MFN Executive Order Update

July 31 was a busy day for the pharma community: in addition to HRSA announcing the 340B rebate pilot program, the Trump Administration followed up on their May 12th executive order regarding Most-Favored-Nation (MFN) pricing. The President sent letters to 17 manufacturers:

The letters stated that the voluntary reductions proposed to date were not sufficient and requested that the manufacturers make further reductions. Specifically, the administration demanded that:

• Manufacturers provide MFN prices to every single Medicaid patient for all drugs in their product portfolio.
• Manufacturers guarantee all newly approved drugs be offered to Medicaid, Medicare and commercial payers at the lowest price.
• Manufacturers participate in or develop a direct-to-consumer or direct-to-business strategy for “high volume, high rebate drugs” to ensure MFN prices equals those already offered to commercial payers.
• Manufacturers repatriate overseas revenues to lower drug pricing to US patients.

Initial Thoughts

Despite there being only four bulleted requests in the letter, there is a tremendous amount to unpack. Below, I focus on three areas that will likely impact most manufacturers.

1. The demands in the letter do not create consistent treatment across Medicaid or Medicare, let alone commercial (more on that below). For example, why is the Most Favored Nation (MFN) pricing approach currently limited to Medicaid? Has there been consideration of the removal of the AMP cap under H.R. 1319, which can result in rebates exceeding 100% of AMP? Has there been an analysis comparing typical out-of-pocket costs for Medicaid beneficiaries — typically between $4 and $8 per prescription — with those of Medicare beneficiaries, who frequently face coinsurance requirements due to PBM formulary design? I highlight these questions because the original MFN executive order as well as the follow-up letters create an almost impossible scenario for manufacturers. To comply, manufacturers will have to develop a singular price for all books of business that have different rules and treatments. Outside of formal rulemaking, manufacturers will have to evaluate where their products are positioned in each one of these payer groups and how their specific commercial contracting strategies are impacting the government books of business. Depending on the interactions, you could have decisions that impact Medicaid due to the AMP calculation but do not have the same impact on Medicare due to ASP.


2. The second area of focus is the introduction and alignment of commercial payers with government payers. Pharmaceutical Care Management Association (PCMA), the trade association representing Pharmacy Benefit Managers (PBMs), promptly posted a statement in support of lowering drug prices and did not take any responsibility for their role in high drug prices or patient drug costs. PBMs could easily reduce the cost of drugs to patients by implementing a lower copay cost (versus the current coinsurance mechanism). Since that has not happened, it seems like the current letter is expecting manufacturers to handle commercial pricing. There is no mechanism, nor would the manufacturers want a mechanism, to control PBM pricing. The only somewhat practical solution here would be for manufacturers to disclose commercial rebate rates being received by PBMs; however, this would be a huge amount of proprietary and competitive information to share. I do not think manufacturers will be factoring in MFN to commercial payers any time in the near future.


3. Finally, manufacturers should identify gaps in their organizational structure and how they will navigate a rapidly changing regulatory landscape that may not be geared towards their organization. Between these MFN letters and the Inflation Reduction Act’s establishment of the Maximum Fair Price (MFP), it appears the government is targeting the top drug manufacturers (through the drugs with highest spend) in the US and directing legislation towards their portfolios and operational capabilities. It is going to be very important for manufacturers with smaller portfolios and teams to make assumptions on how they would navigate any potential legislation with their current resources. Many manufacturers should start now in developing analytics and market assessments as well as engaging counsel to help assess the risk of having to comply with expensive and onerous initiatives.

As you start to navigate cost assumptions, my starting recommendation is to create, calculate and archive your “cost to market”. A manufacturer will need to capture all of the costs to distribute product, the costs to ensure that patients have access to the product, as well as all of the operational costs to develop and market those products. Ultimately, your launch and ongoing pricing strategy should integrate these metrics, in addition to supporting your MFN assumptions.

Next Steps

Based on the current legislative landscape, we recommend manufacturers to focus on these areas:

1. Assess your exposure to MFN – the current request from the letter is to extend MFN to Medicaid for your entire portfolio. The first step to achieve this is to calculate your products net price to Medicaid, generally WAC less your Medicaid rebate. During this step you should develop assumptions around stacking your distribution costs. The second step is to obtain your MFN pricing from the reference countries. This will be a cross-functional project for most manufacturers, and may require engaging with overseas distribution partners. Similar to the first step, you will most likely need to develop assumptions in aligning the MFN pricing to the Medicaid pricing. The final step will be to identify which products have exposure, and begin calculating the potential financial impact.


2. Evaluate the avenues for direct-to-consumer or business contracting – the first step I recommend is to analyze your drug’s customer mix. You should determine how much of the product's volume is government and commercial. Once you identify your commercial business, you can evaluate the types of contracts that are in place. After you have aggregated and grouped your contracts, you can move to the next phase, which would entail identifying which products could potentially go direct-to-consumer versus those that would go direct-to-business. The final step here would be to evaluate contractual targets to potentially implement and build out your direct channel(s).


3. Determine your organization's exposure and continue to monitor guidance – there are numerous items here that would typically require formal legislation, and the guidance from the current administration does not provide definitive details on how to implement any of the requests. We recommend that you connect with your senior management as well as internal or external counsel to determine the likelihood of implementation of the letter's demands. Once you have an organizational risk assessment, you can move into your next phase of monitoring guidance and evaluating triggers that would drive you to begin operational implementation.

All the above steps are going to require a significant investment in time and money for manufacturers, and may require consulting with external resources. If you have any questions or would like help in planning out how to address these next steps, please reach out.

Published on Aug. 22, 2025 by Scott Hoffman

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