What Most Favored Nation Drug Pricing Would Mean for the US

Health Affairs' Rob Lott interviews James Robinson of the University of California Berkeley about his recent paper exploring most favored nation drug pricing, weighing its feasibility, likely effects on drug launch prices, and implications for global pharmaceutical innovation and investment.

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Rob Lott: 00:07

Compared to other nations, The US finances a disproportionate share of global pharmaceutical research and development. This comes out of the higher prices we pay compared to anywhere else. And lately, President Trump and others have announced that they're willing to do whatever it takes to close that gap. The most direct proposal to that end is a policy typically referred to as most favored nation drug pricing, in which we set a price ceiling for drugs based on the lowest prices paid among other developed nations. Everyone's talking about it and promising a lot, but the questions remain.

Rob Lott: 00:50

Is it realistic, and would it achieve what we hope it will? That's our question for today's Health Podyssey. I'm here with Doctor. James Robinson, the Leonard D. Schafer Professor of Health Economics at UC Berkeley, Director of the Berkeley Center for Health Technology, and a contributing editor at Health Affairs.

Rob Lott: 01:11

He has a new commentary in the April issue of Health Affairs titled Most Favored Nation Drug Pricing is an Idea Whose Time Has Come. And in it, he aspires to, quote, take the president seriously, if not literally. I cannot wait to dig into this paper, into that promise, and, into Jamie's view of the road ahead for most favored nation drug pricing. Jamie, welcome to A Health Podyssey.

James Robinson: 01:42

Glad to be here and glad you and I in the next twenty minutes are going to solve this issue. It's going to be great.

Rob Lott: 01:48

All right, let's get to it then. I think there are sort of two turbulent but distinct policy streams sort of encircling us right now. One is this formal proposal for Congress to enact a uniform, most favored nation drug pricing policy, in which, as I said a moment ago, we sort of set a ceiling, for drugs based on the prices that they pay in other developed nations. Congress hasn't acted on this, but the administration has called for it to do so. At the same time, there's this other stream that we're kind of feeling, and it's this series of deals that the administration is striking, the result of which is drug companies essentially volunteering our listeners can see my air quotes there to lower their prices on certain drugs.

Rob Lott: 02:44

And in terms of the sort of potential for long term reform or impact, what is your sense of the consequences of these sort of two efforts taking place at the same time? Do they work in tandem or are they working at cross purposes?

James Robinson: 03:01

I always separate in my mind the formal structure of a most favored nation or international reference pricing as a legal construct, which I would say has very little chance of really going very far. Congress is not going forward the legal obstacles are huge and so people that sort of are complacent about this point to that but the other one is what I will call this relentless inexorable all means available assault on drug prices by the president and his supporters and I think that that is going to go forward and I think that it's going to outlive president Trump it's very hard to imagine some democratic president elected three years from now saying oh yeah, yeah, no I like paying three times what Germany pays for drugs. We're not doing that Trump thing anymore. So I use the word drug price compression as kind of a more generic thing and I do think that drug price compression it's already happening and it is going to it's going to get stronger and stronger particularly the prices of newly launched drugs and so I think that's what we will want to talk a little bit about not so much drugs that are on the market today but drugs that are on the market tomorrow, next year, and three years from now.

Rob Lott: 04:23

Okay so part of the reason prices are higher in The U. S. Compared to other nations is that other nations use health technology assessment methods. Basically, they apply analysis to assess its potential value, potential effect on patient outcomes compared to other drugs in the market, and they use that as part of their negotiations around the prices of drugs. Now repeatedly in The US, lawmakers have resisted implementing something like that here, presumably due to pressure from the pharmaceutical companies and patient groups opposed to that approach.

Rob Lott: 05:04

And yet, here we are sort of importing that tool, that health technology assessment from other nations. And I'm curious for those people who have long advocated for something like health technology assessment in The US, should should they consider this a win?

