Don’t Import the Distortion: Why MFN Drug Pricing Would Weaken U.S. Innovation
Executive Summary
U.S. patients pay more than patients in other wealthy countries for the same branded prescription drugs, but that gap does not prove that the United States overpays. It reflects the systematic suppression of branded-drug prices abroad through monopsony purchasing, health-technology assessment, and external reference pricing. Most-favored-nation (MFN) pricing would respond by tying U.S. reimbursement to foreign prices. In April 2025, the U.S. Department of Commerce opened a Section 232 national-security investigation into imports of pharmaceuticals and pharmaceutical ingredients, and the Bureau of Industry and Security later moved toward an onshoring framework that conditions tariff relief on MFN pricing agreements.
That is the wrong remedy for a real problem. Foreign governments use pricing institutions to underpay for innovative medicines while shifting a disproportionate share of global pharmaceutical research and development costs onto U.S. patients and purchasers. But by tying U.S. reimbursement to foreign prices, MFN pricing would import the very distortion U.S. policy should confront.
The likely result would be lower expected returns on pharmaceutical R&D, fewer new drugs, and a shift away from high-risk therapies in areas such as rare disease, oncology, and neurology, where patients often have few or no alternatives. Evidence from pharmaceutical markets, Medicare reimbursement shocks, and related medical-device markets points in the same direction: compressing the revenue base that finances innovation reduces investment, weakens supply, and can push production offshore.
The better framework is to treat foreign pricing systems as anticompetitive market distortions when they suppress competitive returns, distort price formation, and free-ride on U.S.-financed innovation. The Department of Commerce should remove the MFN-pricing condition from the company-specific onshoring framework. Section 232 should function as a national-security tool, not a backdoor domestic price-control regime. The Office of the U.S. Trade Representative should instead pursue targeted trade enforcement and negotiations aimed at transparency, nondiscrimination, and a more proportionate foreign contribution to global pharmaceutical R&D.
I. Introduction
U.S. patients pay more than patients in other wealthy countries for the same branded prescription drugs. That fact is not in dispute. The fight is over what it means—and what, if anything, U.S. policy should do about it.
Advocates of most-favored-nation (MFN) pricing read the gap as evidence that the United States overpays. Their proposed fix is to tie U.S. reimbursement to prices paid abroad. In practical terms, MFN pricing would make foreign prices a benchmark—or ceiling—for what U.S. programs pay for covered drugs.
That conclusion is wrong. The U.S.–foreign price gap does not show overpayment in any meaningful aggregate sense. Nor does it reflect competitive pricing abroad. It reflects the systematic suppression of branded-drug prices in foreign markets through three mechanisms: monopsony purchasing, health-technology assessment, and external reference pricing.
A monopsony exists when a dominant buyer can push prices below competitive levels. In pharmaceutical markets, that buyer is often a national health system or single-payer government program. Health-technology assessment (HTA) refers to administrative methods that estimate whether a drug’s expected health benefits justify its price. External reference pricing (ERP) means setting a domestic drug price by looking to prices charged in other countries. Together, these tools operate as industrial policy: foreign governments suppress prices for innovative drugs while shifting much of the cost of global pharmaceutical research and development (R&D) onto the United States.
The broader U.S. drug-pricing debate has increasingly moved toward importing those foreign benchmarks. The Centers for Medicare & Medicaid Services tried an MFN model for Medicare Part B in 2020, but courts blocked the rule and the agency later withdrew it. The Inflation Reduction Act of 2022 (IRA) created a Medicare “maximum fair price” negotiation program that is not formally MFN pricing but operates through similar administered-price mechanisms for selected high-revenue drugs. And in 2025, the U.S. Department of Commerce opened a Section 232 national-security investigation into imports of pharmaceuticals and pharmaceutical ingredients, asking whether foreign-government practices threaten domestic production capacity and supply-chain resilience. The Bureau of Industry and Security (BIS), a Commerce component, later moved toward an onshoring framework that conditions tariff relief on MFN pricing agreements.[1]
That is the wrong turn. The Section 232 investigation correctly identifies a real trade and national-security problem: foreign pricing institutions can weaken U.S. pharmaceutical interests by suppressing returns, shifting R&D costs to U.S. patients, and discouraging domestic production. But MFN pricing does not fix that distortion. It imports it.
Recent empirical work shows how strongly drug-development pipelines respond to expected U.S. revenue. A 20% reduction in expected U.S. pharmaceutical revenue—the upper end of what Congressional Budget Office (CBO) and academic models have projected for MFN- and IRA-style proposals—is associated with roughly 8.6% fewer new drugs developed by U.S. companies and 7.5% fewer new drugs developed by European companies. By contrast, a comparable cut to European revenue produces only about a 4% drop in U.S. drug development. The relationship is lopsided: U.S. revenues drive innovation around the world, while European revenues mostly drive innovation in Europe. Compressing the U.S. revenue base does not redistribute global pharmaceutical investment. It shrinks it.
The drugs that disappear from the pipeline would not be randomly distributed. When firms must triage portfolios under tighter revenue expectations, the projects most vulnerable to cancellation are those with the most marginal economics: breakthrough therapies for rare diseases, drugs for narrow patient subpopulations, and frontier programs in fields like neurology and oncology, where development costs and failure rates are highest. The patients who lose most are those whose conditions are hardest to treat and for whom no good alternative therapy exists.
