On September 15, 2020, I posted an article in this blog entitled "Trump Embraces International Reference Pricing in Executive Order," which described an order in Trump's first administration to use most-favored-nation ("MFN") pricing as a limit on Medicare payment. The article ended with the following prediction: "Regardless of the fate of this Executive Order or the result of the upcoming election, this bipartisan concept will not go away soon." The MFN pricing concept did go away temporarily, but yesterday history repeated itself with a Trump Executive Order again embracing this concept – this time with a potentially broader scope.
Trump's earlier Executive Order resulted in a November 27, 2020 interim final rule, which provided that Medicare Part B payment for 50 annually selected high-cost drugs would be based on prices in foreign countries instead of average sales price. In the waning days of the first Trump administration, the implementation of the interim final rule was blocked by three different federal district courts, largely because of the lack of notice and comment rulemaking procedures. The rule was finally rescinded by the Biden Administration in December 2021. The concept of most favored nation pricing then mutated into a legislative proposal in the early versions of the Inflation Reduction Act's Medicare drug price negotiation program, but Congress eventually opted to use non-Federal Average Manufacture Price reported to the Department of Veterans Affairs instead of prices in foreign countries to set a cap on negotiated prices.
MFN pricing reemerged in yesterday's Executive Order, which goes well beyond the 2020 order. Whereas the previous order called for CMS to establish payment models under which Medicare Part B and Part D would pay no more than an international reference price, the new order makes no mention of Medicare or Medicaid. It sets forth the following three directives:
- HHS shall "facilitate" direct-to-consumer purchasing programs for pharmaceutical manufacturers that sell their products to American patients at the most-favored-nation ("MFN") price.
- Within 30 days (i.e., by June 11), HHS will communicate MFN price targets to pharmaceutical manufacturers to bring prices for patients in line with "comparably developed nations."
- If "significant progress" toward MFN pricing is not made following the communications in (2), HHS must propose a regulation to impose it.
These directives raise a multitude of questions. How will MFN targets be determined by HHS and for how many drugs? What will constitute "significant progress" toward MFN pricing that will avoid a regulation and when will that determination be made? What types of drugs are to be covered: brands, generics, biologics, biosimilars, or some combination? Would the direct-to-consumer pricing and MFN pricing be limited to Medicare and Medicaid beneficiaries or extend to all consumers regardless of payor? How many drugs would be subject to a direct-to-consumer pricing program and an MFN pricing rule? All drugs? Those with the greatest cost to Medicare and Medicaid? To American consumers in general? How would the drugs with highest cost be determined? All of these are in addition to more practical questions about how the MFN price will be determined in the first place, which countries will be considered "comparably developed nations," and how manufacturers would deliver MFN pricing to patients at the pharmacy counter under the direct-to-consumer program.
If significant progress toward MFN pricing is not delivered, the Executive Order also seeks to permit personal importation of less expensive drugs from foreign countries. Under Section 804(b) through (h) of the Federal Food, Drug, and Cosmetic Act ("FDC Act") and implementing FDA regulations at 21 C.F.R. Part 251, states and other entities are already permitted to develop a Section 804 Importation Program ("SIP") to import certain prescription drugs from Canada into the United States. (So far, only Florida has obtained FDA authorization to operate a SIP.)
However, besides authorizing the importation of less expensive drugs from Canada, Section 804 also authorizes FDA to grant to individuals, by regulation or on a case-by-case basis, waivers permitting importation of drugs from foreign countries for personal use. Section 804(j)(2)(B) requires FDA to publish guidance on when such personal use importation will be permitted. However, current FDA policy permits importation for personal use only when the drug is not available in the U.S. The new Executive Order directs FDA to "take action under section 804(j)(2)(B) . . . to describe circumstances under which personal use waivers will be consistently granted to import prescription drugs on a case-by-case basis from countries used to determine the most-favored-nation price," as described above. In other words, personal use importation would be expanded to situations where the drug is available domestically but is more expensive.
The Executive Order provides that, in order for FDA to take such action, HHS must first certify to Congress that expanded personal importation will pose no additional risk to public health and safety and will result in significant reduction in cost to American consumers. HHS previously made this certification with regard to importation of drugs from Canada, but importation from other countries would pose additional safety risks.
It is difficult to predict the impact of this Executive Order with so many questions unanswered. However, MFN pricing, whether offered in response to HHS's price targets or imposed by regulation, has the potential to cause a major shift in global drug pricing, as international companies seek to equalize prices in the U.S. and other developed countries. The size of this shift will depend on the scope of MFN pricing that emerges – the number of manufacturers affected, what types of drugs are covered, and how many drugs are covered – all of which are as yet unknown. Also unknown is whether, if a regulation is triggered, mandated MFN pricing would survive the inevitable constitutional and statutory challenges. We will keep readers posted on this important development as answers emerge.
Note to readers: An earlier version of this article, which was posted yesterday (May 12), referred to a 180-day period following HHS's communication of target prices to pharmaceutical manufacturers during which manufacturers must make "significant progress" toward MFN pricing in order to avoid a regulation. The final Executive Order did not provide for a 180-day period, instead leaving indefinite the period during which "significant progress" must be made. That correction has been made in the above article.
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