Issue 12

Most Favored Nation: The Prisoner’s Dilemma of Drug Pricing

October 2025
Resources > Curta on Call

By Scott Ramsey, MD, PHD

Senior Partner and Chief Medical Officer, Curta

Adjunct Professor at the University of Washington, School of Pharmacy, CHOICE Institute

Professor at the University of Washington, School of Medicine

Jens Grueger, PhD

Senior Advisor for Global Evidence, Value, Pricing and Access Strategies, Curta

Sean D. Sullivan, BSPharm, PhD

Senior Partner and President, Curta
Professor, University of Washington, School of Pharmacy

Scott Ramsey, MD, PhD

Senior Partner and Chief Medical Officer, Curta
Professor, Fred Hutch Cancer Center Professor, University of Washington, School of Medicine

It almost sounds like a catchy acronym from Cold War diplomacy. But the US administration’s “Most-Favored Nation” (MFN) policy is neither about trade blocs nor détente. It’s about forcing US drug prices down by tying them to the lowest price charged in a select set of OECD countries whose GDP/Capita is at least 60% that of the US ($85,800/capita in 2024).1,2 On paper, it looks like a clever shortcut to improve affordability in the US. In practice, it creates a classic prisoner’s dilemma for the pharmaceutical industry — and collateral damage for patients and health care budgets worldwide.

In practice, it creates a classic prisoner’s dilemma for the pharmaceutical industry — and collateral damage for patients and health care budgets worldwide.

The Mechanics of Price Compression

Let’s start with the basics. In the US, manufacturers launch at a list price of their choosing, then negotiate net prices with payers. Everywhere else, prices for new drugs are negotiated with national health authorities before launch based on their demonstrated added benefit — and are often anchored to cost-effectiveness assessments or other measures of willingness to pay.

America spends roughly 0.8% of its GDP on pharmaceuticals, while Italy and Spain spend 0.5%, Germany 0.4% and France a paltry 0.3% of GDP. The list prices of branded pharmaceuticals abroad are almost always lower, sometimes dramatically so. A recent analysis by researchers at RAND, contracted by the Office for the Assistant Secretary for Planning and Evaluation (ASPE) suggests that US list prices are 2.7 to 3.8 times higher than those in comparable markets.3 This isn’t new information, but under MFN, it suddenly matters more: the US would peg its ceiling to the OECD floor. For new products, manufacturers can occasionally “price to product” when clinical breakthroughs justify setting a new price point independent of existing prices. CAR-T therapies are a case in point: US and European launch prices were surprisingly aligned. But more often, firms are stuck “pricing to market,” where HTA bodies compare clinical benefits and tie prices to alternative therapies on the market, often generics or biosimilars. With scheduled price reviews and the introduction of new indications, prices in Europe typically erode by 9.5-16.2% over the first 5 years, while they are often increased in line with inflation in the US. Even if manufacturers manage to launch new products at similar prices in the US and MFN countries, there would be significant divergence over time.4

Mitigation or Mirage?

Can companies maneuver around MFN? In theory, yes. What might manufacturers do?

  • Inflating list prices abroad while quietly granting bigger confidential discounts. Lilly announced a 170% list price increase in the UK for the diabetes and weight-loss medicine tirzepatide.
  • Withholding launches for products or specific uses (indications) of these products in reference countries to prevent prices being dragged down.
  • Segmenting products into US vs. rest-of-world versions to escape international referencing or introducing a slightly different version of the same product in different countries.

But each path leads to pitfalls. Higher list prices abroad may backfire on private insurance and result in higher co-pays for patients, without changing what national health systems pay. Delaying launches or not launching at all punishes patients and further fuels inequity. Already today, price negotiations delay launch in Europe by 578 days on average, and less than 50% of new products are available in many countries in Southern and Eastern Europe.5

And none of this solves the net-price conundrum. Discounts and rebates are massive — often 50% or more. Expecting European payers to suddenly disclose or raise net prices to US levels is unrealistic. Even the most disciplined global launch sequencing can’t change the arithmetic: MFN shrinks margins, reduces utilization, or both.

The Prisoner’s Dilemma

Here’s the strategic bind. Suppose one manufacturer refuses to launch its product in MFN countries, hoping to protect its US premium price. Competitors may still launch, anchoring the US benchmark downward. The refuser protects nothing and loses ex-US revenues. The competitor gains market share abroad but triggers US price compression. Either way, someone defects — and everyone loses.

Consequences: Innovation on the Line

The short-term outcome of MFN is obvious: lower US drug expenditures anchored to ex-US list prices. But the longer-term effects are darker.

  • R&D squeeze: Less global revenue means fewer dollars reinvested in next-generation therapies.
  • Price inflation in the US: Where firms retain flexibility, they’ll raise launch prices to preempt future cuts.
  • Access inequities: Patients outside the US will wait longer or miss out entirely on new medicines, as firms hesitate to launch into reference markets.

Ironically, US patients may end up paying more at launch while benefiting less from innovation. The global pipeline narrows, not expands.

Beyond Brute Force

The critique embedded in MFN — that other countries underpay for innovation — is not wrong. The US does carry a disproportionate share of biopharma’s financing. But brute force harmonization won’t fix this imbalance.

A better path would be gradual: allow net prices in Europe to rise with budget growth, permit inflation-linked adjustments post-launch, and reward true innovation with transnational premium pricing. That takes time, collaboration, and political will — none of which fit neatly in a campaign slogan or a 63-character tweet.

Final Word

MFN may be branded as fairness, but in practice it’s a prisoner’s dilemma with predictable outcomes: squeezed revenues, fewer launches, less innovation. For industry and policymakers alike, the challenge is not to equalize prices by fiat, but to design a system where value — real, demonstrable value — is recognized and rewarded on both sides of the Atlantic.

CONNECT WITH US
The experts at Curta are ready to discuss your evidence and access needs. For more information, contact Scott at Scott.Ramsey@Curta.com.

References

  1. White House. Executive Orders. May 12, 2025. https://www.whitehouse.gov/presidential-actions/2025/05/delivering-most-favored-nation-prescription-drug-pricing-to-american-patients/.
  2. US HHS. May 20, 2025. HHS, CMS Set Most-Favored-Nation Pricing Targets to End Global Freeloading on American Patients. https://www.hhs.gov/press-room/cms-mfn-lower-us-drug-prices.html.
  3. Comparing Prescription Drugs in the U.S. and Other Countries: Prices and Availability [Internet]. Washington (DC): Office of the Assistant Secretary for Planning and Evaluation (ASPE); 2024 Jan 31. Comparing Prescription Drugs in the U.S. and Other Countries: Prices and Availability: 2024 Feb. Available from: https://www.ncbi.nlm.nih.gov/books/ NBK611301/.
  4. Vogler S, Schneider P, Zimmermann N. Evolution of Average European Medicine Prices: Implications for the Methodology of External Price Referencing. Pharmacoecon Open. 2019 Sep;3(3):303-309. doi: 10.1007/s41669-019-0120-9.
  5. Newton M, Stoddart K, Travaglio M, Troein P. EFPIA patients W.A.I.T. indicator 2024 survey. IQVIA. https://efpia.eu/media/oeganukm/efpia-patients-wait-indicator-2024-final-110425.pdf.