Trump May Explore Most Favored Nation Model To Lower Drug Prices

Forbes

03-05-2025

The Trump administration may resurrect a prescription drug pricing initiative, the most favored ... More nation model, which would peg U.S. prices of certain medications to the prices paid in peer countries.
The Trump administration may resurrect a most favored nation model which would peg what healthcare providers get paid for certain medications in the Medicare program in the United States to prices in peer countries. It's unknown which prescription drugs could be targeted or whether such a model could be implemented through executive or legislative action. Should it be pursued, it would face considerable challenges in terms of implementation.
At the beginning of the year, I cited an interesting nugget posted by Fierce Pharma, which suggested that a most favored model could be revisited by the then incoming Trump administration. Eli Lilly CEO David Ricks had met with then President-elect Trump and pointed to the possibility of raising pharmaceutical prices in other wealthy nations as a key strategy to offset potential reductions in prices in the U.S. This seemed to hint that international price referencing for certain prescription drugs could be on the table during the second Trump administration, specifically a most favored nations model that would pay (reimburse healthcare providers) no more for high-cost physician-administered drugs than the lowest price drug manufacturers receive in other countries with similar gross domestic product per capita, adjusted for purchasing power.
In 2018 and 2020, the Department of Health and Human Services proposed different methods to reduce Medicare prescription drug spending in the U.S. by tying prices of physician-administered drugs to those in other comparably wealthy countries. This effort was blocked in the courts. Nevertheless, Reuters reported last week that the Trump administration is again weighing the policy. There are several options that may be considered.
Under an Affordable Care Act provision, the Centers for Medicare and Medicaid Services have the authority to test payment models through demonstration or pilot projects. In this context, the Center for Medicare and Medicaid Innovation—also known as the 'Innovation Center'—is authorized under the ACA to design, implement and test novel healthcare payment models to address growing concerns about rising costs, quality of care and inefficient spending.
In lieu of an executive order that instructs the Innovation Center to pursue international price referencing in Medicare, legislators could pass a separate law. Or, the administration may try and leverage the existing Inflation Reduction Act, which already allows for drug price negotiations, except with a set of parameters and rules that does not include international benchmarks.
These executive and legislative branch policy options would face formidable logistical and potential legal challenges. For one thing, what to do with prescription drugs that are approved in the U.S. by the Food and Drug Administration, but either haven't (yet) been granted marketing authorization in reference nations or are not (yet) reimbursed (and therefore lacking an ex-U.S. price). There is also an issue that arises when countries don't post what they pay for drugs on a net basis.
Courts could intervene to block the federal government from doing something unprecedented in the U.S.: Setting prices based on international benchmarks, which rely on price controls. Using such references could violate the Commerce Clause contained in the U.S. Constitution.
Should, however, international price referencing be implemented in some way, shape or form, drugmakers may react by delaying launches outside of the U.S. or withdraw their products altogether in certain countries. Alternatively, they could respond to the imposition of lower U.S. prices by attempting to re-negotiate contracts with reference countries to increase ex-U.S. prices. In fact, in a letter published by the Financial Times in April, CEOs of pharmaceutical firms urged the European Union to 'fairly reward innovation' with higher drug prices. But this would be very difficult to achieve, given the severe budgetary and legal constraints across Europe with respect to the prices of medicines. In addition, European systems of healthcare must contain costs to guarantee the sustainability of universal access to pharmaceuticals, which are often free for patients (or with nominal charges) at the pharmacy counter. Allowing for higher prices could undermine this objective.
Capping what is paid or reimbursed to healthcare providers based on an international price referencing system would probably result in lower net prices than have thus far been achieved in IRA price negotiations. Politico reported last year that the Congressional Budget Office issued a report in which a most favored nation model would in fact yield comparatively sizable cost savings for the Medicare program. Nonetheless, if the Trump administration revives a most favored nation model it would be confronted with logistical and possible legal challenges that may be hard to overcome.