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.
Since 1999, there has been no adjustment for inflation for the £20,000 to £30,000 cost-effectiveness hurdle in England. As a result, the real inflation-adjusted prices have been reduced to less than half of what they were in 1999. In addition, the UK government just announced an additional mandatory rebate on drugs of 32.2% in the second half of 2025. Other European governments have resorted to similar drug pricing cuts to bring their drug costs within inadequate budgets. MFN will import arguably the worst of these unfair practices directly into the US.
China wins?
The Chinese biotech industry is rising rapidly. A recent report5 from the US National Security Commission on Emerging Biotechnology shows China’s commitment to making biotech a strategic priority. As a result, China has been moving from manufacturing mostly generic drug formulations to the creation of biotech hubs.6 Summit Therapeutics licensed a PD-1 inhibitor from a Chinese biotech company called Akeso two years ago. The new drug has recently shown to outperform Keytruda in head-to-head trials in lung cancer. Today, a third of all in-licensed new molecules originate from China, up from virtually zero in 2019.7
With government support and with lower regulatory restrictions and costs, Chinese firms are enjoying a strong competitive advantage versus US firms that swim up against their governmental tide. From my perspective, the US government should embrace a strong pharmaceutical industry rather than sending it to follow the many industries that have migrated to lower-cost countries. Trying to fix poor industrial policy with tariffs later may not be the best solution.
About the Author
Ed Schoonveld is a value and access advisor for Schoonveld Advisory and author of The Price of Global Health.
References
1. Hollan, M. President Trump Announces Most-Favored-Nation Policy for Pharma Prices. Pharmaceutical Commerce. May 12, 2025. https://www.pharmaceuticalcommerce.com/view/president-trump-announces-most-favored-nation-policy-for-pharma-prices
2. Most Favored Nation Model. US Centers for Medicare & Medicaid Services. May 12, 2025. https://www.cms.gov/priorities/innovation/innovation-models/most-favored-nation-model#:~:text=The%20MFN%20Model%20was%20a,affecting%20quality%20of%20care%20for
3. HHS, CMS Set Most-Favored-Nation Pricing Targets to End Global Freeloading on American Patients. US Department of Health and Human Services. May 20, 2025. https://www.hhs.gov/press-room/cms-mfn-lower-us-drug-prices.html
4. Miltimore, J. Price Controls Have Failed for 4,000 Years—and Humans Still Haven’t Learned. Foundation for Economic Education. September 12, 2022. https://fee.org/articles/price-controls-have-failed-for-4-000-years-and-humans-still-haven-t-learned/#:~:text=While%20many%20attributed%20the%20famine,into%20a%20full%20blown%20famine
5. Charting the Future of Biotechnology. National Security Commission on Emerging Biotechnology. April 2025. https://www.biotech.senate.gov/final-report/chapters/
6. Wainer, D. The Drug Industry Is Having Its Own DeepSeek Moment. The Wall Street Journal. February 7, 2025. https://www.wsj.com/health/pharma/the-drug-industry-is-having-its-own-deepseek-moment-68589d70
7. van den Akker, R. China's Rise as a Biotech Innovation Hub: 4 Key Strategic Questions for US Biopharma Executives. PwC. May 8, 2025. https://www.pwc.com/us/en/industries/health-industries/library/china-biotech-sector.html
