The White House Revives "Most Favored Nation" Drug Pricing Policy: What It Means for Health Systems
On May 12, 2025, President Donald Trump signed an executive order reviving the Most Favored Nation (MFN) pricing model, a bold move to align U.S. prescription drug prices with those in other developed nations, potentially cutting costs by up to 90%. Initially proposed in 2020 but stalled by legal challenges, the MFN policy targets high drug prices by tying U.S. prices to the lowest rates paid by comparable countries, per KFF. This directive could reshape drug procurement, payer negotiations, and cost strategies for health systems.
At Trek Health, we empower health systems with AI-powered transparency solutions to navigate complex pricing policies. Our Competitive Market Analysis (CMA) leverages 300 terabytes of CMS-mandated transparency data to drive actionable payer contract negotiations.
Here’s what the MFN policy means for health systems and how Trek Health can help you stay ahead.
Key Takeaways from the Executive Order
The executive order outlines aggressive measures to lower drug prices, with implications for health systems:
- Mandated Price Cuts
Pharmaceutical companies must reduce prescription drug prices by 59–90% within 30 days for drugs under federal programs like Medicare Part B and D, per CMS. Enforcement ties to federal purchasing power, per Health Affairs. - Targeting Pharmacy Benefit Managers (PBMs)
The order accuses PBMs of inflating prices through opaque rebates, aiming to eliminate intermediaries for transparent pricing, per HFMA. - Trade Policy Leverage
The administration criticizes countries paying lower drug prices, proposing trade policies to pressure global price increases, balancing R&D costs, per KFF. Details remain speculative, pending clarification.
Industry Reaction and Potential Challenges
The policy has sparked polarized reactions. The American Hospital Association (AHA) warns that rapid price cuts could strain hospital formularies and supply chains, while AHIP notes potential disruptions to payer-provider contracts. Legal experts, per Health Affairs, anticipate challenges over executive authority and international trade agreements, similar to the 2020 MFN rule’s injunction.
Markets saw volatility post-announcement, with pharmaceutical stocks dipping, per KFF. Health systems face uncertainty in adapting to potential reimbursement shifts and cost benchmarks, requiring proactive strategies.
Why This Matters for Health Systems
The MFN policy could drive significant shifts in healthcare operations:
- Payer Negotiations
Lower drug prices may set new benchmarks for payer-provider talks, especially in value-based care models, per AHIP. Transparency data will be critical for fair contracts. - Formulary Management
Health systems may need to revise preferred drug lists based on cost changes, reimbursement alignment, and supply risks, per AHA. - Cost Strategy
Transparent pricing and PBM reforms demand sophisticated pricing intelligence, per HFMA. Health systems must adapt to avoid margin erosion.
Without data-driven tools, health systems risk falling behind in this evolving landscape.
How Trek Health Can Help
Trek Health transforms complex payer data into actionable strategies. Trek Health will be on the cutting edge of any policy that is implemented:
- Identify Contract Inefficiencies to secure better reimbursement rates, achieving hikes like 15% with payers, per AHIP.
- Monitor Policy Trends in real-time, ensuring compliance and strategic alignment.
With 300 terabytes of healthcare payment data, we move you beyond spreadsheets into real strategy. Explore our page for details.
FAQs: Navigating the MFN Drug Pricing Policy
What is the Most Favored Nation pricing model?
It aligns U.S. drug prices with the lowest rates in comparable nations, potentially cutting costs by 59–90%, per KFF.
How will MFN pricing affect health systems?
It may shift payer negotiations, formulary management, and cost strategies, per AHA.
How does Trek Health’s CMA tool help?
It benchmarks pricing and optimizes contracts using CMS transparency data, per AHIP. Explore our CMA blog.
How can health systems stay CMS-compliant?
Publish pricing files, per CMS.
What is formulary management?
Formulary management is how health systems, hospitals, and pharmacy benefit managers (PBMs) select medications for coverage. It evaluates drugs for cost, effectiveness, and clinical value, categorizing them into tiers (e.g., generics vs. brand-name), per Health Affairs.
Why do health systems use formulary management?
To control drug costs, ensure clinically appropriate prescribing, and define available medications for providers and patients.
How does formulary management affect patients?
It determines which drugs are covered, potentially requiring out-of-pocket payments, substitutions, or prior authorization for non-formulary medications.
How does formulary management relate to drug pricing reforms like MFN?
The MFN model, targeting 59–90% drug price cuts, demands dynamic formulary management to adapt to pricing pressures, maintain access to critical drugs, and preserve margins, per Health Affairs.
Conclusion: Prepare for Disruption with Trek Health
The MFN pricing policy signals a new era of drug pricing reform, but uncertainty looms with legal and market challenges. Health systems that leverage transparency data will stay ahead, optimizing margins and ensuring compliance.
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- Book a Demo to see our platform in action.
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