MFN drug pricing ties Medicare payments to the lowest prices abroad, promising lower costs but sparking legal, access, and innovation concerns.
Most Favored Nation (MFN) drug pricing is a policy currently supported by the Trump Administration that aims to reduce prescription drug prices in the US by basing them on lower prices in other developed nations.1 Politically, MFN has populist appeal across party lines but faces opposition from both Republicans wary of price controls and Democrats who prefer direct Medicare negotiation. The name comes from trade agreements; when countries make trade deals, they sometimes promise to give each other their “most favored nation” treatment—meaning the best deal they give to anyone. Here, it means the US gets the best (lowest) price that pharmaceutical companies offer to any developed country.1
The logic behind MFN is based on the observation that Americans pay far more for prescription drugs than people in other wealthy nations, often 2 to 3 times as much for identical medications.2 But this price differential exists not because of higher production costs or discrimination, but because most developed countries use centralized price negotiation tactics or regulations, and the US doesn’t.3,4 The UK’s National Health Service (NHS) negotiates directly with manufacturers, Germany evaluates therapeutic benefit and sets reference prices, and France has a formal price review system. All of these countries leverage their position as single or dominant purchasers to extract lower prices.3 In contrast, the US has a fragmented system where multiple payers negotiate separately, and the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 prohibits direct government price negotiation until the Inflation Reduction Act of 2022.5 This enables pharmaceutical companies to charge significantly higher prices in the US, with proponents arguing that Americans effectively subsidize global drug development and lower foreign prices.
Under the policy, Medicare would pay for certain drugs based on an international price index, specifically no more than 102% to 105% of the lowest price among comparable developed countries, including Canada, the UK, Japan, Germany, and France.6 The policy typically targets Medicare Part B drugs: medications administered in clinical settings like infusions or injections in lieu of medications picked up at the pharmacy, including many expensive specialty medications, cancer treatments, and biologics.7
Supporters of MFN emphasize that rapidly rising Medicare Part B drug spending makes international reference pricing an attractive tool to generate federal savings, ease pressure on taxpayers, improve Medicare’s long-term solvency, and reduce beneficiaries’ out-of-pocket costs, particularly for those subject to coinsurance tied to drug prices.7 MFN is also framed as a way to rebalance negotiating power. Because Medicare is generally required to cover FDA-approved drugs, manufacturers retain significant leverage in price negotiations. Tying reimbursement to international benchmarks establishes a clear price ceiling, limiting that leverage without requiring explicit cost-effectiveness thresholds, which remain politically contentious in the US context.8
At the same time, critics argue that MFN effectively imports foreign price controls without importing the institutional structures that make them workable. Countries like the UK can negotiate aggressively because their health systems control market access; Medicare lacks comparable authority under current law.4 This asymmetry could reduce MFN’s effectiveness unless paired with broader reforms that expand Medicare’s negotiating authority or give the program greater leverage over coverage and market access.
Implementation is also complicated by legal and technical constraints: Industry lawsuits challenge the executive authority to impose international reference pricing, raising concerns about administrative overreach and regulatory takings; at the same time, confidential rebates and risk-sharing agreements cause international list prices to diverge from actual transaction prices, making it difficult to construct an accurate and comparable international price index.6,9
Manufacturers could respond by raising prices in reference countries, which is known as a price spillover. This delays drug launches in lower-price markets and countries with stricter price controls.10 Manufacturers could also launch new drugs first—or exclusively—in the US to create country-specific formulations to complicate price comparisons, or withdraw products from lower-price markets altogether.10 Beyond manufacturer behavior, MFN pricing also raises concerns about patient access within the US—lower Medicare reimbursement rates could lead some providers, particularly smaller practices and rural hospitals, to stop offering certain high-cost or complex drugs if payments no longer cover acquisition and administrative costs. This potentially limits access to essential treatments for vulnerable populations.8
Sawyer Y. Mustopoh is an undergraduate student at the University of Kentucky with majors in public policy, finance, and accounting.
Joseph L. Fink III, JD, BSPharm, DSc(Hon), FAPhA, is professor emeritus of pharmacy law and policy and former Kentucky Pharmacists Association Professor of Leadership at the University of Kentucky.
Opponents also argue that high US prices are necessary to fund research and development, noting that developing a new drug costs billions once regulatory hurdles and failed trials are included, and that the United States—despite its small share of the world’s population—accounts for roughly 40% of global pharmaceutical revenue.11 As a result, opponents contend that lowering US prices would reduce research and development (R&D) investment.12
While this argument has some empirical support, critics counter that high drug prices do not reliably translate into greater innovation: Pharmaceutical firms often spend as much or more on marketing than on research, rely heavily on publicly funded early-stage science through the National Institutes of Health, return substantial profits to shareholders via dividends and stock buybacks, and continue to prioritize niche and orphan drugs with small patient populations but extremely high prices—suggesting that pricing power and market exclusivity, rather than aggregate revenue, drive research priorities.13,14 There is also uncertainty about the magnitude of MFN’s impact on innovation because the relationship between revenue and R&D spending is not linear, and reduced revenues could lead firms to accept lower profits or improve development efficiency instead of cutting research outright. Therefore, some economists argue that current US drug prices largely generate monopoly rents beyond what is necessary to sustain innovation.12
More broadly, MFN raises questions about trade-offs Americans are willing to accept; lower drug prices in other countries often coincide with more restrictive formularies and slower access to new treatments. Whether patients in the US would tolerate similar constraints remains an open political question. As it is, the current system places a disproportionate burden on American patients and taxpayers. However, tying US prices to foreign benchmarks does not resolve whether global drug prices are too low, US prices are too high, or both. If MFN succeeds, the global system must adjust—through lower profits, higher foreign prices, reduced R&D spending, or some combination thereof. Determining which outcome is most desirable is as much a normative judgment as an economic one.