Aggregate estimates therefore understate the welfare loss. They count the cancer-immunotherapy program that never starts the same as the line extension that never starts. The human cost of that shift cannot be measured with precision, but its direction is clear: patients least served by today’s medicine depend most heavily on preserving the revenue tail that makes tomorrow’s treatments worth pursuing.
The U.S.–foreign price gap is therefore not simply a pricing problem. It is a trade problem. Foreign governments use monopsony buying power, biased HTA, and reference pricing to suppress branded-drug prices below competitive levels and shift R&D costs onto U.S. patients. Importing those prices through MFN locks in the foreign distortion rather than confronting it.
This brief makes four claims.
First, the relevant distortion is concentrated in branded innovative drugs, not the prescription-drug market as a whole. Generics dominate U.S. prescription volume, and U.S. generic prices are low by international standards. The headline U.S.–foreign price gap comes from a narrow segment of patented drugs where foreign governments can capture U.S.-financed innovation returns.
Second, pharmaceutical price controls carry unusually high dynamic costs. Drug development requires large fixed investments, long timelines, high failure rates, and returns earned during a limited patent-protected window. MFN pricing would compress the price-cost margin that finances R&D, reduce expected innovation, and skew investment away from high-risk therapies whose social value may far exceed their reimbursement price.
Third, foreign pricing institutions can be understood as anticompetitive market distortions (ACMDs): government-backed interventions that suppress competition, distort price formation, and shift innovation costs across borders. That framework distinguishes legitimate domestic health policy from trade-distorting free-riding and gives policymakers a way to identify the specific foreign practices that warrant a U.S. response.
Fourth, the proper remedy is targeted trade enforcement, not domestic price imitation. ACMD-calibrated tariffs and negotiations can target the foreign institutions causing the distortion while preserving U.S. incentives for innovation and domestic production. MFN does the opposite. It uses trade authority to impose a domestic price-control regime that undermines the same pharmaceutical base Section 232 is supposed to protect.
Part II explains the branded-drug distortion and why international comparisons reveal foreign underpayment for innovative drugs rather than general U.S. overpayment. Part III examines the economics of pharmaceutical price controls, the empirical link between expected revenue and innovation, and why MFN pricing is a poor instrument even for those who favor lower U.S. prices. Part IV develops the ACMD framework and explains why targeted, distortion-calibrated trade enforcement is better suited to the foreign-pricing problem than broad tariffs or MFN pricing. Part v concludes with the policy recommendation: remove the MFN-pricing condition from the onshoring framework and address foreign price suppression directly through disciplined trade enforcement.
II. The Branded-Drug Distortion
The central empirical fact in the most-favored-nation pricing debate is the mismatch between the U.S. share of global pharmaceutical spending and the U.S. share of global pharmaceutical profit. In 2022, the United States accounted for about 50% of worldwide prescription-drug revenue but only 13% of volume among countries covered by IQVIA MIDAS, a widely used pharmaceutical-sales database. Among OECD countries, the U.S. share was roughly 60% of revenue and 24% of volume.[2] The profit gap is even starker: although the United States accounts for roughly 34% of total OECD gross domestic product at purchasing-power parity, American consumers generate more than 70% of pharmaceutical profits across those countries.[3]
At first glance, per-drug price comparisons point in the same direction. U.S. prescription-drug prices average roughly 2.56 times those in OECD comparator countries overall and 3.44 times those comparators for branded drugs specifically.[4] Stopping there makes the United States look like the outlier that overpays.
But that framing focuses on a small, highly visible segment of the market: expensive branded medicines still under patent. Generics account for roughly nine of every 10 U.S. prescriptions, and U.S. generic prices are the lowest among peer countries.[5] When prescription costs are weighted by real-world prescribing volume rather than by the highest-priced branded medicines, net Medicare and Medicaid prescription costs are about 18% lower than those in Germany, France, the United Kingdom, Canada, and Japan.[6]
Foreign governments are not suppressing drug prices across the board. They target the narrow slice of branded innovative drugs where U.S.-funded R&D returns can be captured. That same slice drives the headline price comparisons.[7]
The result is a concentrated distortion, not a general U.S. pricing failure. Foreign systems use monopsony purchasing, HTA, and ERP to push branded-drug prices below competitive levels. Those tools distort price discovery, shift innovation costs to U.S. patients, and create a pricing ratchet in which one suppressed foreign price becomes another country’s benchmark. The policy question is not whether U.S. prices differ from foreign prices. They do. The question is whether the United States should import the distortion or confront it.
A. How Foreign Pricing Systems Suppress Branded-Drug Prices
Three mechanisms produce this distortion in branded-drug markets.
The first is centralized-negotiation monopsony.[8] A monopsony exists when a dominant buyer can push prices below competitive levels. Single-payer and national-health-service systems consolidate buying power that no private purchaser could replicate, then use that power to impose price ceilings on patented medicines. The basic economic effect is familiar: prices fall below competitive levels, quantity may fall as well, and surplus shifts from sellers to the buyer. The difference here is that the buyer is a sovereign and the seller is making long-horizon, option-valued investments in R&D.
The second mechanism is biased health-technology assessment. HTA agencies evaluate whether a drug’s expected health benefits justify its price. In practice, they often give public buyers a technical framework for setting reimbursement below willingness to pay. Once an HTA agency assigns a low “value” to a therapy, that figure becomes a reimbursement ceiling. And the methods often understate innovation’s value.
