Most Favored Nation – It Still Isn’t the Right Solution
When I was in high school and driving the first car I owned I very quickly became aware of the price of a gallon of gas. I still remember what it cost because it seemed to stay constant throughout those high school years at 32.9 cents a gallon. I certainly didn’t know what economic forces were in play that determined that price. I did know that periodically they had “gas wars” that would drive the gas down to 16 cents a gallon, but they were very short-lived.
Even now, I still don’t know what drives the price of gas, but I know it is anything but constant. For instance, today, where I live, the price of gas is 10 cents higher than it was yesterday, which is about a 3% increase. In one day, the price went up 1% higher than what the Federal Reserve wants prices to increase in a YEAR! If I drive about 5 miles, I can usually purchase gas for 20 cents less at an indigenous gas station, where they aren’t required to pay some taxes. That’s about 6% cheaper. Yesterday, I had the occasion to drive to another state (90 miles away) where the price of gas was 80 cents higher than where I came from. That’s about a 25% increase. What causes this menagerie of prices? It seems that gas prices are driven by many forces, taxes, location, state laws, government rules, etc. I’m not sure anyone could explain what drives all of these differences, but it is very different from the steady price of the 60s that was only impacted by the free market-enabled gas wars. I think the gas price situation today is a little like the most favored nation (MFN) proposal that the White House is thinking about implementing when it comes to drug pricing.
The MFN was first proposed in President Trump’s first administration. It was his way of reversing the inequality of some prices for Medicare Part B drugs (usually injectables) that exist between our country and other similar countries worldwide. President Trump back then wanted to choose some countries that fit his profile, i.e., most favored nations, and use the lowest price they paid as the basis for setting the price of that drug in the U.S. I wrote about this approach in an earlier blog. As is almost everything in healthcare these days it’s a complicated issue, so it would probably be worth your time to read my earlier blog, it should take less than 5 minutes.
I would be remiss if I didn’t recognize how unfair it appears that other countries can buy these types of drugs at a cheaper price. It seems that they should be paying the U.S. for the R&D and testing costs it takes to get a new drug to market. I’m not saying that there isn’t a problem, I’m saying the MFN approach is not the right solution. As I explained in my earlier blog, the governments of these other countries can dictate what drugs are allowed to be sold in their country, who in their country has access to them, and what price they will pay. It’s a little like gas prices in different states where location, government rules, and laws cause a big disparity in price. The patients in these countries wait years for new medicines. Of the 74 cancer drugs launched between 2011-2018, 95% are available in the United States, compared with 74% in the UK, 49% in Japan, and 8% in Greece. No wonder some of the people in these countries choose to come to America to get treated. It does make me mad that these countries are content with saving money for their government, not their patients, while also limiting or denying their citizens access to critical medicines. This situation is certainly out of balance but using the MFN approach is not the answer.
If we base the cost of our drugs off these countries that utilize government-run healthcare that rations access and dictates costs to the detriment of their citizens, we only perpetuate this way of doing business. It punishes our own highly efficient enterprise of innovation and throws up more barriers for those who would invest in the discovery of new medicines. If I’ve said it once, I’ve said it a lot: a sledgehammer approach to a complicated and convoluted business environment is not the answer, especially when the sledgehammer is used on your own country rather than on the countries that are perpetrating the unfair and detrimental practice.
I also need to point out that this, to me, seems to be the worst time to institute the MFN model. The newly initiated tariffs are projected to have a big impact on pharmaceuticals. Costs will be impacted, and supply chains will be disrupted. I’m not sure anyone knows what the impact of the MFN approach would be if it were implemented in this current environment. Finally, I must point out that the implementation and monitoring of the MFN model would require significant resources and personnel that could be tough to find given the current cuts to staffing at HHS and CMS.
Setting the price of gas to the lowest price found in America is not the correct solution, and neither is setting prices based on the MFN model – it wasn’t seven years ago, and it still isn’t today.
Best, Thair