James Robinson: 05:24

Personally, I separate the issue of doing HTA on the one hand from paying lower prices on the other hand. HTA basically allows you to do a comparative clinical analysis drug A is better or worse than drug B in various dimensions and that can be very complex. Again, all the scientists it's full employment for scientists and health economists and stuff like that's great but that doesn't say why does Germany pay more than France? Why does France pay more than Italy? You know they're all doing HTA.

James Robinson: 06:00

At the end of the day the ability of any payer be it a government or insurer or whatever to get a discount is based on the ability the credible threat by that payer of walking away from the table if they don't get a discount and the Europeans and Australians and Canadians have had a more they've been more willing to do it and they've been helped in that by the fact that the drug companies and they everybody knew that America would pay for it in the end. This is how drug prices are set in America by the way. What's the level of price? You want to know how it's done? By a global drug company they have their people in all the major markets in the world.

James Robinson: 06:43

They send those people out there they fight for the highest price they can get in Portugal, in Spain, in Indonesia they report back to the headquarters this is as good as I can do they multiply those prices by volumes and they say okay well that's what we're getting from the rest of the world the last one is going to be The US Of A so they add up what they're going to get then they say how much do we need to get from The US Of A in order to hit our earnings targets that we've promised to Wall Street for next year? That's where it comes from they've got to hit those Wall Street targets because they've got to keep the capital flowing to keep the R and D flowing and etc. So you know the drug company the person that they've got negotiating in Italy can you know they do their best but, you know, they know that America's going to pay it in the end and now they don't. This is radical. This is very radical and the question is, do you believe Donald Trump?

Rob Lott: 07:46

Okay. Let me That's ask

James Robinson: 07:48

a good question.

Rob Lott: 07:48

Let me ask you. Yeah. Do you believe Donald Trump? And I guess the sort of corollary to that would be sort of do the drug companies?

James Robinson: 07:59

I think the drug companies believe Donald Trump. I think that they think that he really will put import tariffs on them, that he really will call for the resignation of the CEO, that he will he'll do this he'll do that he'll give them a priority voucher oh no he won't give them a priority voucher he will let their drug go through the FDA oh no he won't let their drug go through the FDA and it's going to go on and on and on so they are desperate to comply with the principles of most favored nation while in fact doing as little as possible okay of course they want to do as little as possible and the skeptics say oh look what they're doing they've agreed to it for Medicaid and Medicaid price already are at MFN levels more or less so that's smokescreen and they've promised to invest in manufacturing facilities in North Carolina oh they were probably going to do that anyway all right but then the real kicker this is the kicker is that they have pledged to set the same price in The US and the rest of the world for new drugs coming online next year.

James Robinson: 09:09

That is an auditable thing and that is think it's going to happen. By the way, first of all drug companies favor that. Drug companies like to have similar prices worldwide they just want other countries to pay more. Okay the people that don't really don't like this are the payers so I think that the we're already seeing it they're beginning to launch drugs at prices they're saying that it's going be the same in different countries they're trying to wiggle, but the thing to watch is going to be some of them they're already saying the drug companies are saying we're not going to launch our drugs in countries where we cannot get a decent price because then the America is going to want that discounted price and we'd rather not sell our thing in that medium sized little country over there than endanger the biggest market in the world. Remember The United States Of America accounts for 40% of global pharmaceutical industry revenue 80% of global pharmaceutical revenue profit.

James Robinson: 10:21

Do not mess with The US market pharma CEO if you still want to be in your job next week.

Rob Lott: 10:28

Is there a scenario where drug companies choose not to sell their drug in Portugal or Spain or anywhere else?

James Robinson: 10:35

They're already trying to do it, they're already doing it now. Course the Europeans are pushing back and they're saying that you drug company need to launch in any country in the EU that wants you to launch there otherwise we're going to do bad things to you like remove your patent protection but they don't say we promise to pay a price high enough that you want to do that so it's kind of like no you have to launch, you have no bargaining leverage now with us because you have to launch, so it is the unstoppable force meeting the immovable object.

