|Footnotes for this article are available at the end of this page.
On September 13, 2020, President Donald Trump issued an Executive Order, “Lowering Drug Prices by Putting America First,” to direct the Secretary of Health and Human Services (HHS) to implement new payment models under Medicare Parts B and D to curb “unfair” and high drug prices in the United States.1 Under the Executive Order, the Medicare program would not pay more for Part B or Part D prescription drugs or biological products than the “most-favored-nation price.” The “most-favored-nation price” is defined in the Executive Order as:
[T]he lowest price, after adjusting for volume and differences in national gross domestic product, for a pharmaceutical product that the drug manufacturer sells in a member country of the Organisation for Economic Co-operation and Development (OECD) that has a comparable per-capita gross domestic product.
In other words, Medicare would not pay more for drugs than the price paid by other developed nations.
The September Order revoked an Executive Order announced on July 24, 2020, which was pending discussion and further negotiation with the pharmaceutical industry to develop an alternative pricing plan to lower drug prices. The July Order was limited to drugs covered in Medicare Part B. The Order signed last week is more expansive than the initial July Order, extending to drugs covered under both Medicare Part B and Part D.
We will briefly describe the payment models under the Executive Order for both Medicare Part B and Part D below.
Payment Model in Medicare Part B
The Executive Order directs the Secretary of HHS, to the extent consistent with law, to immediately take appropriate steps to implement a rulemaking plan to test a payment model pursuant to which Medicare would pay no more than the most-favored-nation price for certain high-cost prescription drugs and biological products covered by Medicare Part B. The model would test if paying no more than the most-favored-nation price for patient who require pharmaceutical treatment would mitigate poor clinical outcomes and the increased expenditures associated with high drug costs.
Payment Model in Medicare Part D
For Medicare Part D, the Executive Order directs the Secretary of HHS, to the extent consistent with law:
to take appropriate steps to develop and implement a rulemaking plan, selecting for testing, consistent with section 1315a(b)(2)(A) of title 42, United States Code, a payment model pursuant to which Medicare would pay, for Part D prescription drugs or biological products where insufficient competition exists and seniors are faced with prices above those in OECD member countries that have a comparable per-capita gross domestic product to the United States, after adjusting for volume and differences in national gross domestic product, no more than the most-favored-nation price, to the extent feasible.
As with the Medicare Part B payment model, the Part D model would test whether, for patients who require pharmaceutical treatment, paying no more than the most-favored-nation price would mitigate poor clinical outcomes and increased expenditures associated with high drug costs.
- As the Executive Order calls for a lengthy rulemaking process, it is not likely that we will see much change or further action in 2020.
- Based on the negative response from the pharmaceutical industry, an industry challenge to block implementation would hardly be surprising.
- The initial July Executive Order was meant to go into effect on August 24, 2020, if pharmaceutical companies did not develop an alternative pricing plan to lower drug prices. However, the August deadline passed without further action or implementation, possibly in light of the pending election.
For questions, please contact Neil W. Hoffman or Genevieve M. Razick.
 The Executive Order is available at the following: https://www.whitehouse.gov/presidential-actions/executive-order-lowering-drug-prices-putting-america-first-2/ (last accessed Sept. 20, 2020).