Trump’s Executive Order To Lower Drug Prices Lacks Crucial Details

According to a press release issued by the White House in late May, President Trump expects drug manufacturers to commit to “aligning the prices of branded products” with the “lowest price of a set of economic peer countries.” The so-called most favored nation target price is the lowest in an Organization for Economic Cooperation and Development country with a Gross Domestic Product per capita of at least 60% of the United States. The memorandum, however, provides no details on actual price targets. These will likely prove difficult to calculate for a variety of reasons, including differences in timing of approval and pricing of pharmaceutical products by the respective regulatory authorities, as well as disparities in dosing and formulation. The document also doesn’t disclose how, through which policy vehicle, the administration intends to pursue a rulemaking plan to implement MFN.

Trump issued an executive order last month that says the U.S. “will pay the same price as the Nation that pays the lowest price anywhere in the World.” This MFN model would pay (reimburse healthcare providers) no more than the lowest price drug manufacturers receive in peer nations. The president posted on his social media platform that drug prices would fall “almost immediately” from 30% to 80% off of their current levels. But numerous logistical and legal challenges loom.

The order says that within a month, the Secretary of Health and Human Services will “communicate most-favored-nation price targets to pharmaceutical manufacturers to bring prices for American patients in line with comparably developed nations.” While the choice of a 60% of GDP per capita level cutoff is clear, there’s the question whether purchasing power parity will then be calculated. This is a way to compare the cost of living in different countries and is considered a rule of thumb in making price comparisons.

Also, given the differences in timing of launches of drugs across countries, price setting by reimbursement authorities and dosing and formulation, it may be extraordinarily hard to create a commensurate price index between the U.S. and its peers, one that is weighted appropriately for differences in utilization. And locating proprietary net prices will prove difficult in many international jurisdictions. Presumably, experts at HHS will be in charge. But after cuts at HHS, the Office of the Assistant Secretary for Planning and Evaluation group is no longer employed to help with such analyses.

This applies to branded medicines that do not currently have generic or biosimilar competition. But what if a particular drug doesn’t have generic or biosimilar competition here (and is therefore included) but has generic or biosimilar competition the most favored nation.

In the executive order, the president says that following the calculation of target prices, if the drug industry doesn’t voluntarily reduce prices the administration would “propose a rulemaking plan to impose most-favored-nation pricing.”

The executive branch has broad latitude to set up a demonstration project as it sees fit, under the authority granted the Center for Medicare and Medicaid Innovation by the Affordable Care Act. CMMI can test novel payment methods as well as care models, with the dual aim of lowering costs and improving the quality of healthcare. But past experience shows limitations to what CMMI has been able to accomplish.

There have been dozens of models proposed since the founding of CMMI. Some of the proposed models, including ones on international price referencing, never got tested. The majority of models that did get implemented failed to yield cost savings. And thus far, only two have been made a permanent part of a public program: a diabetes and accountable care organization demonstration project became a permanent fixture in Medicare. However, most models have been canceled, including recently a value-based insurance design initiative in Medicare Advantage which the Biden administration nixed in Jan.

There are certain logistical questions around the pursuit of a CMMI model for MFN drug pricing that need to be clarified. Would it be a voluntary or mandatory model? Until now, the vast majority of CMMI projects have been voluntary. The question becomes would healthcare providers go along with a system in which they get reimbursed less than the price at which they purchased products. This could potentially lead to court challenges from physician groups, in addition to the pharmaceutical industry. And then there’s the issue of what the timeframe would be. Originally, the first Trump administration laid out a five year period of gradual conversion towards an international price index that constitutes a blend of U.S. and overseas prices. It appears that the second administration is less patient and wants to achieve results as soon as possible.

Aside from the logistical and legal issues, executive orders and CMMI demonstration projects haven’t proven to be an expedient way of bringing about changes in drug pricing. It would seem that for a more permanent and comprehensive policy, congressional approval would be necessary. Whether that’s attainable remains to be seen.