President Trump’s Most Favoured Nation (MFN) proposal for pharmaceutical pricing may have dropped out of the news due to other geopolitical developments, but remains an important yet highly contentious topic. RA Capital has picked up the baton with a thought piece called “No More Freeriding on the Great American Drug Deal”, arguing that wealthy countries should pay their fair share toward the costs of therapeutic innovation. They use a publicly documented methodology that considers net prices (rather than list prices) and GDP per capita purchasing price parity data. They conclude that ex-US developed countries are contributing disproportionality less (around 60%) and argue for European countries paying a fair market price to eliminate this disparity.
The US market typically generates between 56% and 60% of the global profit for patented pharmaceuticals (while the US represents only 27% of the world economy and 4% of the global population), so there is clearly a major disconnect. However, here are five counterarguments to MFN.
Core tenets of the Free Market include:
These principles underpin US capitalism and have fuelled unrivalled economic and social development over at least the past two centuries. MFN represent direct government intervention that many commentators believe conflicts with long-standing American free-market traditions. Of course, it could be argued the same should apply to other wealthy countries, e.g., Western Europe, but their governments exercise direct or indirect price controls on pharmaceuticals. This suggests that it is valid to say the playing field is not level, but this brings us to point 2.
There is no compulsion for a US drug developer to sell its products outside the US. If it is not happy with the prices that apply there – either due to government intervention or simply economic condition – it can simply choose not to engage with those markets. There are examples where this has been the outcome. Some companies have pulled their drugs from Europe after negotiations stalled over price. These withdrawals typically occur when European governments, which regulate drug prices, refuse to meet the price levels set by the manufacturer, leading the company to withhold the product from the market rather than accept a lower price. In most cases, the issues are resolved through behind-closed-door negotiations – largely in line with free market principles. If a company only sells within the US, the US price becomes the de facto MFN price. However, there is a caveat here: restricting sales to the domestic market transduces the need for companies to maximize their returns to shareholders; if they can make incremental returns by selling at lower prices ex-US, they are duty bound to do so by corporate law.
Several developed countries use Quality-Adjusted Life Years (QALYs) to determine drug pricing. This has been a subject of significant legal and political scrutiny in the United States, which has primarily been addressed through legislation, regulatory guidance, and administrative decisions:
MFN would bring US drug prices down to levels determined by the controversial value-based pricing mechanisms and would be a backdoor to the use of QALYs. As such, bringing US prices down to European levels would appear to be a non-starter. The alternative: pressuring European and other customers to pay US prices (or the price determined by an RA Capital-like calculation). This could face considerable opposition and potentially trigger retaliatory actions that could undermine international trade cooperation.
On the subject of level playing fields, it’s essential to consider the relative efficiencies of healthcare systems internationally. The US system is often cited as less efficient, more complex and less transparent than many of its peers. PhRMA states that in 2023, Pharmacy Benefit Managers (PBM) took $140 billion in rebates and fees, driving up American medicine costs. These PBM profits may exceed the total cost of drugs overseas. Just three PBMs control nearly 80% of the U.S. market and they heavily influence what medicines patients can get, what they pay and what hoops they must jump through.
The supply chain for pharmaceuticals is opaque and fragmented. It involves many intermediaries who each add cost and opacity: manufacturers, wholesalers, pharmacy benefit managers (PBMs), insurers, and pharmacies. PBMs, in particular, negotiate rebates and fees with manufacturers but often lack transparency, sometimes favoring higher-priced drugs to maximize their own profits. This complexity and lack of transparency obscure true pricing and limit competition.
The US healthcare system's complexity, with multiple insurance plans and varying coverage rules, and the threat of legal action driving the practice of “defensive medicine”, leads to high administrative costs and inefficiencies. Insurers often shift more costs to patients through higher copays, deductibles, and premiums, which can discourage medication adherence and further inflate overall costs.
In addition, the US allows direct-to-consumer pharmaceutical advertising, which is banned in most other countries. Drug companies spend billions on marketing, raising costs and driving demand for newer, more expensive drugs, even when their comparative effectiveness is uncertain.
These qualities are unique to the US. Why the system has not yet been disrupted by smart, tech-enabled, streamlined competitors remains an open question. The intermediaries in the US market add substantial additional costs and alter free market dynamics. Their elimination would reduce costs, including those of pharmaceuticals, and there is little justification in trying to shift other countries with the consequences of US peculiarities.
The iPhone 16 price in the USA is $799 and in China it is 5,999 yuan (≈ $799). Should there be a price differential to account for GDP per capita PPP? Or should US customers benefit from prices that do not reflect the income differences of Chinese customers? Alright, maybe China is not a developed economy, let's try the UK where the price is £799 (~$1,012). UK GDP per capita PPP is 73% of the USA, so according to the RA Capital approach, the fair price of an iPhone 16 in the UK (using US prices as a base) should be $583. Imputing a US fair price from a UK base would make a fair price in the US of $1,386. Surely what's sauce for the pharmaceutical goose is sauce for the tech gander? To the argument that tech pricing reflects production costs, note that there is very high IP content in both product classes. Apple and other tech giants are not pricing on a cost-plus model. Indeed, tech margins and ROI are actually higher than pharma, which reinforces the argument that US tech customers are benefiting from lower relative prices paid by overseas consumers.
Having outlined the main critiques of MFN, many policymakers and industry analysts nonetheless favor the approach. Proponents argue that aligning U.S. prices with international benchmarks could ease domestic patient costs, foster a more equitable sharing of innovation expenses among high-income countries, and help sustain long-term R&D investment. The brief summaries below outline five of the most frequently cited arguments in favour of MFN, offering a clearer view of the full policy debate.
| Argument | Rationale |
| Global cost‑sharing | US patients shoulder a disproportionate share of R&D recovery; indexing to peer nations would spread the burden more fairly. |
| Leverage against foreign price controls | Many OECD governments are monopsonies; an MFN benchmark could nudge overseas prices upward over time. |
| Innovation at risk | Persistent cross‑border price gaps may redirect investment away from high‑cost, high‑risk drug discovery; MFN seeks to reinforce incentives. |
| Administrative simplicity | MFN references prices that already embody each nation’s assessment framework, avoiding new US bureaucratic layers. |
| Public sentiment and fiscal pressure | Voters and budget analysts want lower domestic drug spending; MFN promises near‑term relief without rewriting patent law or overhauling PBMs. |
Viewing drug pricing through an MFN lens shifts attention to European price levels, even though the underlying cost problem lies within America’s own complex web of intermediaries, rebates, defensive medicine, and direct-to-consumer advertising. Exporting high prices or importing regulated ones will not solve that. Real relief will come from cleaning up the domestic supply chain, shedding opaque fees and paying for clear therapeutic value. Companies already decide where they launch and at what return, so MFN merely shifts domestic challenges onto trading partners. Truth be told, I don’t see this as freeloading by other countries at all. Rather, it is a consequence of the way that Free Market principles have been applied and manifest in the US pharmaceutical market. Addressing these issues, however, will be no easy feat.
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