Germany’s Federal Joint Committee, known as G-BA, routinely refuses to recognize surrogate or intermediate endpoints—clinical-trial measures such as progression-free survival or HbA1c levels—unless manufacturers satisfy strict evidentiary requirements. That depresses assessed value for therapies whose most important benefits take years to observe.[9] The United Kingdom’s National Institute for Health and Care Excellence held its £20,000–£30,000 per quality-adjusted life-year threshold unchanged from 1999 until April 2026, when it raised the band modestly to £25,000–£35,000. That remains well below an inflation-adjusted equivalent of roughly £56,800, given cumulative U.K. inflation of about 90% over the same period.[10] France’s Comité Économique des Produits de Santé routinely ties each new drug to a five-year volume contract, with mandatory clawbacks of 50% to 70% of revenue above the agreed cap.[11]
These agencies also discount future health gains, which means they systematically underweight the long-term benefits of curative or disease-modifying therapies. The calculation may look technocratic. The effect is not. It pushes prices lower for treatments whose social value may unfold over decades.
The third mechanism is external reference pricing. Under ERP, governments set domestic prices by looking to prices charged in other countries. The method turns one country’s suppressed price into another country’s ceiling.
Canada’s 2022 move to the Patented Medicine Prices Review Board 11 basket deliberately removed the United States and Switzerland—its two highest-price comparators—and substituted six mid-priced OECD countries.[12] Canada’s parliamentary budget officer estimated that the change would have cut 2018 spending on patented drugs by about 19%.[13]
South Korea’s “two-waiver” pathway goes further. A drug must first be priced below the lowest figure in the “A7” high-income comparator countries, which include the United States. The National Health Insurance Service then references OECD countries outside the A7, expressly omitting U.S. prices.[14] The result is a pricing ratchet: the most suppressed foreign price becomes the benchmark for still more suppression elsewhere.
B. Anticompetitive Market Distortions
Together, these institutions create what this paper terms an anticompetitive market distortion (ACMD). Foreign governments use monopsony buying power, HTA, and administratively imposed price ceilings to hold manufacturer revenues below competitive levels. They replace market-based price formation with government price-setting. The immediate harm is not fewer competitors. It is a distorted price-discovery process. The downstream consequence is a distorted global allocation of R&D costs.
These institutions qualify as ACMDs because they suppress prices below competitive levels and substantially lessen competition without any overriding public-policy justification relative to a system that internalizes the costs of pharmaceutical innovation rather than free-riding on them.
They also generate two related forms of free-riding. First, foreign patients receive innovation largely financed by U.S. purchasers at artificially suppressed prices, shifting welfare abroad. Second, foreign pharmaceutical firms and national economies gain a competitive advantage over their U.S. counterparts by capturing sales and operating lower-cost health systems without contributing proportionately to the research and development that makes those medicines possible.[15] Viewed this way, these pricing institutions resemble a coordinated international buyers’ cartel—conduct that would almost certainly attract antitrust scrutiny if private purchasers tried it.[16]
Two clarifications are important.
First, this trade-distortion framework does not require proof that foreign pricing institutions explicitly favor domestic firms over U.S. companies. Systematically suppressing pharmaceutical returns below competitive levels disadvantages U.S. innovators in major export markets even without domestic favoritism. These same policies have also weakened Europe’s own pharmaceutical sector, which has fallen from global leadership in the 1970s to a far more limited role today.[17]
Second, characterizing these institutions as ACMDs helps separate legitimate domestic health policy from trade-distorting conduct. Countries remain free to ration care, decline to reimburse particular treatments, or negotiate prices for their own populations. The problem arises when governments systematically structure those policies to avoid bearing any meaningful share of pharmaceutical-innovation costs while continuing to benefit from the resulting medicines.
III. Price Controls, Innovation, and the MFN Mistake
Price controls create familiar problems in ordinary markets: shortages when the controlled price falls below the market-clearing level, lower quality when suppliers cut costs in ways regulators cannot easily monitor, and weaker investment as capital moves to less-regulated alternatives.
Pharmaceutical markets face all three risks, but their cost structure makes the innovation loss especially severe. Drug development requires large upfront investment, long timelines, and repeated failure. Once a medicine reaches market, the marginal cost of producing each additional dose is often low. The price charged during the patent-protected window therefore does more than cover today’s pills. It finances the full R&D portfolio, including the many drug candidates that fail before approval.
That structure makes simple “lower prices mean higher welfare” intuitions unreliable. Lower prices may improve access to medicines that already exist, but they also reduce the expected returns that determine whether future medicines get developed at all. MFN pricing compounds that problem by tying U.S. prices to foreign benchmarks already shaped by monopsony purchasing, health-technology assessment, and external reference pricing. It does not correct a distortion. It imports one, then magnifies it through the market that most strongly drives global pharmaceutical innovation.
A. Price Controls Reduce Pharmaceutical Innovation
Pharmaceutical R&D is a high-fixed-cost, low-marginal-cost business. Developing a new molecular entity—a drug built around a new active ingredient—costs billions of dollars, and more than 90% of clinical drug-development programs fail.[18] Once a successful molecule is approved, the marginal cost of manufacturing each pill or dose is small relative to price. The price charged during the patent-protected window therefore finances the entire research portfolio: the successful drug and the many failed candidates behind it.
