Following a series of “most-favored-nation” (MFN) pricing agreements with 17 major pharmaceutical companies, the Trump administration released a report Tuesday predicting the policies would save the country $529 billion over the next 10 years.
According to a May 5 report from the White House Council of Economic Advisers, the $529 billion figure comes from an estimate of a future MFN that would commit biopharmaceutical companies to release all future U.S. drugs at prices comparable to those in some high-income countries.
This figure is based on reference data for all new drug launches from 2021 to 2025. If only the 2025 cohort, which the report describes as “more aligned with current innovation pipelines,” was used in the calculations, the savings would be projected to grow to $733 billion.
Unlike previous attempts to contain U.S. drug costs, the report says the MFN concept will be applied more broadly, “across all U.S. markets, including private insurance markets.”
However, the exact mechanism remains a black box. The Centers for Medicare and Medicaid Services is proposing an MFN pilot model for Medicare or Medicaid only. The administration has not yet defined how commercial markets, such as employer-sponsored insurance, will access these discounted rates. Details of the agreement between the Trump administration and 17 drug companies were not disclosed.
Separate from future MFNs, manufacturers will offer existing drugs to state Medicaid programs at MFN prices. The White House estimates the provision will save the U.S. government $64.3 billion over 10 years, with the biggest windfalls coming from antipsychotics, antiretrovirals, antineoplastic drugs, and drugs to treat inflammatory diseases and diabetes.
But these huge savings calculations will only add up if the administration is able to expand the circle of agreements beyond the 17 big drug companies that President Donald Trump originally targeted.
“Going forward, the administration expects to reach similar agreements with most manufacturers of the nation’s only branded drugs and biologics,” the White House report said.
Midsize pharmaceutical companies are already preparing to expand MFN beyond the largest manufacturers.
Astellas CEO Naoki Okamura said in an earnings call last week that the Xtandy maker had not yet received a letter from the U.S. government but would “open the door to discussions with government authorities.” He said the company is preparing based on the known elements of the MFN agreement.
Meanwhile, a group of more mature biotech companies that primarily market one or two drugs and, wary of the impact MFN could have on their business models, recently formed the Midsize Biotech Alliance of America (MBAA). These companies argue that they lack a diversified portfolio of pharmaceutical companies that can absorb the hit to profits from pricing pressures.
Another key assumption underlying the White House’s latest drug cost reduction calculations is that future MFN and trade policy efforts combined will “reduce net U.S. drug prices by 30% by the end of the 10-year period.”
The MFN price is determined by the net price paid by eight high-income countries: Canada, Denmark, France, Germany, Italy, Japan, Switzerland and the UK. At AstraZeneca’s earnings call last week, CEO Pascal Soriot suggested the British drugmaker may choose not to launch in these countries if it does not receive satisfactory reimbursement. If companies avoid having to match a lower benchmark price by skipping certain reference markets, it would undermine U.S. savings goals.
In addition to separate most-favored-nation arrangements with companies, the White House report said, “The administration is working with Congress to codify these voluntary agreements into law so that patients can continue to benefit from price discounts.”
This effort faced some resistance. In February, a coalition of more than 50 leaders from conservative and free-market organizations wrote a letter to members of Congress opposing enacting most-favored-nation status, arguing that doing so would “bring socialist price controls and values to our country.”
Pharmaceutical companies also clearly do not support codifying this policy. Take Eli Lilly, for example, even though the Indianapolis drugmaker has an MFN agreement with the government to make its popular GLP-1 therapy eligible for Medicare coverage, CEO David Rix spoke out against the effort on CNBC last month, calling it “bad policy.”
“When you put it into a legislative process, you never know what’s going to come in or what’s going to come out,” Ricks said. “And I think there are a lot of people who would like to lower prices today and not worry about whether there’s going to be a new drug tomorrow, or whether the American pharmaceutical industry is strong enough to be able to do research in this country. And I don’t think that’s a great idea because I’m concerned about those things. And we’ve been pretty clear with the administration and Congressional leaders on that point.”
Richard Popps, CEO of Alkermes and president of the newly created MBAA, recently told the Bureau of Statistics that the MFN Act could devastate small biopharmaceutical companies.
“The instinct for price rationalization between the U.S. and Europe is good and will continue,” he said, “which could lead to legislation that could inadvertently exclude these companies if it’s poorly drafted or sloppy.”
