Most-Favored-Nation Pricing Is Becoming a Global Management Problem

For pharmaceutical companies, the latest U.S. drug-pricing developments are getting harder to look at one at a time.

President Trump announced that all 50 states, Washington, D.C. and Puerto Rico intend to participate in the GENEROUS Medicaid model. The program is designed to give Medicaid access to net prices for certain medicines that are comparable to prices paid in selected foreign countries.

At the same time, newly released contract language involving Pfizer reportedly shows that the company agreed to share with the Department of Health and Human Services a portion of additional net revenue generated when prices for certain medicines increase outside the United States.

Those two developments matter together because they show how pricing decisions made in Europe and other markets can affect U.S. reimbursement and U.S. government agreements.

GENEROUS Brings International Pricing Into Medicaid

The immediate importance of GENEROUS is its reach. Every state has now expressed interest in participating in a model that uses international pricing as part of the way Medicaid rebates are calculated for participating medicines.

That does not mean every drug suddenly gets an international reference price. Manufacturers still have to participate, products will differ, and many of the details matter. But there is enough here for management teams to pay attention.

A price negotiated in Europe or another reference market may affect the economics of the same product in the United States. That makes it harder to treat global pricing as a collection of separate country-by-country decisions.

The Pfizer Agreement Adds Another Layer

The Pfizer disclosure makes the issue more interesting.

According to the reported contract language, Pfizer must share with HHS part of the additional revenue generated when prices for certain medicines rise outside the United States. The public version does not reveal the percentage, the covered medicines or several other important terms.

Even with those gaps, the structure is worth watching.

A higher price overseas could improve revenue in that market while also creating a separate financial obligation in the United States. That is different from a traditional reference-pricing model, where the main concern is how a foreign price may affect a U.S. benchmark.

Here, a commercial decision in one country may create an economic consequence somewhere else.

This Is a Management Issue

That is why this is becoming more than a pricing issue.

The practical management question is whether the company understands which decisions made outside the United States can affect its U.S. economics.

That requires market access, finance, legal, government affairs and commercial teams to work from the same picture. Each group may be making a reasonable decision on its own, but problems can arise when those decisions are made without understanding what they mean for another market.

A locally successful pricing decision can still create an unexpected consequence elsewhere.

What Management Should Be Looking At

Companies should start by mapping their major products against the pricing arrangements that could matter in the United States. Management should understand which international prices could affect GENEROUS or other U.S. pricing arrangements, which products are covered by company-specific agreements, and what happens when the price of a medicine changes in another market.

There should also be a clear process for bringing pricing, legal, finance, government affairs and commercial leadership together before a significant pricing decision is made.

The goal is not to predict every future policy change. It is to make sure a decision in one market does not create an expensive surprise in another.

The Bigger Picture

There is still a lot we do not know. Many of the pharmaceutical agreements being negotiated with the administration remain confidential, and some of the most important commercial terms have not been made public.

But companies already have enough information to see the broader issue.

International pricing is becoming more closely tied to U.S. reimbursement. GENEROUS does that through Medicaid rebates linked to prices in other countries. The Pfizer agreement reportedly adds another connection by tying increases in overseas revenue to payments back to HHS.

For executives, the question is becoming less about what price should be negotiated in a particular country and more about what that decision does to the economics of the product across markets.

That is the issue management teams should be thinking about now.

About Lanton Strategies International & Lanton, Lanton and Sosa Law, PLLC

Lanton Strategies International works with executives and organizations on policy, market access, government affairs and strategic issues affecting investment, commercialization and growth across the United States and Europe. We help leadership teams understand what policy developments mean for their business and determine practical next steps.

For legal and regulatory matters, Lanton, Lanton & Sosa Law PLLC advises companies on issues affecting healthcare, life sciences, technology, commercialization and business strategy.

This article is provided for informational and educational purposes only and should not be relied upon as legal, investment or other professional advice. Reading it does not create an attorney-client relationship.