That makes pharmaceutical pricing different from pricing in markets with flatter cost structures. A price control does not simply transfer surplus from producers to consumers. It compresses the signal that determines whether firms invest in high-risk, long-horizon research in the first place.
Ramsey-Boiteux pricing addresses this problem. When firms must recover large fixed or common costs, pricing at marginal cost usually cannot cover total costs. The second-best solution is to recover those costs through differential markups, with larger markups where demand is less elastic.[19] Pharmaceutical R&D fits that model. It is a global joint cost, and each market that uses the resulting medicine must help recover it through the difference between price and marginal cost.
Patricia Danzon applies that logic directly to pharmaceuticals. Differential pricing across countries, set roughly in inverse proportion to demand elasticity, is the second-best efficient way to finance global R&D. Once the sunk cost of research is recognized, the standard welfare case against pharmaceutical price discrimination largely dissolves.[20] Uniform pricing is not the efficient benchmark that MFN pricing and external reference pricing (ERP) implicitly assume. Forced convergence toward a single price—and especially toward the lowest price a monopsony buyer will accept—moves pricing away from the efficient structure, not toward it.
The usual rejoinder is that lower prices improve access to medicines that already exist, while the losses fall on future patients whose drugs never get developed. That is true, but it understates the asymmetry. The short-run gain is bounded by current consumption and current willingness to pay. The long-run loss is the present value of forgone drugs, including curative or disease-modifying therapies whose value to patients may far exceed their reimbursement price. This is the classic seen-and-unseen problem in pharmaceutical pricing: the access gain is visible and immediate; the innovation loss is diffuse, delayed, and counterfactual.
The empirical literature points in the same direction. Researchers have used demographic shifts, coverage expansions, reimbursement shocks, and cross-country institutional differences to test how expected revenue affects pharmaceutical innovation. The estimates differ, but the direction does not: higher expected revenue produces more innovation, and lower expected revenue produces less.
Daron Acemoglu and Joshua Linn isolate the effect of market size on drug development by using demographic changes—older age cohorts growing or shrinking over time—that were unrelated to scientific opportunity. Their preferred estimate implies that a 1% increase in potential market size produces roughly 4% to 6% more new drug entries.[21] Pierre Dubois and co-authors, using improved data and methods, estimate a lower elasticity of 0.23, implying that about $2.5 billion in additional expected revenue is needed, on average, to support one new chemical entity.[22]
More recent work estimating these effects by region finds that innovation by U.S.-headquartered firms responds to U.S. expected revenue with an elasticity of roughly 0.43, while innovation by European-headquartered firms responds to U.S. expected revenue with an elasticity of roughly 0.38.[23] That finding directly supports the point at issue here: compressing U.S. revenue places an outsized drag on global innovation.
Applied to the Congressional Budget Office’s projected 10% to 20% reduction in expected pharmaceutical revenue under H.R. 3-style negotiation, those elasticities imply large effects. On the conservative Dubois elasticity of 0.23, the expected reduction in new-drug entries would be roughly 2.3% to 4.6%. On the regional estimates, the same revenue cut would imply roughly 4.3% to 8.6% fewer new drugs developed by U.S. firms and 3.8% to 7.6% fewer new drugs developed by European firms.[24]
Other estimates imply still larger losses. Rexford Santerre and John Vernon simulate a U.S. price-control regime that would have limited drug-price growth to general Consumer Price Index inflation from 1981 to 2000.[25] They estimate that the regime would have reduced capitalized pharmaceutical R&D by $265 billion to $293 billion, in 2000 dollars, and produced about 38% fewer new drug innovations over the period.[26]
Santerre and Vernon also compare those losses with the consumer-surplus gains the same regime would have generated. Applying Frank Lichtenberg’s estimate of pharmaceutical research productivity in life-years saved, they estimate the value of lives lost from forgone innovation at $19.7 trillion to $21.8 trillion—more than an order of magnitude larger than the estimated consumer-surplus gain of $176 billion to $767 billion.[27] Reasonable analysts can dispute the precise magnitude. They cannot plausibly claim the effect is zero.
Two U.S. policy examples clarify the mechanism. Margaret Blume-Kohout and Neeraj Sood examine the introduction of Medicare Part D, which expanded coverage in drug categories with high Medicare enrollment shares and increased expected revenue in those categories. R&D rose significantly more in the affected categories after implementation.[28] The demand expansion produced an innovation response.
Craig Garthwaite, Rebecca Sachs, and Ariel Dora Stern study the mirror-image case: the Affordable Care Act’s Medicaid expansion. That policy increased the number of covered patients, but Medicaid reimbursement remained suppressed by statutory rebates. They find no detectable innovation response. Expanding coverage at a statutorily low price did not add enough expected revenue to redirect investment.[29] The contrast is direct: price, not coverage alone, drives the research response. MFN proposals resemble the Medicaid case, not the Medicare Part D case. They expand the reach of administered pricing while cutting reimbursement toward foreign benchmarks.
