Key Takeaways
- Reintroduction of the MFN model. The Trump Administration has revived the most-favored nation (MFN) drug pricing model as a seven-year test, which would tie US drug prices to the lowest prices paid by certain OECD countries—an approach previously blocked by courts.
- Concerns over price controls. Critics argue that the MFN model imports restrictive foreign price controls, potentially distorting the market, discouraging innovation, and weakening the US pharmaceutical industry’s global competitiveness.
- Strategic risks to US pharma. The policy may unintentionally benefit foreign competitors, especially China’s fast-growing biotech sector, by weakening domestic pharmaceutical incentives and sending innovation and investment abroad.
The ink was barely dry on President Trump’s drug pricing-related executive order when it was reported1 that the Trump Administration reintroduced a "most-favored nation (MFN)" model for drug pricing. The previous attempt was initiated under Trump’s first term but was blocked by the courts over process technicalities and not further pursued after President Biden took office. The MFN model has been introduced as a seven-year test, only to circumvent proper decision-making in Congress. It may make sense for the Centers for Medicare & Medicaid Services (CMS) to have latitude in testing new approaches, but a seven-year drug price control scheme is not reversible, and in my opinion, is likely to do irreparable damage to drug innovation.
What is MFN model pricing?
Under the final rule of the previous plans,2 prices of prescription drugs in the US would have been capped at the lowest price, adjusted for purchasing power, and paid by any country in the Organization for Economic Cooperation and Development that has a gross domestic product (GDP) per capita that is at least 60% of the US GDP per capita. The MFN model would have operated as a “test” for seven years. In what exact form the US is considering implementation of MFN pricing is yet unknown, but as of press time, the Department of Health and Human Services and CMS reportedly look to highlight commitments in the coming weeks.3
As it looks now, there appear to be some problems with the approach, including that it imports the worst outcome of unfair price controls, while also undermining US industry competitiveness versus China.
Importing unfair price controls
In US society, price controls have always been a taboo, as they are seen as contrary to free market competition. Historically, price controls have caused market distortion, supply problems, and famine.4 Many foreign governments have resorted to price controls, initially to counter what were seen as unfair drug pricing practices, but more often to keep national healthcare expenses within insufficient budgets. The influx of new pharmaceutical technologies and growing healthcare needs of an aging population with poor dietary habits are creating funding challenges that we don’t seem to be ready to address. It is much easier to just mandate price reductions.
The English example
As an illustration, consider drug pricing in England. In 1999, the National Institute for Health and Care Excellence set a general threshold of £20,000 to £30,000 per quality-adjusted life year, which is a measure for meaningful years of additional survival. The introduction meant a significant reduction of reimbursed drug prices versus other European countries, resulting in parallel trade (authorized trade between EU countries) and additional subsequent price referencing by other countries.
