Reject Most-Favored-Nation Drug Policy

Author: Rachel Greszler, Senior Research Fellow

Affordability 101 · Chapter 5: Freedom to Innovate and Compete

Plymouth Institute for Free Enterprise

Topline

Most-Favored-Nation policy won’t lower U.S. drug prices; it will restrict lifesaving and life-improving drug innovation, and it could increase U.S. dependence on Chinese drugs.

Background

Americans are rightly upset that countries with government-run health care systems free-ride on U.S. pharmaceutical innovations while using their monopsony power to pay lower prices than Americans for pharmaceutical drugs. To address concerns about other countries’ freeloading, the Trump administration issued a Most-Favored-Nation (MFN) executive order including policies that generally aim to require pharmaceutical companies to charge Americans the same or lower prices as they charge other countries for patented drugs.

While this sounds like a commonsense idea, the reality is that, instead of other countries agreeing to pay higher prices (and thus sharing more equally in the research and development costs of pharmaceuticals), they would likely retaliate and sue those pharmaceutical companies. Thus, instead of pushing more development costs onto other countries, it would push other countries’ socialist pricing systems into the United States. This would stifle new development of lifesaving and life-improving drugs and reduce Americans’ access to medical innovation. Moreover, as China does not follow other countries’ price-cap model and Chinese medical innovation is already gaining ground on the U.S., implementing the MFN policy could cause Americans to become more dependent on China for their pharmaceuticals.

Action Items (Congress and the Administration)

• Congress should not codify a MFN prescription drug policy into law.
• The administration should replace its MFN policy with a carrot-and-stick approach of incentivizing other countries to pay higher pharmaceutical prices by reducing U.S. trade barriers (carrot) or by imposing targeted tariffs against the worst offenders (stick).
• Congress and the administration should pursue reforms that reduce unnecessary regulatory burdens, encourage competition and innovation, and protect intellectual property rights.

How It Would Make Life More Affordable

• It would help ensure continued medical innovation and development of lifesaving prescription drugs, which often prevent more expensive interventions.
• Medical innovation is crucial to increasing lifespans and improving quality of life.
• Without medical innovation, new lifesaving drugs won’t be available at any price.

Bottomline

MFN drug pricing would impose more costs than benefits for consumers, but reforms that reduce regulations, increase competition, and protect intellectual property rights would lower drug prices for Americans.

This memo is part of Affordability 101, Advancing American Freedom’s playbook of 101 policy solutions to make life more affordable.

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