The strongest quasi-experimental evidence comes from a related Medicare setting just outside pharmaceuticals. Yunan Ji and Parker Rogers study Medicare-mandated price cuts in durable medical equipment, such as insulin pumps, CPAP machines, and oxygen concentrators. Across affected device categories, Medicare reimbursement fell by 61% on average over seven to 10 years relative to unaffected categories. Using a stacked difference-in-differences design—a method that compares affected and unaffected markets before and after a policy shock—they find that more-exposed manufacturers reduced R&D spending by 53%, Food and Drug Administration device submissions fell by 25%, U.S. patents fell by 75%, and revenue declined by 44%.[30]
That study is informative because devices and drugs share the relevant cost structure: low marginal production costs, large sunk development costs, and investment decisions driven by expected returns. Ji and Rogers estimate an elasticity of patenting to the Medicare price of 1.05, which they note mirrors the average elasticity found in the pharmaceutical literature. The study does not prove the specific international-propagation mechanism of MFN pricing. It does provide clean evidence for the broader mechanism: compressing the price-cost margin that finances fixed and sunk development costs reduces innovation.
Ji and Rogers also document a second effect directly relevant to the national-security premise of the Section 232 investigation: price compression can move production offshore. After the Medicare cuts, new entry fell by 49%, driven by a 90% decline in entry by U.S. manufacturers, while foreign manufacturer entry did not change significantly. Among incumbent firms, outsourcing to foreign manufacturers rose by 28%.
Quality deteriorated as production shifted. Repair and replacement rates for affected devices rose by 0.8 percentage points, a 200% increase over the pre-period rate. Manufacturers that outsourced production saw a 129% increase in hospital-reported adverse events, with larger increases for those using foreign contractors. In other words, a domestic price ceiling pushed manufacturing offshore and weakened the same domestic production capacity and supply-chain resilience that the Section 232 investigation purports to protect.[31]
A complementary reimbursement shock comes from Ali Yürükoglu, Eli Liebman, and David Ridley’s study of Medicare Part B reimbursement reductions for physician-administered drugs. Shortages rose significantly more for drugs with higher Medicare patient shares and larger reimbursement cuts, showing that price ceilings compress manufacturer margins in ways that directly affect supply.[32]
The economics are straightforward. The price-minus-marginal-cost wedge during the patent-protected window does one job: it amortizes the fixed and sunk research costs of the whole portfolio, including the many failures that never reach market. Firms make forward-looking R&D decisions based on the expected size of that wedge, not simply on the number of covered patients. Expanding coverage at suppressed reimbursement may leave the wedge largely unchanged. MFN attacks it directly.
Aggregate revenue-innovation elasticities also understate the cost of MFN-style price controls because they treat R&D as one undifferentiated quantity. Pharmaceutical research is better understood as a portfolio of real options: projects that firms may continue, expand, abandon, or sell as new information arrives. Each project has a low probability of approval, a long development horizon, and a payoff distribution whose right tail finances the rest of the portfolio. Capping the price of the most successful drugs truncates that right tail. It changes not only how much firms invest, but which projects they choose to pursue.
That composition effect matters. Projects whose expected value depends most heavily on upside returns—breakthrough therapies in oncology, neurology, and rare-disease areas—are likely to suffer more than incremental improvements to existing drugs. The frontier gets squeezed first.
The effect is especially important for small, pre-revenue biotechnology firms, which drive much early discovery. Their financing depends on the prospect of acquisition or licensing at a price that compensates investors for extraordinary risk. When policy caps the reward for that risk, the option value of early-stage investment falls, the financing market tightens, and the pipeline of acquisition candidates shrinks.[33]
That is why aggregate-spending arguments—claims that “innovation continues” after price reforms—do not answer the case against MFN. They confuse the level of R&D with its composition. A pharmaceutical ecosystem may continue producing incremental refinements after substantial revenue compression while producing fewer breakthrough therapies. The welfare cost of that shift is large because breakthrough therapies are precisely the medicines whose value to patients most exceeds their reimbursement price.
B. Why MFN Pricing Is the Wrong Tool
Even if one accepts the premise that U.S. branded-drug prices should come down, MFN pricing remains a particularly poor way to accomplish that goal. Three features make it especially problematic.
First, MFN pricing and ERP propagate the lowest administratively set price across markets. If a manufacturer knows that the price it accepts in a small country will become the ceiling for prices in much larger markets, its rational response is to delay launching the product, forgo the market altogether, or negotiate confidential price-volume agreements that conceal the effective price. Those responses are already concentrated in countries whose prices are widely referenced elsewhere.[34] A U.S. MFN policy would amplify the problem. Manufacturers could delay U.S. launches to preserve global pricing flexibility or renegotiate confidential foreign agreements, with the resulting costs borne by foreign patients.
Second, the Centers for Medicare & Medicaid Services (CMS) effectively acknowledged the practical shortcomings of MFN pricing in its own 2020 interim final rule for Medicare Part B.[35] Although the rule was enjoined, later withdrawn, and never implemented, the rulemaking record remains instructive. CMS recognized that some patients would lose access to their existing providers and could instead face longer travel, alternative therapies with lower efficacy or greater risk, or delayed or forgone treatment.[36] That admission is telling. It reflects the agency’s own conclusion that importing foreign pricing mechanisms also imports the access problems they create.
Finally, the Inflation Reduction Act’s “maximum fair price” negotiation program is not formally an MFN system, but it operates through similar economic mechanisms. Like ERP and MFN, it imposes administered prices on a defined set of high-revenue drugs after they have been on the market for a prescribed period. It therefore changes expected returns and influences which medicines firms choose to develop.
