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Trump’s MFN Drug Pricing Policy Is Reshaping Pharmaceutical Markets
The United States is seeking to curb pharmaceutical expenditure by incorporating international price referencing into public health insurance programs, including Medicaid and Medicare. This policy direction was formalized on 12 May 2025 through the executive order Delivering Most Favored Nation Prescription Drug Pricing to American Patients. At Medaffcon, developments related to the MFN framework are being followed by Jarmo Hahl.
The administration of U.S. President Donald Trump has introduced the Most Favored Nation (MFN) principle into pharmaceutical pricing policy. The underlying objective is to address the persistent price gap whereby U.S. patients pay substantially higher prices for medicines compared with patients in Europe and other OECD countries.
MFN Drug Pricing: Policy Background and Objectives
Within the pharmaceutical context, MFN implies that the price of a medicine in one country may serve as a benchmark for pricing in other markets. In theory, a low price in a reference country can influence price levels globally. In practice, however, the situation is considerably more complex.
At present, the scope of MFN policy and its associated instruments remain limited. The coverage of products, payer segments and pricing mechanisms is narrow, and the policy framework continues to evolve. Moreover, the legal foundations of MFN pricing in the United States remain uncertain, creating additional complexity for stakeholders.
According to Jarmo Hahl, it is currently not possible to reliably predict the real-world impacts of MFN policy. The interdependencies between pricing, access, investment incentives and regulatory responses are still poorly understood. At the same time, key elements of the policy remain subject to legal and political scrutiny.
From Executive Order to Implementation: TrumpRx, GENEROUS, GLOBE and GUARD
Following the 12 May 2025 executive order, several large pharmaceutical companies entered into agreements including substantial discounts offered through the TrumpRx portal, alongside MFN-based pricing commitments for medicines supplied to Medicaid under the GENEROUS program.
Looking ahead, MFN policy is expected to be further reinforced through the introduction of the GLOBE and GUARD initiatives, which are designed to strengthen the implementation of the Inflation Reduction Act (IRA). A central feature of both initiatives is international price referencing to selected OECD countries, linking U.S. net prices more closely to international benchmarks.
Potential Impacts on R&D Investment
Although the full effects of MFN policy are not yet clear, certain implications can be anticipated. When the world’s largest pharmaceutical market seeks to anchor its prices to the lowest international levels, overall industry revenues are likely to come under pressure.
This development may have a disproportionate impact on investment in research and development, particularly in high-risk and innovative therapies. Reduced expected returns may lead companies to reassess R&D portfolios and focus investment on projects with lower risk profiles or clearer commercial potential.
In addition, companies may increasingly concentrate investments and operational activities in larger, higher-revenue markets, potentially reducing their presence in smaller countries.
Implications for Europe: Pricing Pressure and Access Risks
MFN policy is likely to exert upward pressure on drug prices in Europe. From an industry perspective, maintaining sufficiently high European price levels may become necessary to prevent U.S. prices from being pulled down further through MFN comparisons.
At the same time, there is a risk that pharmaceutical investment in Europe may become more selective, focusing on large EU markets while smaller, traditionally lower-price countries receive less attention. This could weaken medicine availability in countries such as the Nordics and contribute to increased healthcare expenditure.
Long-Term Effects on Innovation and Market Launches
Over the longer term, MFN-driven pricing dynamics may slow the development of new medicines, delay product launches in smaller markets and reduce the overall pace of pharmaceutical innovation.
MFN functions as a powerful global steering mechanism that influences R&D investment decisions, international pricing dynamics and patient access to new therapies. U.S. drug prices are higher in part because pricing is not negotiated centrally, as is common in Europe. In this context, MFN-based models may function poorly, risk distorting global markets and create challenges related to medicine availability.
Key MFN-related initiatives
- TrumpRx
- Direct-to-consumer (DTC) model incorporating a partial MFN pricing principle.
- MFN Agreements
- Focus on Medicaid and the TrumpRx model. Include tariff exemptions and investment commitments.
- GENEROUS (Generating Cost Reductions for U.S. Medicaid)
- Voluntary Medicaid pricing model.
- Pharmaceutical companies provide additional discounts to align Medicaid net prices with those in other countries (G7 + Switzerland, Denmark).
- MFN benchmarking is based on the PPP-adjusted second-lowest net price among reference countries.
- GLOBE
- GLOBE (Global Benchmark for Efficient Drug Pricing) is a mandatory MFN model targeting Medicare Part B drugs (primarily hospital-administered medicines).
- Manufacturers provide additional discounts if U.S. prices exceed international reference levels.
- The aim is to reduce Medicare Part B spending and align prices more closely with international benchmarks.
- GUARD
- GUARD (Guarding U.S. Medicare Against Rising Drug Costs) is a mandatory MFN model targeting Medicare Part D drugs (outpatient prescription medicines).
- Applies to high-cost medicines marketed by a single manufacturer and to biologics.
- Additional rebates are required if U.S. net prices exceed the international MFN benchmark.
- Shared Features of GLOBE and GUARD
- Mandatory application, MFN logic and international price referencing. Benchmark derived from a basket of 19 OECD countries, using either the lowest list price or a manufacturer-submitted, verified average net price, adjusted according to predefined methodologies. It is currently understood that products with a negotiated Maximum Fair Price (MFP) are excluded from both GLOBE and GUARD.
Key abbreviations
- MFN (Most Favored Nation): A pricing principle linking domestic prices to international reference prices.
- IRA (Inflation Reduction Act, 2022): Introduced inflation-based penalties and negotiations on the Maximum Fair Price (MFP).
