Is Washington Building a Blueprint for MFN Through Trade Policy?

Something interesting is happening in pharmaceutical policy, and executives should be paying attention.

We are hearing growing calls for Washington to pursue an agreement with Germany similar to the U.S.–UK pharmaceutical arrangement as part of the ongoing Section 301 investigation into German drug pricing.

At first glance, this looks like another trade dispute. The bigger question is whether we are beginning to see a potential blueprint for pursuing the goals behind Most Favored Nation drug pricing.

What is happening?

In June, the U.S. Trade Representative opened a Section 301 investigation into Germany's pharmaceutical pricing and reimbursement practices. USTR wants to determine whether what it calls Germany's “persistent underpayment” for innovative medicines is unreasonable or discriminatory and burdens U.S. commerce.

That is unusual because Section 301 is a trade enforcement tool. Germany's drug reimbursement system, on the other hand, is part of its domestic healthcare system.

The U.S. is essentially asking whether decisions made inside another country's healthcare system can create an unfair burden on American commerce.

Now comes the interesting part. Rather than simply looking toward trade retaliation, there are growing calls for a negotiated solution similar to the one reached with the UK.

The UK may have shown us the model

The U.S.–UK agreement connected pharmaceutical pricing directly with trade.

The UK agreed to increase the net price paid by the NHS for prospective new medicines by 25 percent, increase spending on new medicines over time and limit certain pharmaceutical repayment rates. In return, the United States provided significant protections from pharmaceutical tariffs.

Importantly, the agreement itself connects those commitments to U.S. Most Favored Nation policies.

That makes what is happening with Germany worth watching.

In July, I discussed this possibility with Melanie Whittington at the Leerink Center for Pharmacoeconomics. We talked about whether the U.S.–UK arrangement could become a template for Germany.

My view was that it could be a political template, but Germany would be a harder test. Germany has a different statutory reimbursement system, operates through AMNOG and sits within the European Union.

We may now be seeing that test begin.

Where does MFN fit?

The basic argument behind MFN is relatively simple.

The United States believes Americans pay too much for medicines while other wealthy countries pay too little, leaving the U.S. market carrying a disproportionate share of the cost of pharmaceutical innovation.

There are two ways to narrow that gap.

Washington can try to bring American prices closer to those paid overseas. Or it can try to move prices overseas closer to those paid in America.

The UK agreement demonstrates that Washington is willing to work on the second side of that equation. The Germany investigation may tell us whether that approach can be repeated.

That does not mean Section 301 is MFN. Nor has USTR announced that trade enforcement is the mechanism through which MFN will be implemented.

But it raises an important possibility: trade policy may become one of the tools Washington uses to pursue the broader economic objective behind MFN.

Why should executives care?

If you run a pharmaceutical or biotech company, this changes the way international pricing risk should be viewed.

Germany is still Germany. The UK is still the UK. France, Italy, Spain and other markets continue to have their own reimbursement systems, budget pressures and approaches to determining value.

Those decisions may no longer remain entirely within those national systems.

U.S. trade policy could become another factor.

That has potential implications for launch sequencing, market access, reference pricing, revenue assumptions and investment decisions. A decision that once looked like a German reimbursement issue could eventually have consequences for a company's broader global strategy.

If Germany ultimately reaches an arrangement resembling the UK deal, the obvious question will be what country comes next.

The bigger signal

This is the type of development we look at closely at Lanton Strategies International.

Not because every Section 301 investigation will change pharmaceutical markets, but because understanding what is happening often requires looking across policy silos.

MFN looks like U.S. drug pricing policy. AMNOG looks like German reimbursement policy. Section 301 looks like trade policy. The U.S.–UK agreement looks like a bilateral trade arrangement.

The important part is the connection between them. What happens in reimbursement is beginning to influence trade policy, and trade policy may, in turn, influence how countries approach drug pricing.

We do not yet know whether Germany will result in another UK-style agreement. But if it does, pharmaceutical executives may need to reconsider how they think about global pricing risk.

The bigger question we have to consider is how Washington brings prices overseas closer to those paid in the United States.

Independent analysis from Lanton Strategies International. This article does not constitute legal advice.