The early evidence is consistent with that prediction. Following enactment of the Inflation Reduction Act, monthly post-approval oncology trials for small-molecule drugs fell by 45.3%, compared with 32.5% for biologics—a pattern consistent with the law’s earlier price-setting timeline for small molecules, at seven years after approval versus 11 years for biologics.[37] Other projections estimate that the nine-year price-setting trigger will reduce small-molecule R&D by roughly 12%, resulting in 188 fewer small-molecule treatments and 79 fewer new small-molecule drugs over 20 years.[38] Layering an MFN benchmark on top of the Inflation Reduction Act would reinforce the same incentives and further skew investment away from the therapies most vulnerable to reduced expected returns.
IV. ACMDs and Targeted Trade Enforcement
In April 2025, the U.S. Department of Commerce opened a Section 232 national-security investigation into imports of pharmaceuticals and pharmaceutical ingredients. Section 232 allows the department to investigate whether imports threaten national security, including by weakening domestic production capacity or supply-chain resilience.[39] Here, the department asked whether foreign-government practices distort U.S. pharmaceutical markets in ways that create those risks.
That inquiry correctly identifies foreign-pricing practices as a source of harm to U.S. pharmaceutical interests. The harder question is which policy tool addresses that harm without copying it.
MFN pricing fails that test. It imports foreign price suppression into U.S. domestic markets and replicates the squeeze on competitive returns that the Section 232 investigation identifies as a threat. A better response starts with the trade-policy literature on ACMDs.
The ACMD framework offers a disciplined way to identify which foreign practices warrant a U.S. trade response, measure the resulting harm, and distinguish trade-distorting conduct from legitimate domestic health policy. It also points toward a better remedy: targeted, temporary tariffs calibrated to the documented distortion, rather than broad sectoral tariffs or domestic price controls.
Used properly, ACMD analysis reframes the issue. The problem is not that foreign governments regulate health care. They may. The problem is that some pricing institutions systematically avoid bearing a meaningful share of global pharmaceutical R&D costs while consuming the medicines those investments produce. Corrective trade enforcement should target that free-riding at its source.
A. What Counts as an ACMD
An anticompetitive market distortion is a government intervention[40] that: (1) substantially lessens competition; (2) lacks an overriding legitimate public-policy justification, such as correcting a defined market failure or protecting public health and safety; and (3) gives certain private interests or entities an artificial competitive advantage over rivals.[41]
That definition separates ACMDs from ordinary regulation. Legitimate regulation can advance public goals. ACMDs skew the competitive landscape in favor of selected firms, sectors, or national interests.[42]
ACMDs also differ from purely private anticompetitive conduct. They arise from government action: rules, mandates, enforcement choices, procurement preferences, subsidies, or governance failures.[43] State backing makes them more durable than private restraints and often places them beyond the reach of ordinary antitrust enforcement.
Nor are ACMDs limited to familiar trade tools such as tariffs or broad subsidies.[44] They can include regulatory barriers that disproportionately impede foreign competitors, artificial cost reductions for favored firms, weak property-rights protection that undermines innovators, targeted subsidies without a clear public-policy rationale, discriminatory procurement rules, or advantages for state-owned enterprises.[45]
The common thread is government manipulation of market conditions to favor some economic actors over others. The result is less competition on the merits—and a market shaped more by political design than economic performance.[46]
B. Pharmaceutical ACMDs Abroad
Several foreign-government practices in the pharmaceutical sector satisfy the ACMD definition. The point is not to catalogue every distortion in international pharmaceutical pricing. It is to identify the kinds of institutions that ACMD analysis would mark as proper targets for U.S. trade enforcement.
Centralized negotiation is the first mechanism. Countries with national health-care systems or single-payer models use consolidated buying power to negotiate or impose strict price limits on medicines.[47] These systems create monopsony conditions: pharmaceutical firms face a dominant government buyer with market power no private purchaser could match. That suppresses the competitive-pricing dynamics that would otherwise discipline the market.[48]
A second mechanism operates through the evaluation of clinical evidence. Germany’s Federal Joint Committee, known as G-BA, narrows the endpoints manufacturers may use to show a drug’s value. Surrogate and intermediate measures—such as progression-free survival or HbA1c levels—support reimbursement only when sponsors clear demanding methodological hurdles. That depresses reimbursable value for therapies whose benefits take time to observe directly.[49]
The United Kingdom’s National Institute for Health and Care Excellence (NICE) held its £20,000–£30,000 cost-per-quality-adjusted-life-year threshold flat from 1999 until April 2026, even as U.K. consumer prices rose by roughly 90%. The recent move to a £25,000–£35,000 band recovers only part of that erosion.[50] France’s Comité Économique des Produits de Santé pairs each new reimbursement with a five-year volume contract whose clawbacks can recoup 50% to 70% of sales above the negotiated cap.[51] That caps upside while leaving firms to bear the downside risk.
Each mechanism, taken alone, can be defended as domestic cost containment. The cumulative cross-border effect is different. These systems refuse to internalize the global cost of pharmaceutical innovation and shift that cost—through the arithmetic of recoupment from the markets that remain—to U.S. patients.
External reference pricing (ERP) adds a third mechanism. ERP spreads suppression across jurisdictions by tying one country’s prices to another’s. Canada’s revised Patented Medicine Prices Review Board 11 basket, adopted in 2022, illustrates the design. Canada dropped the United States and Switzerland, its two highest-priced peer markets, and added six mid-priced countries in the Organization for Economic Cooperation and Development (OECD), mechanically lowering the comparator average used to benchmark Canadian prices.[52]
South Korea’s “two-waiver” framework goes further. A new drug must first be listed below the lowest price in the A7 advanced-economy basket, which includes the United States. The National Health Insurance Service then negotiates against prices in OECD countries outside the A7, removing U.S. prices from the reference set entirely.[53]
The structural point is simple: the lowest negotiated price in one jurisdiction becomes an input into price ceilings elsewhere. The downstream effect is a ratchet. A suppressed price in Country A lowers the comparator average for Country B, whose negotiated price then lowers the benchmark for Country C, and so on.
