The mechanics of Most Favored Nation drug pricing: Reference baskets, net prices and product exposure

Most Favored Nation drug pricing: How it works

From political slogan to pricing reality

When President Trump took office a second time, many in the health policy community wondered whether the idea of tying prices paid by federal health programs to those in other wealthy nations would become a policy priority or remain campaign rhetoric? The verdict is in: Most Favored Nation pricing is very real and likely here to stay in some form. It reinforces and compounds the pricing pressures introduced in recent U.S. legislation, including the Affordable Care Act, the Inflation Reduction Act and the One Big Beautiful Bill Act.

There’s an important distinction to be made between legislation enacted by Congress and a policy adopted by the executive branch – executive orders can be challenged in court, overridden by Congress, and voided or altered by the next administration. For the time being, these are pilot programs, run out of the Center for Medicare & Medicaid Innovation, with their continuation dependent on the White House. However, the policy has gained enough political traction that international reference pricing is likely to remain part of the policy debate well beyond the Trump Administration. This new reality has consequences throughout the drug development and commercialization lifecycle, affecting everything from clinical trial design to indication prioritization and portfolio strategy.

Ensuring a successful product launch demands that we understand how this pricing scheme model – and which products and stakeholders are likely to be most affected. Here are the nuts and bolts:

MFN’s three operating pathways: GUARD, GLOBE and GENEROUS

The U.S. Most Favored Nation policy has three arms corresponding to key federal drug benefit programs – two for Medicare, which covers Americans 65 years of age and up, and one for Medicaid, which covers working-age patients in poverty or with disabilities. More than a third of Americans receive coverage under these two programs. The three arms are:

GUARD, for Medicare Part D. The policy (Guarding U.S. Medicare Against Rising Drug Costs) applies to certain self-administered, single-source drugs in the Medicare Part D prescription drug benefit, which covers most small-molecule treatments and some biologics, including retail, mail-order and other self-administered drugs. Proposed as a mandatory measure with specified exemptions, GUARD will use an international benchmark to determine manufacturer rebate liability where the relevant U.S. price exceeds the ex-U.S. rate.
GLOBE, for Medicare Part B. This arm (Global Benchmark for Efficient Drug Pricing) covers certain high-cost, single-source drugs administered by a healthcare professional in a clinical setting – hospitals, infusion centers, etc. It targets the buy-and-bill, separately payable market, with the eligible drug list to be reviewed and updated quarterly. As with GUARD, the pilot program is designed to run across five “performance years,” from October 1 2026 to September 30, 2031, with an additional two “payment years” to follow.
GENEROUS, for Medicaid, which, unlike Medicare, is jointly funded by the federal government and states and run by the states. This arm (GENErating cost Reductions fOr U.S. Medicaid) sketches out a voluntary model for states and manufacturers, using supplemental rebates to align Medicaid net prices more closely with prices in selected foreign markets. Launched in January 2026, the model is meant to run for five years. As of September, CMS said all 50 states plus Puerto Rico and the District of Colombia have indicated their intention to participate in the program.

This three-pronged policy promises to impact the lion’s share of U.S. state and federal spending on medications, and will have knock-on effects in commercial coverage through spillover.

Reference baskets: Which countries will impact U.S. drug price benchmarking

The Inflation Reduction Act (2022) established Medicare Part D and Part B Inflation Rebate Program, requiring manufacturers to reimburse the government when prices of covered drugs in specified categories rise faster than inflation. Under the GUARD and GLOBE pilots the Centers for Medicare & Medicaid Services (CMS) is testing alternative benchmark for these rebates based on external rather than internal reference pricing. This benchmark will be pegged to the lowest-adjusted GDP-adjusted price paid by an Organisation for Economic Co-operation and Development member country with a GDP per capita of at least 60% of U.S. GDP, based on list prices (GUARD and GLOBE) and/or net prices voluntarily submitted by manufacturers procured by CMS (GENEROUS). These are as follows:

GUARD and GLOBE: 14 European countries plus Australia, Canada, Israel, South Korea and Japan.
GENEROUS: The G7 countries (Canada, France, Germany, Italy, Japan, the U.S. and the United Kingdom) plus Denmark and Switzerland.

List vs. net pricing and the open question of data sourcing

Companies participating in the GENEROUS program are required to share net pricing information — the “real” price after the deduction of discounts and rebates — with CMS for all markets concerned. For the GUARD and GLOBE programs, however, this is voluntary. List price-based referencing grants manufacturers more latitude in price negotiations, while net pricing puts the squeeze on manufacturers and opens up a raft of questions about data collection, verification, comparability and confidentiality. Will CMS utilize third-party data in the absence of net data from companies? Will they “Trust but verify” company pricing data, to borrow the old Sovietism? How the agency will conduct due diligence remains an open, and potentially consequential, question.

Exposure is global but not equal

Legislation often leaves key details to be worked out later. Executive orders leave even more unanswered questions, but proposed rules published in the Federal Register offer some clues.We can see that some of the products with greatest exposure to the policy will include:

High-spend, single-source products without generic or biosimilar competition.
Products with a substantial U.S./international price gap (e.g., where the NHS is paying a third less than Medicare).
HCP-administered specialty biologics covered under Medicare Part B, particularly those in oncology, immunology, neurology, and select rare diseases – all singled out by the GLOBE pilot as key categories for federal scrutiny.
High-cost Part D drugs dispensed through pharmacy channels, which could fall under the purview of the GUARD pilot if they meet the spending, single-source and category criteria.
Products with low net prices in reference markets relative to the U.S. due to discounts, tenders or repeated price reductions.

That list covers a lot of ground, and few if any companies will be unaffected. Accordingly we should be thinking about exposure at a product, not company, level, weighing each asset against:

Federal program and channel
Single-source status
U.S. spending
Therapeutic category
Basket-country presence
Lowest and weighted international prices
List-to-net differences
Applicable exemptions
Re-referencing frequency

Life science companies can best position themselves for this pricing sea-change by building a product-level view of international price corridors and testing exposure under several plausible list-price and net-price scenarios.

In our next post in this series we’ll dig deeper into which healthcare products and stakeholders stand to gain from MFN pricing and which stand to lose.

Read our white paper, MFN as a Catalyst for Strategic Reinvention, to learn more about how companies can defend the value of their products and ensure a successful commercial launch in a post-MFN environment. For help in gauging your product exposure and developing strategies to safeguard their value, please get in touch with our consulting team.