Trump hints at executive order to create 'favored nation' clause to tie drug prices to low prices paid overseas

President Donald Trump gives a speech on HRAs
President Trump wants the U.S. to not pay more for drugs than other countries, but his possible executive order on the issue comes with key questions. (White House)

President Trump hinted on Friday that the White House will soon deliver an executive order to create a “favored nations” clause to ensure the U.S wouldn’t pay more for drugs than other countries, but he could need Congress’ help.

A “favored nations” clause is usually employed in trade agreements to require that any concession or price for one nation granted in a trade deal must extend to all other World Trade Organization member countries.

“As you know, for years and years other nations paid less for drugs than we do, sometimes by 60%-70%,” Trump said on Friday. “We are working on a favored nations clause where we pay whatever the lowest nation’s price is, like Canada.”

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Trump did not divulge how exactly such a clause would apply for the U.S., but his comments impacted pharma stocks on Wall Street. The S&P Pharmaceuticals Select Industry Index, which represents 14 of the major pharmaceutical companies, was down 1.74% on Monday afternoon and was down on Friday after Trump’s announcement.

RELATED: It's not just pharma kicking back at Trump's international drug-price index. Doctors and hospitals hate it too

Financial analysts are working to decipher the scope of the pending executive order.

“It could mean calling on HHS to limit Medicare rates for drugs to the lowest amount paid by any other nation,” according to Rick Weissenstein with the firm Cowen in an analyst note on Monday.

But this would require a change in the law, so the executive order may just “call on Congress to enact such a change, which is unlikely,” he said.

Another possibility is to create a demonstration that lowers the amount paid on drugs under Medicare, authority that the administration does have under the Center for Medicare & Medicaid Innovation, Weissenstein said.

HHS is already considering such an approach through its pilot demonstration called the International Pricing Index that was proposed last year. The demonstration would tie the price for drugs paid under Medicare Part B to the prices paid by certain countries such as Germany or France, which can keep prices low due to government-run healthcare systems.

Currently, Part B pays the average sales price of a drug plus 6% of that price to the doctor or hospital for handling and storage costs. The demonstration model, if adopted, would replace that price with the same price paid by certain foreign countries and provide doctors and hospitals a flat fee for handling costs.

RELATED: Trump administration unveils plan to lower Medicare Part B prices by basing costs on other countries' pricing

HHS had planned to unveil a proposed rule for the demonstration by this spring, but so far the proposed rule has not been released. The agency also didn’t elaborate on the scope of the executive order when asked for comment on Monday.

HHS Secretary Alex Azar and Trump are “both firmly committed to pursuing any and every solution, including importation and most favored nation policies, that will deliver real results,” the agency said.

The agency referred further questions on the scope of the order to the White House, which did not return a request for comment as of the time of publication.

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