Foreign pharmaceutical distortions also extend beyond pricing. Weak intellectual-property enforcement, forced technology transfer, particularly in China, and targeted subsidies for upstream active pharmaceutical ingredients and generics can allow exporters to undercut U.S. producers below their unsubsidized costs.[54]
The common feature is that these practices go beyond domestic health-care cost containment. They shift the financial burden of pharmaceutical innovation onto markets that do not engage in the same suppression—chiefly, the United States.
C. Tariffication as a Targeted Remedy
Once policymakers identify a specific ACMD, the appropriate response is ACMD tariffication. Under this approach, the United States would apply a tariff to imports from the country responsible for the distortion, calibrated to neutralize the distortion’s estimated harm. The point is not punishment. It is to measure the harm caused by a trading partner’s domestic policy and correct it in a targeted way.[55]
Three showings should be required. First, the foreign policy must qualify as an ACMD: a government intervention that substantially lessens competition without a legitimate public-policy justification. Second, the intervention must produce a demonstrable anticompetitive effect, potentially assessed through tools analogous to merger analysis, such as the substantial-lessening-of-competition test. Third, the distortion must harm the domestic industry.[56] he showing should be rigorous, and the tariff should be bounded by the measured distortion rather than chosen for blunt deterrence.
The distinctive feature of ACMD tariffication is what it measures. Traditional trade remedies often turn on legal categories that only partly track the economic harm at issue. Antidumping duties, for example, rest on a price comparison between export prices and home-market prices or constructed costs. They do not ask why the price gap exists. An efficient foreign producer can be penalized for reasons unrelated to government intervention, while a firm whose government has distorted the market may escape if its export and home prices remain aligned.[57]
Countervailing duties are similarly formal. They target a defined class of subsidies involving a financial contribution, a benefit, and specificity. But they often stop at the boundary of regulatory design, discretionary administration, or governance failures that may produce the same competitive effects.
ACMD tariffication starts with the competitive harm itself. It asks how a government intervention changes the cost base or competitive position of firms exposed to it, sets the tariff at the level needed to neutralize that change, and remains agnostic about the legal form the intervention takes.[58]
That contrast with MFN pricing is central. MFN imports the foreign distortion into U.S. domestic markets. It pegs U.S. reimbursement to prices shaped by monopsony power and biased health-technology assessment, suppressing U.S. returns and the R&D incentives that depend on them.
ACMD tariffication does the opposite. It identifies the distortion at its source, quantifies its competitive effect, and pressures the responsible foreign jurisdiction to remove it. The tariff is bounded by the documented distortion, temporary as a corrective instrument, and conditional on the trading partner’s conduct.
This approach also fits the diplomatic reality of pharmaceutical trade better than broad tariffs. Many U.S. pharmaceutical imports by value originate in allied countries, especially in Europe. Broad sectoral tariffs would damage relationships and supply chains without clearly addressing the pricing practices driving the distortion. A targeted ACMD framework would identify particular institutions—G-BA’s surrogate-endpoint restrictions, NICE’s frozen quality-adjusted-life-year threshold, France’s clawback regime, Canada’s Patented Medicine Prices Review Board 11 basket, or South Korea’s two-waiver pathway—and give U.S. negotiators reform demands allied governments can actually address.
The result is a more coherent trade policy. It distinguishes among trading partners based on conduct, targets the source of the distortion, and avoids the blunt-force mistake of importing foreign price controls into the U.S. market.
D. Free-Riding, Not Domestic Policy
The ACMD framework does not require declaring another country’s health policy illegitimate. Cost containment is a legitimate objective of every health-care system, and countries with single-payer or heavily state-funded systems will inevitably adopt institutions to limit what they spend on medicines.
The ACMD inquiry asks a narrower question: Does a country’s pricing system bear a meaningful share of the cost of developing the medicines it reimburses, or does it shift those costs onto markets that do not use the same pricing mechanisms? That shift can occur through valuation methods that understate innovation, reimbursement rules that exclude R&D costs, or reference-pricing systems that benchmark only against already-suppressed foreign prices.
Viewed this way, the relevant foreign institutions are not merely domestic cost-containment measures. They are structured mechanisms for free-riding on U.S.-financed pharmaceutical innovation. Bringing a new medicine to market requires enormous investment in basic research, multiple phases of clinical trials, regulatory approval, and the many research programs that fail before a single product reaches patients. A pricing system that excludes those costs from its valuation of new medicines is not merely declining to pay for one drug. It is declining to pay its share of the global innovation portfolio that made the drug possible.
The arithmetic is straightforward. Whatever share of global R&D foreign purchasers decline to finance must be recovered in the markets that remain. By a wide margin, the United States is the largest of those markets.[59]
The operative question is whether a foreign pricing system creates competitive barriers for U.S. firms beyond what its stated regulatory objective can justify. A regime crosses into ACMD territory when its design systematically prevents innovators from earning competitive returns, shifts innovation costs onto foreign markets, or creates structural competitive advantages for other firms.
