Most-Favored-Nation Executive Order
On May 12th the Trump administration released an executive order titled Delivering Most-Favored-Nation Prescription Drug Pricing to American Patients. Subsequently, the HHS issued a press release on May 20th with additional clarifications to the executive order. The ultimate goal of these releases was to inform manufacturers that the current administration intends to add international most-favored-nation pricing for US patients within the next 30 days. The concept of most-favored-nation pricing is a consistent trend from proposed legislation from the first Trump administration. Below is a high-level summary of the current landscape as well as our thoughts and proposed actions manufacturers can take to ensure informed future decisions.
Background & Overview
The most-favored-nation prescription drug pricing executive order continued the recent trend proposing the use of international reference pricing to determine the pricing of products under Medicaid and Medicare. The order states that the current administration will utilize drug pricing from countries that have a GDP of at least 60% of US GDP to determine US pricing. This reference point would be applied to all branded drugs that do not have generic or biosimilar equivalents. For reference, the countries with a GDP per capita of at least 60% of the US include:
| Australia | Austria | Belgium | Canada |
| Denmark | Finland | Germany | Hong Kong SAR |
| Iceland | Ireland | Israel | Luxembourg |
| Macao SAR | Netherlands | New Zealand | Norway |
| Qatar | Singapore | Sweden | Switzerland |
| United Kingdom | United Arab Emirates |
In the event the administration does not make “significant progress” on pricing, they will potentially evaluate a series of steps against manufacturers including, but not limited to:
- Proposed most-favored-nation drug price rulemaking,
- Certification of importation of certain drugs from developed nations with low-cost prescription drugs,
- Any necessary actions regarding the export of pharmaceutical drugs,
- Potential revocation of FDA approval for drugs deemed unsafe, ineffective or improperly marketed.
The executive order and release from HHS are light on operational details and are missing key definitions that are traditionally included in formal rulemaking. This leaves manufacturers to speculate on the actual mechanism that would be utilized to effectively “lower” the drug prices.
One last note on the executive order. Outside of the most-favored-nation pricing, there is a clause that states the current HHS will establish a direct-to-consumer channel for manufacturers implementing the pricing initiatives. This is a very complex proposal but not novel in pharma market access. The operational specifics, as well as how consumers would be able to access the channel, are unclear.
Assessment & Questions
With any early or proposed legislation, the key is to assess the broad framework of the guidance prior to jumping into the operational details. In regard to the MFN concept, this is not the first time it has come up, nor is it the first time the administration has proposed this type of “solution” to drug pricing. The current proposal does not include any guidance for immediate action. The executive order states that if significant progress is not made, there would need to be a rulemaking phase. In regard to the rulemaking, there are ways the current administration could accelerate the timing around rulemaking (traditionally 2+ years in this space) in the event it is deemed an “emergency”, but the likelihood is slim. With this background established, we can now dig into the challenges MFN presents.
There are clear gaps in the logic of applying international MFN pricing to US pharmaceutical pricing. The largest gap is that the US and foreign payer and insurance systems are fundamentally different. The closest US analog I can draw to many international countries would be Kaiser (commercial) or the Federal Supply Schedule (government). In both of these instances the negotiating or contracting entity maintains a level of control over the drug purchasing, drug formulary position, physician prescribing and drug dispensing. Effectively, each of these organizations eliminates the PBM (the publicly held, for-profit PBM) influence over patient access to product. If you were to compare the prices these patients pay for drugs in the US to other US channels you would see the numbers differ significantly.
Another challenge with the MFN concept is the misalignment with the stated goal. The executive order is stated to “lower drug prices for US patients”, yet the mechanics are disconnected from how product flows through the channel in the US as well as the drivers for patient cost. To illustrate this, we can look at the differences between Medicaid and Medicare Part D structures and patient out of pocket costs. Patients with Medicaid have a fixed amount of copay or out of pocket costs, on average between $4 and $8. If we look at Medicare Part D, we will see that close to 80% of plans are utilizing coinsurance where the patient has to share in the cost of the drug despite the PBM receiving rebates. The MFN order does not lower the costs for Medicare Part D patients, while simply implementing a Medicaid-like copay cap for Medicare Part D patients would.
Lastly, the current executive order is very light on implementation and operational details, which forces manufacturers to draw parallels from other legislation, such as the IRA and the first round of drug negotiations with manufacturers. Based on this, the initial 30 day timing appears optimistic at best, as the IRA took roughly 2 years to implement, and that for negotiations for only 10-15 drugs annually. To target every drug in the US would leave us to assume HHS/CMS would need significantly more time. Another area lacking detail is any possible exclusion criteria for drugs. What happens if the manufacturer does not have international distribution? What if the Medicaid and Medicare pricing is lower than the pricing offered internationally? Based on the IRA, we know that the government was evaluating spend and other factors -- will those be implemented here?
Action Items
Based on the available guidance, and accounting for some of the current questions, these are the things that you can do to prepare and assess the potential impact.
- Determine your exposure to international reference pricing – this is a cross functional exercise where you will identify the net pricing with your international counterparts. The first step will be to determine if you currently sell in any of the identified markets. Once that step is complete, you can move on to define the price in each market. Does the market use a “list price” like WAC? Does the market utilize a “net price” like a contract price? What is the transfer price to the country? Lastly, after the pricing in each country is established, you can determine the value of the sales into the specific country for your drug. Having the answers to these types of questions will frame up your decisions when/if operational details are released by the administration.
- Evaluate your international licensing – based on the licensing partners you work with ex-US, determine if you have a contractual mechanism to adjust the price they charge. In the event the contract does not have a mechanism to adjust pricing, you can determine whether you have a termination option or the ability to renegotiate the country-specific distribution agreement.
- Calculate your potential US exposure – once you've gathered the international pricing information, you can evaluate the cost of a WAC reduction. It is unlikely this would be required, but this would be the ceiling of any potential impact. Then, you can evaluate the impact to your government books of business, specifically Medicaid and Medicare. These are the most likely channels to be impacted by any MFN language in the future, as they are federally controlled. When conducting this modeling, you will need to leverage the data specific to your drugs, distribution, and the contracts in place. Models like this should include volume adjustments, pricing adjustments as well as mix changes depending on your customer base.
When it comes to proposed legislation, you should always be prepared to connect with your internal or external counsel to determine the legal risk of this being implemented, and if your understanding or proposed actions are recommended.
Latest Update
To date there have been no public updates on the implementation of the most favored nation pricing. The lack of current updates by the initial deadline does not mean that this is “over”, and manufacturers should continue to monitor their information channels for updates. It is possible the administration has made “significant progress” in negotiations behind the scenes, or they could be drafting more formal guidance. I anticipate that most manufacturers will not voluntarily reduce pricing and will file legal responses as this is an executive order and there is precedent established by the first administration where this proposal was rejected. As updates are published we will update this space.
Should you have any questions please feel free to reach out, and we will be happy to support you.
Published on July 28, 2025 by Scott Hoffman