US President Donald Trump has resurrected a plan he failed to achieve during his first term that entails setting US drug prices by benchmarking them to the prices of the same product in other countries. The mechanism, referred to as Most Favored Nation (MFN) status in Trump’s May 12 Executive Order (EO), amounts to International Reference Pricing (IRP) – a price-setting system on which GlobalData is the world’s leading expert.
IRP is currently used by more than 75 countries worldwide to set drug prices. GlobalData analysts track changes to all countries’ IRP systems daily and can judge the implications of small tweaks to existing external reference pricing (ERP) rules for drug prices and the ability to reference. As such, GlobalData is perfectly positioned to judge whether Trump’s MFN EO will produce its intended result.
In short, the EO aims to secure US drug prices that are the lowest among the reference countries through the following measures:
Big on threats, low on detail
The approach taken in the EO is to threaten pharma companies into lowering drug prices, but it belies the administration’s lack of awareness of how IRP actually works. An ERP system’s details are essential for determining the allowed prices under IRP. Among them are:
These and other IRP system features will determine the final IRP drug prices under Trump’s MFN plans. They are examined in minute detail in GlobalData’s IRP360 country profiles, which are regularly updated when regulations change – as they frequently do.
So far, the Trump administration has only provided the formula (i.e., achieving lowest price among reference countries), but all other aspects of the IRP system are subject to conjecture. Without the details for the mechanism specified, it is impossible to precisely quantify the impact of IRP introduction in the US.
However, two outcomes are obvious, even at this early stage.
Third-party profitability in US will take a hit
One detail that may have escaped US policy makers is that IRP works by affecting the list price – i.e., the “official” price – of a medicine. US list prices are undoubtedly higher than those in other countries for most originator medicines; however, they are not the real prices. Pharmaceutical manufacturers provide significant discounts, which are at the moment internalised as profit by various third parties involved in the US pharmaceutical distribution process.
By forcing the pharma industry to lower US list prices, the Trump administration would be directly hitting the profits of pharmacy benefit managers (PBMs) and private health insurers. The reason for this is that pharma companies, faced with strong pressure on the list price, would have no choice but to cut the confidential discounts they grant to third parties.
Adverse effects on other countries
In other countries, the introduction of IRP in the US would only affect list price levels marginally, but it will cause launch delays – an adverse effect of IRP that disproportionately affects patients in low-priced, frequently referenced markets. This effect will occur because once the basket of reference countries that the US plans to reference becomes clear, companies will be motivated to keep prices in these countries high, in a bid to protect their US prices. However, companies may not be able to keep prices high if most countries in the US reference basket have strong price control measures and themselves use IRP to set drug prices. Therefore, Pharma’s only recourse to safeguard US prices will be to delay launching affected products in the countries the US is referencing, or to remove the specific packs/formulations the US is referencing from those markets, or both.
To employ an often-used Trump figure of speech: politicians don’t hold all the cards. The pharma industry has some cards in its hand, and how it chooses to play them will determine the outcome of Trump’s IRP policy.
"Trump revives plan for IRP use in US via MFN executive order" was originally created and published by Pharmaceutical Technology , a GlobalData owned brand.
The information on this site has been included in good faith for general informational purposes only. It is not intended to amount to advice on which you should rely, and we give no representation, warranty or guarantee, whether express or implied as to its accuracy or completeness. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content on our site.