Rob Lott: 11:18

Okay, well, we'll have to see how that unfolds in the coming months and years ahead. If we can sort of take one step back to sort of the argument against most favored nation, really the argument against any sort of policy that puts a downward price pressure on drugs is that it's going to limit potential profit in a way that undermines our innovation ecosystem. And I'm wondering when you hear that, is that sort of the perfect argument? You really can't rebut that? Or is there an alternative to basically any kind of reduced price undermining innovation?

Rob Lott: 12:05

Are those two goals mutually exclusive, or is there a way forward?

James Robinson: 12:10

Well, I know that the majority of investment in pharmaceutical is funded by private firms using profits based on prices so that they're not making this up and if there was only one country in the world then this argument would be rock solid but the issue is not how much should we the world pay for drugs it's how much should we United States Of America pay for drugs oh wait a minute those are different things those are different things and so it's a very interesting discussion as to whether the world is paying enough for drugs whether we should pay more to get more innovation etc. And we can have that discussion I'm happy to do that I'm a believer in pharmaceutical investment I think that probably there's some efficiencies to be gained in that process we can talk about that some other time but the real the question of the day is not how should the world pay more it's should The US pay more and let's translate that should bus drivers nurses and school teachers in America who pay taxes and insurance premiums in America pay twice as much as bus drivers nurses and school teachers in other developed countries?

James Robinson: 13:37

That's actually what's being discussed here. I'll give two answers to that question. My first answer is, Hell no! My second answer is Well yes if those school teachers in America get something for their extra money. What is it?

James Robinson: 14:03

Well it would have to be some version of America pays more so America gets more than Germany, France. More

Rob Lott: 14:14

advanced science, better drugs,

James Robinson: 14:17

Invest that kind of in the local ecosystem, faster access, more jobs, more manufacturing facilities, you know this that and the other thing and I'm in favor of that. If I was the president which I'm not, which I'm not unfortunately unfortunately I'm not but if I were the president I would say America should pay lower drug prices but also at the same time should invest more in the National Institutes of Health more in ARPA H, more in manufacturing institutes, more in STEM everything and sort of keep the overall and all that stuff can be somewhat predicated on we'll give you the money if you do it in America. Unfortunately, current president is doing the opposite. He's saying we want to pay lower prices and do less in terms of the other public investments, So I think that is very unfortunate and will have adverse effects on the rate of investment and over time in the rate of new drug innovation.

Rob Lott: 15:26

Fair enough. I want to ask you a few more questions about the the road ahead, but first, let's take a quick break. And we're back. I'm here with doctor James Robinson talking about most favored nation drug pricing policy. And in addition to your paper in the April issue of Health Affairs, we also have a pair of perspectives that sort of reflect on your commentary, react, and respond to it.

Rob Lott: 15:54

And in one of those, Andrew Mulcahy of RAND asks the question, to what end? And he continues, quote, the challenge is for The US to establish the point at which most favored nation drug pricing policies will have succeeded. That is, when the resulting net prices paid for brand name drugs are right, quote right, from a US focused value oriented perspective. And that sort of echoes to me this sort of question you're asking about sort of, if we do pay, what do we get for it? And sort of what's the right equilibrium there?

Rob Lott: 16:34

So I'm curious how you respond to that and what you think we should be doing to sort of meet the challenge that Andrew Mulcahy has laid out.

James Robinson: 16:45

I'm not sure I fully understand it. I mean it sounds like it's partly how much should the world invest in new drugs, what will it get for its investment compared to investing in other things and that is a very good question. My shorter answer on that would be more, okay, exactly how much more that's a different question but I think that in terms of the present context it's kind of I would make the analogy me and President Trump would make the analogy I want to say between most favored nation drug pricing and U. S. Support for NATO and the war in Ukraine.

