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Understanding the "Most Favored Nation" prescription drug pricing executive orders and where we are now

J.P. Carroll
J.P. Carroll
January 11, 2021

On December 29, 2020, a judge in the U.S. District Court for the Northern District of California issued an injunction that blocked the implementation of the “Most Favored Nation” drug reimbursement policy, which applies to some drugs administered by Medicare Part B providers. Ultimately this injunction is the result of the Biotechnology Innovation Organization (BIO), BIOCOM California, and the California Life Sciences Association (CLSA) having filed a challenge on December 4, 2020, against the Trump administration’s rule.

After the U.S. District Court for the Northern District of California issued the injunction, the U.S. Department of Justice on January 8, 2021, decided not to challenge it. However, HHS could reissue the rule for comment and then finalize that after responding to comments.

How we got here

To better understand this decision and its importance, it is necessary to look back on what led to this ruling.

In October 2018, the Trump administration announced that the U.S. Department of Health and Human Services (HHS) proposed a new Medicare prescription drug pricing model, an International Pricing Index (IPI), a form of drug price controls in which the prices of certain prescription drugs would be based on prices paid in certain other countries. The stated goal was to “bring down drug prices [for patients] and cut down on foreign freeriding.”

Then in July 2020, the Trump administration announced four executive orders related to prescription drug pricing. At the heart of these orders was a “Most Favored Nation” drug pricing scheme. Medicare Part B would try out a reimbursement model that would value prescription drugs at the lowest price available in any member country of the Organization for Economic Co-operation and Development (OECD), of which the United States is a member.

The scheme was more extreme than the International Pricing Index (IPI) proposed in 2018—closer to the foreign price controls in House Speaker Nancy Pelosi’s drug pricing bill (H.R. 3), which the president’s own economic advisers said would reduce pharmaceutical revenues by as much as $1 trillion over the next decade and lead to 100 fewer drugs due to less investment in R&D.

MFN Infographic

In November 2020, HHS announced it had finalized its proposal to act on the President’s executive orders and implement this new pricing model, set to take effect on January 1, 2021.

Advocacy organizations led by BIO took action through the courts.

The legal rationale

BIO’s take on the “Most Favored Nation” drug reimbursement scheme is that it is based on faulty economics, not grounded in law. According to BIO Vice President and Deputy General Counsel John Murphy III, this injunction was undoubtedly the right call.

Speaking in an interview, Murphy said in part that “the concept of foreign reference pricing misunderstands the dynamics of the U.S. market versus many foreign markets. We prioritize access and innovation in the United States whereas a lot of European countries deprioritize both of those things and as a result many patients in Europe and in Asian countries as well, have far less access to innovative medicine which is part of the reason why their prices tend to be lower, they don’t provide access.”

Looking back on the actions in October 2018, Murphy summarizes that period as one where public feedback “was mostly negative and nothing happened.” Moving forward to July 2020 when President Trump announced his executive orders, Murphy made it clear that he viewed a contributing factor to the timing of those policy announcements was political. “The President is gearing up for a very difficult election, there’s lots of political issues going on, so lo and behold the President issues an executive order,” he said.

However, nothing happened after the announcement insofar as any actual implementation of the July executive orders—until HHS “rushed out an interim final rule” in November on the “Most Favored Nation” pricing. “They [HHS] skipped the notice and comment [period], they skipped all of the rulemaking, and simply issued a final rule that brought about this Most Favored Nation pricing model,” said Murphy.

The Trump administration cited the COVID-19 pandemic as the driver for such urgent action to lower prescription drug prices. But, as Murphy explained, this model endangers the biopharmaceutical industry’s ability to conduct the very research needed to continue to innovate and defeat this pandemic through well-funded scientific research.

Where we go from here

Upon the injunction being issued, BIO President and CEO Dr. Michelle McMurry-Heath said:

“We are pleased with the court’s decision to grant a preliminary injunction on the president’s reckless scheme of foreign price controls on the very scientists working to end our current pandemic.

“Arbitrary government price setting creates unnecessary barriers for scientists and researchers ushering in the next generation of lifesaving cures, destroys the next generation of medical innovation, and eliminates hope for Americans desperately waiting for cures and treatments.”

As previously mentioned, the U.S. Department of Justice has decided not to challenge this injunction, but HHS could reissue the rule for comment and then finalize it upon receiving responses. Looking ahead, it remains to be seen what the Biden administration will do about prescription drug pricing—but for now, the regulatory environment is such that biopharmaceutical manufacturers and researchers are not limited in their work by the “Most Favored Nation” prescription drug pricing scheme.