Government-imposed Most Favored Nation (MFN) drug pricing would weaken the U.S. biopharmaceutical ecosystem—putting future treatments and cures for American patients at risk.
Why it matters: Biopharmaceutical innovation depends on long-term, high-risk investments. But MFN policies that tie U.S. prices to those set by foreign governments fundamentally reshape investment decisions and discourage the development of new medicines.
By the numbers:
- A University of Chicago analysis estimates that MFN pricing in Medicare and Medicaid would slash R&D funds by nearly 50%.
- That significant drop in R&D could result in up to 500 fewer new treatments over 10 years.
- A separate estimate shows under a broad MFN policy, investments from small and emerging biopharmaceutical companies could fall by up to 90%.
Background: Drug development often takes more than a decade and billions of dollars before patients see a new treatment. MFN imposes price ceilings by importing foreign government price controls, which can reduce the predictability of future revenues and results in fewer companies being able to attract the capital required to fund early-stage research. This can narrow the pipeline of new medicines before they ever reach patients.
What works: For more than 40 years, the U.S. has led the world in drug development—giving American patients the earliest access to new medicines while America’s IP system balances innovation and affordability. That balance delivers more choices than anywhere in the world and real savings as competition from brand competitors and generics leads to lower costs:
- Close to 900 new medicines have been launched in the U.S. since 2000.
- Competition leads to manufacturer rebates which can lower the costs of brand medicines by 50% or more.
- Nine in 10 U.S. prescriptions are filled with low-cost generics.
- These generics come with an average copay of about $7––far cheaper than in other countries.
- Due to generic utilization, prescriptions filled in Medicare and Medicaid cost 18% less on average than in other countries.
Smart policy choices matter: Europe embraced government price controls decades ago—and lost its biopharmaceutical leadership. MFN would push the U.S. down the same path, increasing reliance on other countries for new medicines.
We’re already seeing the impact of price setting on U.S. innovation. The Inflation Reduction Act’s “pill penalty” has contributed to a 70% drop in investment in small molecule drug development since the law was introduced. This comes at a time when China is actively seeking to overtake the U.S. in global drug development. Doubling down on MFN-style price setting would accelerate that shift.
Bottom line: MFN may look appealing on paper, but it ignores the real drivers of high costs. Today, about 50 cents of every dollar spent on brand name medicines goes to middlemen and others who play no role in developing treatments. Real solutions should:
- Protect innovation.
- Target true cost drivers: PBMs and insurers who drive up patient costs, hospital markups under 340B and foreign governments not paying their fair share for innovative medicines.
Learn more about why MFN is a bad deal for Americans at PhRMA.org/PriceSetting.
Matthew Norawong
Matthew is a senior manager on PhRMA’s Public Affairs team focusing on Medicare, Medicaid, importation and more. Prior to coming to PhRMA, he previously worked as a health policy analyst for National Journal’s Network Science Initiative, primarily supporting companies in the life sciences industry. Matthew completed his undergraduate studies in political science at the University of Washington and subsequently earned a Master of Public Health from the George Washington University. A native of the Pacific Northwest, Matthew currently resides in Washington, DC. Outside of the office, Matthew is an avid runner and enjoys playing bass guitar with his indie rock band.
Matthew Norawong