Most Favored Nation (MFN) Returns: Global Price References Could Reshape U.S. Drug Pricing, Launch Strategy, Compliance, and Operations
It’s been about a month since the Trump Administration signed an Executive Order reviving the Most Favored Nation (MFN) concept and now the industry is facing what could be one of the most consequential pricing policy shifts in decades. While implementation details remain unclear, MFN aims to tie U.S. drug prices for branded pharmaceutical and biologic products to those in other countries (defined as OECD countries with a GDP per capita at least 60% of the U.S. GDP per capita). As outlined in the Executive Order Fact Sheet, it appears MFN efforts will be targeted toward Medicare and Medicaid – but no word yet on any impact to Commercial payers and prices.
As we await more details, we’re reflecting on our deep experience within the U.S. and Global Pricing & Contracting landscape to identify impact areas and pending questions we’re hoping to see addressed in the coming months as Health and Human Services (HHS) rolls out implementation plans.
What Price will MFN Represent? MFN raises a fundamental question, ‘how is the administration defining price’? Most countries ex-U.S. publish List Prices only and use one of them, mostly the ex-manufacturer Price, as the basis for reference. In the U.S., there is a continuum of prices such as Wholesale Acquisition Cost (WAC), Average Manufacturer Price (AMP), Best Price (BP), negotiated off-invoice discounts (e.g. Group Purchasing Organization (GPO) prices), and multiple layers of net pricing after rebates and fees. What impacts will manufacturers face if MFN is tied to U.S. List Price versus whether it’s tied to net price (and which one)? In an MFN:WAC scenario, manufacturers will need to forecast impacts to revenue not just in the Medicare and Medicaid channels, but upstream in commercial channels as well, since WAC is used as the price basis throughout commercial contracting. And traditionally, the commercial prices directly drive AMP, BP and other calculated government prices. Will those programs see updates as part of the MFN implementation? Or does Medicaid, for example get an even lower than MFN price if MFN:WAC sets a lower BP than the MFN itself? A complicated web for the administration to untangle in the forthcoming guidance.
Regulatory Cross-Program Overlaps To further complicate matters, MFN will likely not exist in isolation but rather overlap with existing programs like 340B and the Inflation Reduction Act’s Maximum Fair Price (MFP). In this world, a single product could be subject to MFP negotiation, extensive 340B utilization, and MFN ceiling price. A lower MFN price could cause significant impact to AMP or BP, resulting in downstream effects on Medicaid rebates and 340B ceiling prices. It begs the question if these dependencies are widely understood and the impacts intentional, or not. And if MFP is set above the MFN benchmark, which price governs Medicare? These programs currently operate under different rules – with the MFN implementation guidance, will existing programs also be updated by CMS to ensure manufacturers understand expectations and remain compliant?
Launch Sequence Shifts and Brand Strategy Plays MFN may disrupt how manufacturers plan to launch and sell their products globally. Will they rethink global launch sequencing? Typically, companies launch in the U.S. first and shortly after in ex-U.S. markets, by optimizing the launch sequence to maintain a high list price globally as long as possible. However, if the MFN comes into effect, will manufacturers generally delay the ex-U.S. market launches to protect higher U.S. prices for as long as possible? And how will the countries referencing the U.S. be impacted – will they change their reference rules and/or baskets? Also, how will that and the referenced OECD countries impact the launch sequence optimization altogether? Additionally, as manufacturers consider strategies to manage revenue erosion, is there a case for Authorized Generics becoming a viable tactic for segmenting the market while preserving branded value?
MFN and State Price Transparency MFN also calls into question the existing patchwork of state price transparency legislation. Today these bills primarily target WAC reporting, but if U.S. pricing becomes tied to ex-U.S. references, the visibility that state regulators aim to provide may be directly achieved via MFN and potentially to a greater degree of transparency for many products. What then becomes of the existing legislation? Does it get redefined with a narrower scope aimed at products or events that may not provide pricing transparency via MFN (e.g. product launch, rare disease)?
Cost Containment vs. Innovation MFN is intended to contain costs, but will there be an innovation trade off as a result? U.S. revenues often subsidize global R&D, especially for high-cost, high-risk therapies. If the U.S. is forced to set prices based on lower-income markets, how might future pipelines be impacted? And is there a case for innovation moving to other markets where there are more favorable pricing environments?
Organizational & Technology Alignment in a Post-MFN World And while maybe not as obvious as some of the points above, MFN will require manufacturers to re-evaluate the traditional separation between U.S. and ex-U.S. based Pricing & Contracting and Market Access teams. These groups will need to collaborate more closely to ensure consistent price setting and compliance, which will likely necessitate new operating models, governance structures, and technology capabilities.
MFN raises big questions with few clear answers…yet. Let’s discuss – which components above or additional areas are you and your teams closely tracking with respect to MFN? Feel free to reach out to anyone on the Marbls team or themarblsteam@marblsgroup.com for further insights and discussion on MFN or any other recent regulatory activity.