President Donald Trump's executive order on May 12 instituting most-favored-nation (MFN) pricing of prescription drugs sought to ensure that Americans would pay no more than the lowest price charged in similar countries. Using an MFN model to set U.S. drug prices would have a
As pointed out in "Solving the U.S. Drug Conundrum," which I co-authored with my company co-founder Pascal Orliac, Americans suffer from
IQVIA Institute data shows that the American per capita
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These consequences also extend to the national healthcare budget. Following data from the same IQVIA Institute, U.S. total "payer net" drug spending in 2022 was $603 billion. If an MFN system had been applied to all medicines sold in the U.S. that year, total drug expenses would have ranged between $126 billion and $134 billion, an extraordinary saving of $469 billion to $477 billion. Those savings would have been as much as $4.7 to $4.8 trillion over the following decade!
But there is more to this story. Given that employer and employee-qualified contributions to health plans and healthcare expenses are deductible from taxable income, reducing drug prices would lead to higher taxable revenue, benefitting both state and federal budgets.
Based on a Congressional Budget Office report, the estimated cost of tax exclusion deductibility for employer-based coverage was $345 billion in 2023. The costs associated with medicines in Express Scripts plans, one of the Big Three pharmacy benefit managers (PBMs), at a 20% to 25% ratio, would have resulted in a corresponding tax exclusion deductibility of between $69 billion and $84.5 billion that year alone.
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Every developed country negotiates drug prices. The German, British and French systems are complex yet highly effective. Each of the three countries has spent years fine-tuning its system. There is no "free loading," only rigorous methods where pharmaceutical companies must prove the efficacy of their drug, which is then compared to other treatments. Depending on this examination, the drug is accepted or rejected and a price is negotiated or set.
President Trump's MFN is an external reference pricing system, which is the easiest and most commonly used by small countries. In the case of the U.S., it has two main advantages:
Its speed of technical implementation is likely less than six months. To choose the lowest price, one can easily access the data of "reference countries" available in public databases given that these countries would agree to disclose the "clawbacks" they impose on drug manufacturers when the annual spending budget is exceeded.
Another highly beneficial consequence of this executive order should be to render PBMs, with their numerous tricks, useless – increasing the resulting savings by hundreds of billions of dollars.
There are several other positive consequences for patients, their employers and government budgets, including the potential disappearance of the 340B program, which has been widely criticized for serving as a means for intermediaries to profit. Many specialists underscored the benefits of reducing the disheartening cost of complexity in the U.S. healthcare system, which will gain significantly in visibility and simplicity.
To reach this "holy grail," there are serious legal hurdles to overcome. As they did in 2017 and won, the Pharmaceutical Research and Manufacturers of America and pharma companies will sue the Trump administration over MFN pricing. In the current legal context, their case is still undoubtedly strong, and most specialists consider the executive order impossible to enforce without legislative reform.
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The Kaiser Family Foundation and others have shown that roughly 90% of Americans find drug prices unreasonable and are supportive of public action. Hence, bipartisan legislative support from Congress should be forthcoming if the public interest is the guiding motive for politicians.
If the United States were to adopt MFN drug pricing, provided that the results of qualitative analyses were retained and not just those related to drug prices, American patients, employers and governments would all greatly benefit in every way.
