President Trump's May 12, 2025 Executive Orderput pharmaceutical companies on notice to lower the cost of drugs by September 29, 2025 or else face the consequences of an administration ready to "deploy every tool in our arsenal." The administration's argument is that U.S. consumers pay more than double, sometimes triple, what patients in other developed nations pay for the same drug.According to a fact sheet produced by the White House, the U.S. makes up less than 5% of the global population but pharmaceutical manufacturers collect about 75% of their profits from patients in the U.S. market.
Delays in the process of enforcing previous policies enacted
under executive order have led to staggered rollouts but in the
case of "Most Favored Nation" (MFN),the question remains
as to how the policy will be enforced, if at all. Despite the
challenges MFN faces, it is vital for companies in the healthcare
industry to anticipate the challenges MFN poses.
Implications of "Most Favored Nation"
Accessibility threats
If drug companies fail to comply with MFN, the U.S. government
could make changes to Medicare formularies (the lists of
pre-approved drugs that Medicare patients are eligible to receive
without additional authorization), modify the FDA drug approval
processes, or even revoke certain drug approvals entirely. The
proposed Fair Prescription Drug Prices for Americans Act (FPDP)
outlines civil monetary penalties (CMPs) that non-compliant
manufacturers would pay on a per-unit basis for covered drugs;
mainly drugs still under patent protection without generic
equivalents and alternatives. These potential penalties are
calculated by taking the difference between the actual retail price
per unit and the average retail price in developed nations, then
multiplying that by ten.
MFN could affect how much federal programs like Medicare and Medicaid pay for prescription drugs. Many U.S. government programs (from the Department of Defense to Medicare to the Veterans Affairs "VA" program) don't share the same price and rebate negotiation methods. Government pricing calculations are often complex, and need to consider several factors that impact millions of Americans.
Sales model disruptions
This Executive Order proposes (and encourages) the
direct-to-consumer (DTC) model, which is very different than the
current drug distribution and delivery system, where many pharmacy
benefit managers (PBMs) are involved in price negotiation. PBMs
have been under fire as the "middleman," and accused of
not passing along drug savings to the end consumer, thus keeping
drug prices high. However, how would the manufacturers affected
fulfill prescription requests direct from the consumer? Most are
not equipped to perform these tasks.
Global drug pricing shake up
A new pricing methodology begs the question of whether drug
companies can afford to take a cut in profits and still fund
development of new drugs at the current pace. It's possible
that they may try to negotiate higher prices in other countries to
"recover" lost profits from any MFN pricing-induced
shortfalls and raise the overall cost of drugs in all developed
countries. Additional developed countries paying similar prices to
the U.S. MFN could be disruptive, especially considering that other
nations are likely to have their own unique pricing
methodology.
Raising questions around place of manufacture and
marketing rights
MFN prices could affect whether certain products are made in a
U.S. facility or internationally. The government is offering tax
incentives to manufacturers for having facilities located in the
U.S; however, this is a middle-to-long-term solution as these
facilities would have to be built and operationalized first, since
pharmaceutical manufacturing is highly regulated. The myriad of
complications presented by MFN pricing is crystalized by questions
of propriety and ownership. Take, for instance, a company that owns
the marketing rights to a drug/biologic in the U.S. but has an IP
agreement that gives another company marketing rights outside the
U.S. (which allows that company to not only sell the product, but
also to determine the price). Does that mean the U.S. company is
beholden to a price about which they have no say?
The path forward
It remains to be seen whether the administration will be able to secure MFN enforcement through the False Claims Act, one of the most powerful civil enforcement mechanisms at the government's disposal. In the past, the False Claims Act has forced healthcare providers and life science products manufacturers to pay billions in fines and penalties, leveraging the a "Most Favored Nation" argument could be a new application of the FCA, assuming that MFN pricing is enacted. The administration recently announced the reformation of the False Claims Act Working Group, a cross-department task force that targets initiatives like healthcare fraud, which could be directed at non-compliance with MFN.
It isn't surprising there hasn't been enforcement action yet as the September 29 deadline has come and gone; however, as time passes the legality and practicality of this Executive Order will be challenged. Months, if not years, of delay are possible.
While many companies are taking a wait and see approach until the Executive Order is passed into law, there are ways companies can prepare to navigate this disruption. Companies should evaluate their global pricing strategies and see where they can find efficiencies. Operationally, firms may want to assess their manufacturing footprints, as reshoring production to the U.S. could shield them from looming tariffs and align with national security priorities. As more information becomes available, companies should stay informed on any emerging regulations and be proactive to ensure compliance.
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