In an announcement from the Oval Office on Friday, September 18th, President Donald Trump described a new plan to extend the benefits of Most Favored Nation agreements on prescription drug prices to state Medicaid programs all across the nation. The voluntary discount agreements will, the president reported, apply to Puerto Rico as well as to the states.
What’s Most Favored Nation?
The phrase “most favored nation” means that the nation in question will not be treated worse than any other nation. In the case of pharmacueticals, the United States will not be given less of a discount than the country which receives the largest discount. Trump has negotiated Most Favored Nation (MFN) status for some specific brand name drugs. These are voluntary agreements with the pharmaceutical companies, which will provide discounts for certain drugs when they are bought from certain suppliers.
What’s new in the announcement?
The announcement celebrates the fact that these discounted prices will be available to state Medicaid programs. The drug manufacturers will provide rebates for the states, Puerto Rico, and D.C., which are intended to bring the prices of the selected medications down to the best available price.
For Medicaid, this means that a baseline price has been set. That price starts with the prices charged in eight other wealthy nations: Canada, Denmark, France, Germany, Italy, Japan, Switzerland, and the United Kingdom. The second-lowest of these prices is the starting point for the bas price. That price is adjusted to account for differences in purchasing power in the U.S., and established as the benchmark for the final customer-facing price from certain sources in the U.S. after discounts and rebates.
For example, imagine that the prices in dollars for the 8 countries line up like this for a certain drug:
- Canada: $8.00
- Denmark: $7.87
- France: $7.69
- Germany:$7.00
- Italy: $6.90
- Japan:$6.85
- Switzerland: $6.78
- United Kingdom: $6.50
In that case, Switzerland, the second-lowest price, would be the starting point. One calculator reckons the purchasing power in Switzerland is 12.5% higher than in the U.S. If that is correct, a drug costing $6.78 in Switzerland should cost $5.93 in the U.S. After discounts and rebates, this should be the price Medicaid would pay.
The new agreements supersede this arrangement. Details are currently uncertain, but Merck’s Keytruda is one example of a drug which is expected to fall under the MFN arrangement. With the extension to Medicaid, Puerto Rico’s Medicaid system will receive a rebate from Merck to bring the price they pay down to the level of the MFN agreement. Keytruda’s manufacturer’s U.S. list price is $12,272.00 per dose, but the actual amounts paid vary widely depending on the source and the payer. Switzerland’s list price is $5,204.53 per dose at current rates of exchange. This drug, therefore, would be much cheaper under the MFN agreement and could potentially save Puerto Rico’s government significant amounts of money.
What does this mean for Puerto Rico?
Since nearly half of Puerto Ricans rely on Medicaid for their healthcare, savings for Medicaid will be very important for the territory government. Medicaid in Puerto Rico is capped, so the Island often runs out of funds. The reduction in cost on the covered medications could help Puerto Rico continue to provide benefits for longer or to more people.
This change is not expected to impact the price of the drugs for consumers on the Island.
However, there may be complications. For example, doctors and the territory government might have to pay up front and then wait for rebates, a practice which could be difficult. Some pharmaceutical companies also are expected to raise prices in other countries to allow higher U.S. prices. Depending on the details which are currently unknown, there might be no real change in drug pricing.
The political angle
“This will save states billions and billions of dollars per year on drugs,” the president said in his announcement, “and allow them to invest those savings in providing better health care and higher quality service for the American people. I mean, this one thing alone should win us the midterms.”
“Us” would mean Republicans. The administration is estimating that the voluntary agreements will save the government $64 billion over ten years.
“I’m pleased to announce that we’re launching this program with the participation of all 50 states, red and blue.” said Trump. “Every Democrat state, if you want to call it that, every Republican state, everyone came in, as well as the District of Columbia and Puerto Rico, two places that the Democrats would love to see become states so they could pick up four Senators, etc.”
Trump here is suggesting that both D.C. and Puerto Rico would send Democratic senators to Congress if they became states. This claim has been trotted out by a number of Republican leaders, although Puerto Rio currently has a Republican governor and has a history of voting for both national parties when they have had a chance to do so.
President Trump dug down on this sentiment in a social media post the following Monday, when he urged Senate Republicans to act to prevent Puerto Rico and D.C. from becoming new states on the belief that they would be gain political power to the extent that it “will be impossible for Republicans to ever win an Election again.”
