Most Favored Nation Drug Pricing and Manufacturer Agreements

Most Favored Nation or "MFN" drug pricing is a policy through which prescription drug prices in the United States are aligned with the lowest prices paid for the same drugs in other developed nations. Attempts to implement MFN drug pricing in the United States date back to 2020, when it was first proposed via executive order ("EO") by the first Trump administration. The 2020 MFN policy targeted Medicare Part B drugs and biologics but was never implemented as a result of successful legal challenges. 

In 2025, the current administration renewed its efforts to implement MFN pricing in the United States. As of this writing, five manufacturers have entered voluntary agreements with the administration implementing MFN pricing. And on November 6, 2025, the Centers for Medicare and Medicaid Services ("CMS") announced a new payment model, "GENErating cost Reductions fOr U.S. Medicaid" ("GENEROUS Model"), that is designed to make MFN prices available to state Medicaid programs via manufacturer rebates.

To contextualize why manufacturers may have agreed to implement MFN drug pricing in 2025, it is important to understand the process through which these respective MFN agreements were reached. On May 12, 2025, the Trump administration issued an executive order titled "Delivering Most-Favored-Nation Prescription Drug Pricing to American Patients" ("2025 EO"). The 2025 EO provided, in part, consumers in the United States are overcharged for prescription drugs, and "Americans must … have access to the most-favored-nation price." 

The 2025 EO directed CMS to "communicate [MFN] price targets" to manufacturers by June 11, 2025, but did not define "MFN price" or provide any instruction as to how the Department of Health and Human Services ("HHS") secretary should calculate MFN prices. Manufacturers were given 180 days, or until November 8, 2025, to negotiate MFN drug pricing terms with HHS, or else the secretary was instructed to propose a rulemaking plan to impose MFN pricing.

The 2025 EO had several other directives for HHS, including facilitating "direct-to-consumer purchasing programs for pharmaceutical manufacturers." The goal is to lower drug prices for American consumers through direct sales; however, no specific methods for facilitating such sales were specified. The EO also directed the HHS secretary to "propose a rulemaking plan to impose [MFN] pricing" on manufacturers, and to explore other mechanisms "to the extent consistent with law" to lower domestic drug prices, if "significant progress" was not made toward MFN prices. This appeared to be a signal to the pharmaceutical industry that the administration would pursue all available avenues in pursuit of MFN pricing implementation.

Although we cannot know for certain, in what appeared to be a response to seemingly unsuccessful MFN price negotiations with manufacturers, on July 31, 2025, President Trump issued letters to 17 leading pharmaceutical manufacturers outlining the steps they must take to bring down the prices of prescription drugs. The letters informed manufacturers that if they "refuse[d] to step up," the federal government would "deploy every tool in [its] arsenal to protect American families from continued abusive drug pricing practices."

To date, the Trump administration has reached agreements with five manufacturers "to bring prices in line with those paid in other developed nations." The administration announced that these agreements "will provide substantial price relief on numerous products taken by millions of Americans." 

Based on public statements, some patterns have emerged among these negotiated agreements. 

• The manufacturers will provide every state Medicaid program access to the agreed-upon drug prices across their product portfolios and will guarantee MFN pricing for newly launched innovative medicines. 
• Manufacturers will be required to facilitate direct-to-consumer purchasing programs and sell to consumers through TrumpRx.gov.
• Manufacturers have executed separate agreements with the U.S. Secretary of Commerce to delay Section 232 tariffs for three years on pharmaceutical products and ingredients. Questions remain as to what will happen after three years. 
• Some manufacturers have negotiated for U.S. Food and Drug Administration ("FDA") Commissioner National Priority Vouchers ("CNPVs") for pipeline assets. The newly minted CNPV pilot program, which is discussed in greater detail below, offers an unprecedented opportunity to reduce drug and biological product application or efficacy supplement review times from 10 to 12 months to just one to two months.
• Four of the five manufacturer agreements include commitments for significant investment in U.S. manufacturing (e.g., one manufacturer agreed to a $50 billion investment in U.S. manufacturing and research and development by 2030; another committed to at least $27 billion in new U.S. manufacturing investments; and another agreed to invest $10 billion to strengthen its domestic footprint). However, specifics related to investment requirements and onshoring have not been further clarified. 

In addition, it appears based on CMS's November 6, 2025, announcement that CMS intends to implement MFN pricing under the GENEROUS Model via Medicaid supplemental rebates. Under the proposed pilot program, participating manufacturers will enter "negotiated" agreements with CMS to make MFN prices available to participating state Medicaid programs. States will then make coverage selections based on available manufacturer offerings and execute a CMS-approved state rebate agreement with each participating manufacturer. Supplemental rebates will be aligned with negotiated MFN prices. Given the infancy of these programs, industry would be well advised to monitor developments in the implementation of the voluntary model closely. 

According to CMS's Requests for Applications, the agency will take a series of steps to calculate the amount of the supplemental rebates that will be owed to state Medicaid agencies under the GENEROUS Model. CMS will first determine an MFN price benchmark, which is "the second lowest country-specific manufacturer-reported net price, adjusted by gross domestic product per capita using a purchaser power parity method." The countries included in the "country basket" from which CMS will take the second-lowest net price include the United Kingdom, France, Germany, Italy, Canada, Japan, Denmark, and Switzerland.  

Within each country, the manufacturer-reported net price for a Covered Outpatient Drug ("COD") "would be calculated at the NDC-9 level as the average net price [in that country] for the previous twelve month period, after all rebates, discounts, and other price concessions provided by the manufacturer are deducted from the list price." To complete this calculation, manufacturers will be required to disclose their post-negotiation net prices, which has raised confidentiality questions in the industry given that post-negotiation prices are typically confidential. 

After determining the MFN price benchmark, CMS will reportedly employ that benchmark in its determination of the guaranteed net unit price ("GNUP"). While CMS has not provided further details as to how GNUP will be calculated under the GENEROUS Model, it notes that it "can make allowances in the final GNUP price" to account for "certain unique manufacturer costs relating to the storage, handling, or distribution of the COD." Ultimately, the amount of the supplemental rebate owed to participating state Medicaid agencies will be the wholesaler acquisition cost of the COD, minus the sum of the GNUP and the standard unit rebate amount. Per CMS guidance, rebates provided to state Medicaid programs under the GENEROUS Model will not impact the determination of manufacturers' Medicaid "best price" or 340B ceiling price.

Read the full Innovative Insights: Legal Updates in Life Sciences | Fourth Quarter 2025.