History of the US MFN Policy
The Most Favored Nation policy primarily targets Medicare (a federal health insurance program) drugs classified as Part B i.e. those administered in clinical settings. Prices under this policy would be benchmarked against the lowest prices paid by OECD (The Organization for Economic Co-operation and Development) countries, where the national incomes per capita are closer to that of the US.
The rule was designed as a demonstration model under the Center for Medicare and Medicaid Innovation (CMMI), authorised by the Affordable Care Act.
A 2024 study published in PubMed Centralwhich analysed data for all prescription drugs available in the US and comparable countries, found that in 2022, the US manufacturer’s gross prices were 278% of those in 33 OECD nations combined. In other words, drug prices in other countries were about 36%—or just over one-third—of US prices.
However, Trump’s original MFN rule (often referred to as “Trump’s Drug Pricing Rule”) faced significant opposition from pharmaceutical companies and healthcare providers, who argued it would stifle innovation and reduce provider reimbursements. In 2021, federal in the US courts blocked the rule’s implementation due to procedural shortcomings. The policy was later scrapped under the Joe Biden regime.
Despite industry objections, some pharmaceutical stocks rose following the executive order’s announcement, indicating investor skepticism about its immediate impact.
Industry leaders argue that price controls could harm research and development, especially for rare disease treatments. They also emphasise that systemic inefficiencies and middlemen significantly contribute to the high cost of drugs in the US.
Related US Laws and Policies
This executive order builds upon previous legislative efforts to address high drug prices. Notably, the Inflation Reduction Act of 2022 allows Medicare to negotiate drug prices for selected medications, a move opposed by the pharmaceutical industry, which claims it threatens innovation and treatment access.
Similarly, the CREATES Act of 2019 aimed to foster competition by preventing brand-name drug manufacturers from withholding samples needed to produce generics. While these policies reflect an ongoing push to rein in drug costs, industry resistance and implementation challenges suggest that significant price reductions remain difficult to achieve.
