The news: The leading pharma trade group PhRMA is suing federal health agencies to block a mandatory Medicare Part B most-favored-nation (MFN) pricing rule set to take effect in January. The rule would require drugmakers to pay rebates when US prices exceed international benchmarks, but with exemptions for certain companies, including those that struck separate pricing agreements.

Zooming out: The Trump administration has pursued several approaches to lowering prescription drug prices alongside MFN agreements and policies.

These include:

• Tariffs: As a result of pharma tariff threats, President Trump negotiated drug pricing agreements in exchange for exemptions with both individual drugmakers and countries.
• IRA negotiations: Medicare drug price negotiations, authorized under the Biden-era Inflation Reduction Act, have continued under Trump, with negotiated prices for the first 10 drugs taking effect in January and another 15 drugs selected for negotiations that same month.

Why it matters: The lawsuit marks the pharma industry’s first court challenge to this administration’s mandatory MFN model. A similar MFN rule introduced during Trump's first term was blocked by federal courts before it could take effect in January 2021.

PhRMA says the voluntary MFN agreements are acceptable, but opposes the mandatory pricing. It claims CMS is trying to impose MFN pricing on Medicare without congressional approval. The lawsuit also seeks to prevent this and future administrations from using the same authority to impose drug pricing controls without congressional approval.

Implications for pharma companies: While the CMS estimates only four manufacturers will initially be affected by the Medicare Part B pricing after deals and exemptions, the longer-term stakes extend beyond those companies. Many drugmakers secured temporary relief through pricing agreements, and most of those deals end in three years. If the rule survives the legal challenge, those companies could face mandatory MFN pricing when their agreements expire. A ruling in CMS's favor could also open the door to expanding MFN pricing to more drugs and Medicare programs without new legislation.

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