “good cause” and the process being “impracticable, unnecessary, or contrary to the public interest.” In addition, the administration may use CMMI waiver authority to implement the EO, particularly for the Part B demonstration. The legality of the MFN payment scheme is also not known, and litigation could tie up the implementation of MFN for an extended period of time. 
 
Details on today’s executive order are below.
 
  • Most Favored Nation Price Definition — The MFN price means the lowest price in the OECD for a drug after adjusting for volume and differences in national gross domestic product (GDP). The adjustment for volume and GDP per capita appears to leave the door open for Medicare to pay higher prices than other countries. The EO states that it is the policy of the U.S. that Medicare should not pay more for drugs than the MFN 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.”

  • Part B — The EO directs the HHS Secretary to immediately take steps to implement a payment model demonstration under which Medicare would pay for certain high-cost pharmaceuticals in Part B using the MFN price. It is unclear what the full scope of these covered medications would be.

  • Part D — The EO directs the HHS Secretary to take steps to develop and implement a demonstration under which Medicare would pay no more than the MFN price for Part D pharmaceuticals “where insufficient competition exists and seniors are faced with prices above those in OECD member countries.” This appears to allow for flexibility in the scope of the Part D demonstration.