White House Push on “Most-Favored-Nation” Pricing Lands on States’ Doorsteps
Is the White House's bold MFN pricing push a golden ticket to states on Medicaid drug savings — or just a new set of tricky choices?
Author: Katie Rubinger
Editors: Patti Boozang and Amanda Eisenberg
tl;dr
On Nov. 6, the Centers for Medicare & Medicaid Services (CMS) Innovation Center (CMMI) announced a new voluntary model to test CMS-led drug price negotiations for covered outpatient drugs in Medicaid. Under the newly announced GENErating cost Reductions for U.S. Medicaid (GENEROUS) Model, pharmaceutical manufacturers that participate in the Medicaid Drug Rebate Program (MDRP) may apply voluntarily to negotiate with CMS directly on supplemental rebates equivalent to Most Favored Nation (MFN)-like pricing, which would be extended to participating state Medicaid programs in exchange for certain commitments regarding their drugs in state Medicaid programs (like guaranteed inclusion on preferred drug lists or waived utilization management).
Currently, rebates with drug manufacturers who participate in the MDRP occur on a state-by-state basis. The GENEROUS model aims to facilitate a single offer to states of supplemental rebates to reduce prices for certain covered outpatient drugs to MFN prices. CMS will then negotiate with manufacturers on the coverage criteria for these drugs, which states will then implement in their preferred drug lists and/or utilization criteria.
States and manufacturers may benefit from the model, but both will need to evaluate whether it’s a better deal than the current state-specific negotiated rebates.
On Dec. 9, Manatt Health will host a public webinar about the GENEROUS Model and what it means for life science companies, states and patients. Register here.
The 80 Million Impact
Under the first Trump administration, the president sought to tie drug prices in the U.S. to international prices. While proposals from his first term were never implemented, the administration resurrected these policy ideas quickly after President Trump reassumed office. In May, the president issued an executive order directing federal agencies to take various actions to bring American drug prices in line with those paid by similar nations. The White House followed up in July with letters to 17 drug manufacturers calling for commitments to bring down prices in the U.S., ensure that “every single Medicaid patient” has access to MFN pricing, offer direct-to-consumer sales and reinvest in American manufacturing.
Since July, five of the 17 manufacturers have struck deals with the administration, and the new CMMI model seems designed to help facilitate implementation of these deals in the Medicaid program. In announcing the model, CMS provided the clearest definition of MFN we’ve seen to date. Per the request for application (RFA), CMS describes that an MFN price will be calculated based on “the second-lowest, country-specific manufacturer-reported net price, adjusted by gross domestic product per capita using a purchasing power parity method,” including in the non-U.S. G7 nations (the United Kingdom, France, Germany, Italy, Canada and Japan), plus Denmark and Switzerland. However, the ambiguity in the RFA may mean that additional countries could be added to these calculations in the future.
How Will the GENEROUS Model Change Current Practice?
Today, state Medicaid agencies obtain statutory rebates from manufacturers under the MDRP that are the sum of: (1) a basic rebate, calculated for brand drugs as the greater of 23.1% of the Average Manufacturer Price (AMP) or the difference between the AMP and the Medicaid Best Price1; and (2) an inflation rebate that offsets increases in list prices above inflation. On top of these required rebates, most states have also negotiated supplemental rebates with manufacturers in exchange for preferred drug list positioning, arrangements regarding prior authorization or utilization management, and other positive formulary and access treatment. Rebates are shared between the state and the federal government, in proportion to their share of funding into the Medicaid program.
As noted above, the GENEROUS model will turn over the negotiating power to CMS and CMS will:
Facilitate manufacturers’ offer to states of supplemental rebates and
Negotiate with manufacturers on coverage criteria for the drugs.
In theory, this could result in a more streamlined process of negotiation for states and standardized coverage criteria for manufacturers to consider.
CMS will measure the impact of the model through patient-level outcomes and health care expenditure data, analyzing trends in: prescribing patterns in Medicaid fee-for-service and managed care; changes to preferred drug lists or utilization management criteria; patient experience; impact on hospital admissions, emergency room visits and quality or length of life; medication adherence; and changes in generic substitution rates.
The current RFA is directed at pharmaceutical manufacturers and is open until March 31, 2026. The model is slated to run for five performance years, beginning on a rolling basis on Jan. 1, 2026, through Dec. 30, 2030. Notably, rebates will be retroactive to Jan. 1, 2026, even though supplemental rebate agreements between participating states and participating manufacturers will not be signed until Aug. 31, 2026.
Considerations for Medicaid Programs
CMS is set to release a request for application to states interested in participating in December. States may benefit because the model alleviates the burden of seeking supplemental rebates and may enable states to increase the overall level of supplemental rebates they receive. Further, it appears that states are free to choose whether to apply the agreed pricing and coverage criteria at the individual drug level. However, existing supplemental rebates may be more generous for some products than the MFN pricing envisioned in the GENEROUS model. And then there’s the question of timing: If the rebates are retroactive to Jan. 1 but rebate agreements are not agreed upon until Aug. 31, will state Medicaid programs — already under financial strain — have the cash flow to be able to participate until the new rebates start flowing?
Further, it remains to be seen whether manufacturers who have negotiated MFN deals with the administration will have incentive to participate in the model, jeopardizing the extent to which states may even have access to the envisioned pricing structure.
The Bottom Line
The GENEROUS model offers states a potentially promising opportunity to generate drug savings in their Medicaid programs by leveraging MFN-like drug pricing, but success hinges on detailed analysis of current and proposed pricing on an individual drug basis. States must assess whether the potential savings outstrip existing rebate arrangements and ensure the model’s structure aligns with their unique needs and fiscal realities.
Medicaid Best Price is the net price at which the manufacturer sells its drug to “any wholesaler, retailer, provider, health maintenance organization, nonprofit entity, or governmental entity” in the U.S., excluding certain transaction types enumerated in 42 CFR 447.505, but including all “applicable discounts, rebates, or other transactions that adjust prices either directly or indirectly” to eligible entities.
The timing issue you raised about retroactive rebates is a realy good catch. States already stretched thin financialy would need to front costs for eight months before seeing the rebate agreemnts finalized in August. That's a massive liquidity gap, especially for smaller states with tight budgets. I'm curious whether CMS plans any interim funding mechanism to bridge that period?