The cost of prescription medications has been a hotly debated issue in America for a very long time—and with good reason. Americans pay three to five times more for the same medicine compared to residents of other industrialized countries. This disparity has caused an enormous expense to millions of households, some of which have had to cut back on either medication or necessities like food or rent.
With a daring effort to remedy this imbalance, the Department of Health and Human Services (HHS) is advancing on policy first explored under the Trump administration: the "Most-Favored-Nation" (MFN) rule on drug pricing. The concept is straightforward but ambitious—to link what Medicare pays for selected medications to others' lowest payment among richer nations. But like all broad overhauls, it is complicated in practice and potentially far-reaching in effect.
Here's what you should know.
What Is the "Most-Favored-Nation" Policy?
The MFN policy aims at a very narrow segment of drug expenditures: the price of injectable or infused medications dispensed in physicians' offices and hospitals, most commonly covered under Medicare Part B. Some of these are among the most costly injectable or infused medications that are utilized to treat diseases such as cancer, rheumatoid arthritis, and autoimmune disorders.
Under the MFN approach, Medicare would no longer have to calculate the cost of the medication based on their average price of sale in the United States. Instead, it would compare what other wealthy nations—Canada, the United Kingdom, Germany, and France—are paying for the very same medications. The U.S. would pay no more than the lowest such rate.
Essentially, the U.S. government would be negotiating on prices based on what other countries that are similar pay—a common practice overseas but one that has been resisted for decades by American drug companies.
Why U.S. Drug Prices Are So High
We have to examine why U.S. drug prices are so high in the first place if we want to know why this reform is needed.
As opposed to nearly every other nation, America does not have a single, unified agency that negotiates the price of drugs. Governments in nations such as Canada and the UK, in fact, negotiate with drug manufacturers, systematically denying approval to drugs they find too costly. Medicare in America is actually barred by law from negotiating prices on the majority of prescription drugs—a provision added to law by the Medicare Modernization Act of 2003.
This is because pharmaceutical companies are able to price their products however high they desire with little resistance, particularly if there isn't a biosim.lar or generic equivalent. Middlemen pharmacy benefit managers (PBMs) add further complexity to the equation, more. likely to. raise. costs. rather. than. costs.
.s. costly. for. Americans. America's drug. prices. were. 256% of 32 comparable nations' prices, as of 2021, in a RAND Corporation report.
What Could the MFN Policy Achieve?
The potential dividend is enormous. The Centers for Medicare & Medicaid Services (CMS) estimated that the MFN model would save taxpayers and beneficiaries more than $85 billion in seven years. That's money that could be spent on some other part of the healthcare system—or used to lower the out-of-pocket expenses that seniors and disabled Americans are currently facing.
Aids argue the policy would introduce much-needed reform and openness into the drug marketplace. It would cut the incentive for drug manufacturers to price in the U.S. as a market to gouge and deep-discount on the global market.
In theory, tying drug prices to prices in other wealthy countries could compel pharmaceutical firms to price back in general.
The Industry Pushback
No wonder, then, that the MFN policy has met its share of resistance.
Pharmaceutical companies have lobbied actively against it on grounds that it would suppress innovation. They argue that reduced profitability would discourage investment in developing new medicines, maybe clogging up the pipeline of new drugs.
Industry associations such as PhRMA (Pharmaceutical Research and Manufacturers of America) have further contended that the policy has the potential for decreased access to medicine. Companies can drop those medicines from the U.S. market entirely—or postpone their launch if they do not sell drugs at the lower MFN prices.
A number of lawsuits were lodged as soon as the Biden administration issued the rule, and the agency was given a preliminary injunction. While the Biden administration suspended implementation in 2021, HHS is now redoing and revising the policy to overcome legal hurdles and logistical barriers.
Political Crossroads: Trump's Legacy and Biden's Strategy
Significantly, only one of the Trump-era healthcare reforms has received tentative approval in the Biden administration - the MFN policy. While President Biden has been vocal in his criticism of the price dynamics of the pharmaceutical industry, he has similarly come under pressure within his own administration over just how much more assertive the reforms should be.
Instead of abandoning the MFN rule, Biden's HHS seems to intend to tinker with it. It aims to craft one that is both legally viable and operationally feasible—something that will hold up in court and yet save sufficient money.
This bipartisan strand is a rarity in US health care policy. Both parties, at least in theory, are united that drug costs are uncontrolled and need to be solved. MFN regulation, somehow or other, can be the bipartisan span over chasms of ideology.
What It Means for Patients
If so effectively applied, the MFN model of pricing would bring about tangible and immediate gains to Medicare patients—beneficiaries. Lower government payment may curb the 20% coinsurance, which burdens the patient with Part B.
For low-income elderly, this might equate to saving tens of thousands of dollars each year. It may also limit patient assistance schemes, credit card loans, or even rationing of medicine—a bleak all-too-familiar scenario today in medicine.
But execution will be key. If pharmaceutical firms respond by withholding drugs or restricting access, patients will suffer. Striking the right balance between affordability and availability will be essential.
The Road Ahead
The "Most-Favored-Nation" policy is not a panacea, but it is an important departure from U.S. drug price policy. Americans have carried an inordinate burden of the world's pharmaceutical costs for far too long—paying inflated prices that subsidize lower cost access elsewhere.
By pegging drug prices to peers, the U.S. would save billions and regain justice and fairness in health care spending. Though the path to enactment is bumpy, and resistance from industry is strong, the debate is shifting.
For the tens of millions of Americans who can barely afford life-saving medications, that change couldn't come soon enough.
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