Trump's US drug prices order: what is Most Favoured Nation status?

Amid ongoing concerns over high prescription drug prices, former US President Donald Trump signed an executive order intended to lower these costs. While the move was touted as a potentially historic intervention, experts remain uncertain about its specifics and the magnitude of its long-term impact on US drug prices.

Understanding High Drug Prices in the US

The United States features a multifaceted healthcare framework that includes a significant private insurance sector, employer subsidies, and government-funded programs like Medicare and Medicaid for elderly and low-income populations.

Conversely, numerous developed nations employ more centralized systems, empowering officials to negotiate comprehensive drug pricing and, at times, decline purchases if costs are deemed excessive.

A 2021 report by the US Government Accounting Office compared the US to Australia, Canada, and France, revealing that prescription medications were, on average, two to four times more costly in the United States.

Politicians from across the US political spectrum have targeted these costs. During the White House announcement, it was noted that drug prices have been a recurring concern for both Democrats and past presidential campaigns.

Both President Trump and former President Joe Biden previously addressed the issue, particularly the affordability of critical medications like insulin, yet US prices have largely remained elevated.

Speaking at the White House, Trump and his health officials attributed the limited progress to substantial pharmaceutical lobbying and significant campaign contributions to members of Congress.

“The drug lobby is the strongest lobby,” Trump stated. “But starting today, the United States will no longer subsidize the healthcare of foreign countries, which is what we were doing.”

It is noteworthy that trade tariffs, frequently employed as a negotiating tactic, could potentially amplify expenses. Trump has suggested imposing taxes on medications imported into the US.

Details of Trump’s Executive Order on Drug Prices

Trump’s executive order aimed to broadly reduce prescription drug costs. However, many operational details still needed to be defined. Key aspects of the order included:

• Directing US officials to ensure that international drug pricing agreements do not lead to “unreasonable or discriminatory” cost increases for Americans.
• Encouraging drug manufacturers to sell directly to consumers, bypassing insurance companies and pharmacy benefit managers.
• Exploring the importation of medications from foreign countries where they are sold at reduced rates.

An official indicated that Monday’s order marked the commencement of talks between the US Department of Health and Human Services (HHS) and the pharmaceutical industry.

Most Favored Nation Status: An Overview

The executive order also proposed granting the US Most Favored Nation (MFN) status. Under this arrangement, drug manufacturers would be required to match the lowest international price for a drug when selling it within the United States.

“Big pharma will either abide by this principle voluntarily, or we’ll use the power of the federal government to ensure that we are paying the same price as other countries,” Trump stated.

The precise mechanisms for enforcing compliance among pharmaceutical companies remained unspecified.

According to Alan Sager, a health policy professor at Boston University, the opacity of drug pricing allows manufacturers to argue compliance through existing discounts routinely applied to inflated retail prices.

“Will they act? Maybe. Will they claim they act? Sure,” Prof Sager said.

“Whether this will signal a durable and meaningful cut in extraordinarily high US drug prices is very unclear,” he said. “This is rhetoric, not reality.”

Market Reaction to the Executive Order

Initial announcements regarding the executive order led to a decline in the share prices of leading drug manufacturers. However, stocks rebounded after the administration detailed its plans, suggesting that investors anticipated minimal immediate impact.

Potential Obstacles to the Drug Pricing Plan

Profit Retention Strategies

To maintain profitability, pharmaceutical companies could potentially withdraw from countries where they sell medications at lower prices, according to researchers at the University of Southern California.

Valuation of Medications

The researchers also argued that foreign governments often underestimate the true value of drugs, suggesting that adopting a European pricing model in the US could negatively affect Americans’ health and longevity.

Implications for Public Health Initiatives

It is also uncertain how lower prescription drug prices align with broader public health agendas.

A pharmacy professor at the University of Connecticut suggested that while the immediate impact might be limited, increased transparency and reduced costs represent a positive step.

However, the executive order is anticipated to face legal and legislative challenges from the pharmaceutical industry.

Industry Response to the Executive Order

Pharmaceutical industry groups largely oppose the executive order, arguing that it could stifle drug supply and research funding while failing to effectively reduce costs.

The president of the Pharmaceutical Research and Manufacturers of America stated that “importing foreign prices from socialist countries would be a bad deal” for American patients.

The president of the Biotechnology Innovation Organization described MFN status as “a deeply flawed proposal that would devastate our nation’s small- and mid-size biotech companies” by potentially cutting off research funding.

“Patients and families are not a bargaining chip in a trade war, but that’s exactly how they are being treated – first through proposed tariffs on our nation’s medicines, now with foreign reference pricing in the name of fairness.”

Professor Sager challenged the industry’s arguments, suggesting alternative research funding models and emphasizing that research expenses are incurred before profits are realized.

Prof. Sager also suggested that sustained presidential attention would be pivotal for meaningful action on drug prices.

“Given the president’s apparent public vacillation on many topics, it just isn’t clear that he’ll stay with this problem or that he’ll be willing and able to act effectively,” he said.