Trump Executive Order on Most-Favored-Nation Drug Pricing Could Have Impacts on 340B Covered Entities

Trump Executive Order on Most-Favored-Nation Drug Pricing Could Have Impacts on 340B Covered Entities

On Monday, President Trump signed an Executive Order asking drug manufacturers to voluntarily lower drug prices to meet pricing targets issued by the federal government. The pricing targets are to be based on the lowest price at which the drug is sold in other developed nations (i.e., “most-favored-nation” (MFN) pricing). The Executive Order warns that should the manufacturers fail to make “significant progress” towards lowering drug prices to meet the pricing targets within the next 30 days, the following actions should be taken:

HHS will develop a rule to impose MFN pricing;
HHS will consider circumstances under which it would grant consistent waivers to allow personal-use importation of lower-cost drugs from other countries;
DOJ and FTC will undertake enforcement action against any anti-competitive practices;
The Department of Commerce in conjunction with other agencies will consider action regarding the export of drugs and precursor materials;
The FDA shall modify and possibly revoke drug approvals; and
The Assistant to the President for Domestic Policy will take actions to “address global freeloading.”

The order also mandates that HHS facilitate direct-to-consumer purchasing for manufacturers that sell their products to American patients at the MFN price. Although the order states that all of this should be done to the extent permitted by law, it does not cite what legal authority would be relied on or what appropriations would be used to implement this order.

Potential Effect on 340B Covered Entities. Although the Executive Order does not directly address the 340B program, it could impact how covered entities take advantage of the 340B discount on MFN-priced drugs. The implementation of the direct-to-consumer purchasing could impact covered entities in at least two ways: 1) patients of covered entities could buy the medications directly from the manufacturers (though it is unclear how those drugs would be dispensed) and 2) payments to many 340B covered entities could decrease as drug costs decrease too.

We cannot predict exactly how manufacturers will react to the Executive Order, or whether they will voluntarily lower their prices in response to this Executive Order. Regardless of whether the manufacturers choose to lower prices, the order requires HHS to facilitate direct-to-consumer purchasing for manufacturers that sell their products to American patients at the MFN price. Any policy that allows patients to bypass their traditional pharmacies or providers could result in decreased ability to deliver 340B medications.

MFN pricing might also have a direct impact on the 340B ceiling price. The 340B ceiling price is typically the “average manufacturer price” (AMP) of a drug less the “unit rebate amount” (URA) calculated for Medicaid purposes. The URA can be a percentage discount off of AMP, or based on the “best price” at which the drug is sold to any domestic purchaser, or another larger rebate if the drug is subject to an inflationary penalty. If manufacturers begin selling drugs at a new “best price” after implementing MFP-based pricing, the 340B ceiling price of the drug will decrease as the URA increases.

Payers will presumably react to the availability of lower prices. For provider-administered drugs, the reduced prices might result in a lower “average sales price” used to determine Medicare reimbursement. Commercial payers, Medicare drug plans, and managed Medicaid plans might reduce reimbursement to account for the lower acquisition costs available to pharmacies. For example, a drug that was $1,500 and reimbursed for $2,000 might become $500 and reimbursed at $625, leading to a 75% reduction in the savings available for the covered entity to reinvest in care for vulnerable and underserved populations.

There may be additional effects on covered entities, should the administration deem that “sufficient progress” has not been made and HHS be required to engage in rulemaking.

Legality of the Executive Order. Generally, any actions by the President or its agencies are required to be authorized under the constitution or statute. As previously mentioned, this Executive Order does not explicitly state what the authorizing authority would be for it. Any rulemaking described in the Executive Order would have to be grounded in existing statutory regulatory authority.

It should be noted, during the previous Trump administration, the White House issued a similar Executive Order tying Medicare Part B drugs to those in other countries, albeit using a different methodology focusing on a basket of developed countries. After drug manufacturers challenged the rule from that Executive Order, an injunction was issued against HHS. Though the circumstances of this Executive Order are different, manufacturers almost certainly would evaluate any possible challenges to the punitive measures described.

Powers will continue to evaluate the Executive Order and other drug pricing developments, including implementation of the Inflation Reduction Act and legislation relating to managed Medicaid pricing. If you have any questions, please feel free to reach out to the Powers drug pricing team or the Powers attorney with whom you typically work.