James Robinson: 17:23

You see Trump would say, well I don't know what Trump would say, but some people would say NATO is a good thing, defending Ukraine is a good thing, but why is America paying most of it? Why is America paying more to defend Europe than Europe is paying to defend Europe? So we've got this thing that they've said, you know, we pay 5% of GDP in the military and they pay 2%, 2.5% and no, no, no, everybody should pay it was 3% now they're talking 5% they're not doing it, don't worry and I don't know whether 3% is the right number I don't know whether 2% or 5% is the right number but I do kind of know that we shouldn't be paying more to defend Germany than Germany is paying to defend Germany on a per capita basis. Have such wonderful welfare states cradle to grave and how can they afford that? Well, guess what?

James Robinson: 18:33

They're paying low drug prices and they're not paying to support NATO. So I'm like, you know, I don't want to read one more Commonwealth Fund story about how we've got the worst health care system in the world because we don't have cradle to grade health care like Germany does when we're paying for the German drugs and we're paying for the German defense. By the way, I love Germany. I speak German. I'm in there frequently, so I'm not bashing Germany.

James Robinson: 19:02

Okay? But I'm just saying, okay, Germans, step to the plate, please.

Rob Lott: 19:08

Well, brings me back to this question of, you know, should the bus driver be paying more for their drugs than a German bus driver? And you might answer that question, in The United States, hell no, and yet we we're still sort of the, supporting a system and politicians and elected leaders who aren't doing anything about it. You could say President Trump is doing something about it. Maybe we'll see. But I'm curious, do we have a sense of sort of the politics in Europe and other developed countries about how they might respond to perhaps their country having to pay more for those drugs and if we might see it translating from a sort of philosophical discussion to the practice of how the countries are governed.

James Robinson: 19:57

I think that the short answer is that Europeans don't have extra money to throw at drugs on the other hand pharmaceutical industry is very important to a number of European countries and they don't want to lose that industry and they are seeing it slip away they are they really are seeing it slip away to The United States and then to China so there is a great sense of panic around this topic they don't have an easy solution but I'm in Europe frequently and the dialogue has really changed. Up until a few years ago there was only one when you said the word pharmaceutical that everybody said this we're spending too much on this stuff. Now you say the word pharmaceutical they say that but they also say uh-oh we're losing all these firms and all of our bright young people are moving to the Silicon Valley and blah blah blah. So the first step is the awareness and the worry and that is at an all time high. They do not have extra money so what I think they're doing, which they are doing, is they are looking for okay drug companies we will pay you a higher price or some subsidy or something in exchange for you investing more in our country.

James Robinson: 21:21

That could be manufacturing, it could be R and D facilities, it could be support for our research universities but quid pro quo we're not just gonna we're not gonna be stupid like the Americans and just pay you more we're not stupid we're French By the way, I'm a French citizen. French are like we're not just giving you this we're not giving this away we're gonna get something for this and I think that that's what they're gonna do I think there's gonna be a lot more of price as one dimension of a closer relationship between the industry and the payers and the countries once we recognize that the big story here is competition with China and that that's actually the background to this whole thing. We could spend another half hour on that which we won't but the Europeans are bona fide terrified that they are going to lose their pharmaceutical industry and what can they do about it?

Rob Lott: 22:15

Well perhaps in just a final minute or two any last minute comments on perhaps what you're going to be tracking over the next six months, six to twelve months, what are you going to be watching in terms of pharmaceutical company action and administrative action as it relates to most favored nation drug pricing?

James Robinson: 22:36

I am going to be looking at how drug pricing integrates with other dimensions of the payer manufacturer relationship because it's just one dimension. Just like with Trump, he's willing to trade prices against manufacturing investments, against tariffs, you know what I mean? He's a deal maker. He care about any one thing particularly. I think that although he's rude and crude that that approach is actually not the least intelligent thing to do so I think that I hope that we will collectively pass through this dark moment and that we will end up saying that you know what pharma is important to America, America is important to pharma, let's know hey let's make a deal.

Rob Lott: 23:27

All right a great note to wrap up on. Jamie Robinson thank you so much for taking the time to chat with us. Thanks so much for joining us today.

James Robinson: 23:36

Thank you.

Rob Lott: 23:37

To our listeners, thanks for tuning in. If you enjoyed this episode, leave a review, share it with a friend, subscribe, and of course, tune in next week.