If the U.S. were to adopt MFN pricing, it would foolishly import those foreign delays and access restrictions, in turn reducing American consumers’ access to cutting-edge treatments.

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Drug price controls offer the perpetually alluring yet ultimately illusory promise of reducing consumer costs, inducing foreign countries to foolishly impose them.  

In practice, those drug price controls only make life-saving and life-improving pharmaceuticals less available.  

That’s not open to debate.  Straightforward numbers and real-world data confirm it.  

Accordingly, the most foolish thing that Americans could do in the effort to address drug prices is import those nations’ self-destructive drug price controls through something known as “Most Favored Nation” (MFN) designations.  

Unfortunately, amid the ongoing debate over pharmaceutical pricing in the United States, that MFN idea has gained traction among some policymakers who encourage the Trump administration to adopt it.  

In essence, the MFN mechanism would cap U.S. drug prices at the lowest price paid by other developed nations.  

In other words, the MFN idea would capitulate to foreign freeloader nations by importing their price controls to our shores.  

Proponents contend that the MFN scheme would finally force foreign governments to pay their fair share for prescription drugs and thereby cut costs for U.S. consumers.  As wise commentators like Pacific Research Institute President and CEO Sally Pipes note, however, that policy course ignores root causes and only replicates the very problem – drug unavailability – that it pretends to resolve.  

The reasons that MFN schemes would only exacerbate existing problems are several.  

First, drug price controls depress innovation in foreign nations such as those in the European Union (EU) that practice them.  That’s because drug innovation requires massive investments in research and development (R&D), often exceeding $2.6 billion to bring each new potential drug to the consumer market.  Consequently, when foreign governments impose artificially low prices, they necessarily strip pharmaceutical innovators of the revenue required to fund new treatments.  As a result, fewer breakthrough therapies arrive, and the slowdown in medical advances can cost lives.  

As noted above, that consequence isn’t hypothetical or open to debate.  To wit, the more market-oriented U.S. accounts for an astounding two-thirds of all new drugs introduced to the world, far above our share of the world’s population or economic production.  That’s no accident or coincidence.  

Second, and partly as a consequence of the dynamic described immediately above, drug price controls reduce access to lifesaving drugs.  Nations that impose them suffer from delayed drug availability and restricted access, whereas the newest and most effective pharmaceutical innovations typically reach the U.S. market first.  

To illustrate, of 270 medicines introduced in the U.S. from 2011 through 2018, only 53% became available in France, 64% in Britain and 67% of them in Germany.  Only 52% of that 270 became available to Canadians, 41% to Australians and 48% to the Japanese.   

If the U.S. were to adopt MFN pricing, it would foolishly import those foreign delays and access restrictions, in turn reducing American consumers’ access to cutting-edge treatments.  

Third, MFN proponents rely upon the common fallacy that U.S. pharmaceutical producers can simply demand that foreign nations accept prices that will allow them to recoup the costs of research, development, production and marketing their drugs.  The ugly reality is that strict legal barriers prevent them from demanding price adjustment by foreign bureaucrats.  As a primary example, European nations can exploit Article 5 of the Paris Convention for the Protection of Industrial Property by forcibly violating patents held by companies that withdraw their products from EU markets.  

Accordingly, pharmaceutical companies can’t simply threaten to not sell their products at the artificially low prices that EU governments seek to impose.  If multiple companies attempted to withdraw, moreover, EU regulators would file antitrust complaints against them.  

A better option exists.  

Namely, instead of importing other countries’ price controls, the Trump administration should begin government-to-government trade negotiations to reduce global drug pricing disparities.  The U.S. Trade Representative (USTR) can pressure foreign governments to ease their price controls and begin paying their fair share, which would in turn ensure that U.S. innovation is adequately rewarded and compensated.  

The effort to reduce drug costs for American consumers is a necessary and laudable one, but applying other countries’ price controls through MFN policies won’t end freeloading, it will replicate it.  It would reduce investment in R&D, thereby reducing pharmaceutical innovation, in turn suffocating access to lifesaving drugs and weakening U.S. leadership.  

In the long run, preserving the American incentive structure that fuels medical innovation is the way to ensure continued healthcare and pharmaceutical advancement.  The Trump administration and other policymakers must therefore resist the illusion of short-term cost reductions that will only undermine long-term progress.  

We should aim to remain the world leader in drug innovation and availability, not a casualty of misguided policies like the MFN proposal.