Today, the Department of Health and Human Services released further detail on its most favored nation (MFN) pricing proposal for pharmaceuticals sold in the US. According to the press release issued by the department the target price will be lowest price in a country (that is, a member of the Organization for Economic Cooperation and Development) with a gross domestic product per capita of at least 60% of that in the US. It doesn’t take much imagination to see how this restriction could drastically lower pharmaceutical prices in America. It also doesn’t take much imagination for drug makers to circumvent its intent.
From the perspective of the biosimilar industry, the MFN proposal has a glaring flaw. Like the Inflation Reduction Act (IRA), the proposal seemingly protects products that have current biosimilar or generic competition. However, like the IRA’s Medicare Fair Price (MFP) program, the new MFN proposal does not account for products with upcoming or projected biosimilar competition. Therefore, it will affect planning for many of the biologics with expiring patents that are currently being targeted for competition from biosimilars.
The industry has raised multiple alarms about the negative effect this strategy has on future biosimilar development and competition. The IRA was supposed to forego price negotiation on products that are subject to immediate or near-future biosimilar competition. By the way, this protection failed in the case of ustekinumab, which was known to be a popular biosimilar target prior to price negotiation. The longer-term concern was that forced lower prices today on a biologic brand would result in significantly lower potential revenues at the time of its patent expiration. This would dissuade biosimilar manufacturers from spending $150 million to commercialize its biosimilar candidate several years in the future and instead spending its money elsewhere today.
We’ve reported on this several times in the past and the issue has been highlighted by leading figures in the academic, policymaking, and consulting fields. It looks like the current MFN proposal will have the identical effect, discouraging future biosimilar development and competition.
The Trump administration (and several administrations before it) is rightfully concerned about the high list prices drug manufacturers charge US payers and health systems compared with other countries. The complaint has long been that drug companies make the bulk of their revenues on the back of the US market, and this is generally supported by their earnings statements. The individual countries of the EU, for instance, have a bidding process for medications with multiple competitors, and the lowest-priced bid most often wins. In the US, this is not the case (and far from it). The United Kingdom uses a procurement process that is influenced by the purported value of the product, as determined by the National Institute for Health and Care Excellence (NICE).
Most favored nation pricing will also have the effect of sowing confusion within the various segments of the US health system, especially those that are supposed to receive the lowest available pricing already, such as the Public Health Service, the 340B program, and the Medicaid program. How those policies will be affected is anyone’s guess today. Furthermore, what will be the effect on a drug price that has already been negotiated through Medicare?
One of the easiest moves by the pharmaceutical industry is to introduce its newest drugs at far higher pricing, based on the expectation that it will have to provide heavy discounts soon after launch. That may mean that other countries pay more, because the initial price is higher, and the MFN price will be higher as well. That’s a huge loophole, which directly challenges the intent of the policy and nullifies its chances of success.