That conclusion does not depend on explicit favoritism toward domestic firms. Much of the European Union illustrates the opposite. Its pricing institutions have contributed to the long-term decline of Europe’s own innovative pharmaceutical sector, which has fallen from global leadership in the 1970s to a much smaller role in drug discovery today. Yet those same institutions continue to determine what U.S. innovators can earn in European markets.[60] The absence of domestic champions does not eliminate the distortion. It merely means domestic firms have been subject to it, too.
That point matters. A pricing regime that has already driven much of its own innovative pharmaceutical industry to shrink or relocate is not neutral toward U.S. firms. The same institutions that reduced domestic innovation continue to suppress the returns available to foreign innovators. Across multiple jurisdictions, those suppressed returns shift a disproportionate share of global R&D costs onto U.S. patients and purchasers. A framework that looks only for explicit discrimination would miss that pattern. ACMD analysis captures it by focusing on competitive effects rather than regulatory labels or stated intentions.
V. Conclusion
There is a real pharmaceutical-pricing problem. Foreign-government practices impose measurable costs on U.S. patients, U.S. purchasers, and the firms that finance the global innovation pipeline. Through monopsony purchasing, biased health-technology assessment, and external reference pricing, foreign systems suppress branded-drug prices below competitive levels and shift a disproportionate share of global R&D costs onto the United States.
The onshoring framework goes wrong in its choice of remedy. Conditioning tariff relief on MFN pricing does not undo the foreign distortion. It propagates it. MFN ties U.S. reimbursement to prices produced by foreign monopsony bargaining and narrow technology assessment, then imports those suppressed benchmarks into the market that most strongly drives global pharmaceutical innovation.
The economic literature surveyed in this brief points in the same direction. Pharmaceutical R&D depends on large fixed investments, long timelines, high failure rates, and returns earned during a limited patent-protected window. Compressing expected revenue reduces the incentive to develop new medicines, especially high-risk therapies for rare diseases, oncology, neurology, and other frontier areas where patients often have few good alternatives. It can also push production offshore, weaken supply-chain resilience, and degrade quality—the very national-security concerns that Section 232 is meant to address.
Using trade authority to impose domestic price controls therefore leaves the foreign distortion intact and adds a domestic one alongside it. It lowers the revenue signal that finances innovation without requiring foreign governments to bear a fair share of the costs of the medicines they consume.
The better recommendation is structural. The Department of Commerce should remove the MFN-pricing condition from the company-specific onshoring framework so that Section 232 functions as a national-security tool, not a backdoor vehicle for domestic price regulation. The Office of the U.S. Trade Representative should address the foreign-pricing problem directly through ACMD-calibrated trade enforcement against the specific institutions that create the distortion, paired with bilateral and multilateral negotiations aimed at transparency, nondiscrimination, and proportionate contribution to global R&D financing.
The United States should confront foreign price suppression, not copy it. A policy that imports foreign price controls may look like hard bargaining. In practice, it would weaken the innovation base, punish future patients, and mistake the symptom for the disease.
[1] Procedures to Apply for Company-Specific Onshoring Agreements to Obtain Tariff Adjustments for Pharmaceuticals and Pharmaceutical Ingredients Under Proclamation 11020, 91 Fed. Reg. 26,989 (May 13, 2026), https://www.federalregister.gov/documents/2026/05/13/2026-09489/procedures-to-apply-for-company-specific-onshoring-agreements-to-obtain-tariff-adjustments-for [hereinafter BIS Notice].
[2] Int’l Ctr. for L. & Econ., Comments to USTR on Pharmaceutical Pricing 4 (2025), https://laweconcenter.org/resources/icle-comments-to-ustr-on-pharmaceutical-pricing [hereinafter ICLE USTR Comments]; see also Casey B. Mulligan & Tomas J. Philipson, Policy Brief: International Price Differences for Drug Prescriptions, Univ. of Chi. Initiative on Enabling Choice & Competition in Health Care (June 7, 2025), https://ecchc.economics.uchicago.edu/project/policy-brief-international-price-differences-for-drug-prescriptions; Off. of the Assistant Sec’y for Plan. & Eval., U.S. Dep’t of Health & Hum. Servs., Comparing U.S. and International Market Size and Average Pricing for Prescription Drugs, 2017–2022 1–2 (Issue Brief No. HP-2024-26, Dec. 2024), https://aspe.hhs.gov/sites/default/files/documents/4326cc7fe43bc11770598cf2a13f478c/international-market-size-prices.pdf (finding that the United States accounted for roughly 50% of worldwide prescription-drug revenue and 13% of volume in 2022, and 60% of revenue and 24% of volume among OECD countries).
[3] Council of Econ. Advisers, Exec. Off. of the President, Funding the Global Benefits to Biopharmaceutical Innovation 5–7 (Feb. 2020), https://trumpwhitehouse.archives.gov/wp-content/uploads/2020/02/Funding-the-Global-Benefits-to-Biopharmaceutical-Innovation.pdf (estimating that the United States generated more than 70% of OECD patented-pharmaceutical profits while accounting for approximately 34% of OECD GDP at purchasing-power parity).
[4] Andrew W. Mulcahy et al., International Prescription Drug Price Comparisons: Current Empirical Estimates and Comparisons with Previous Studies, RAND Corp., RR-2956-ASPE, at xiii (2021), https://www.rand.org/pubs/research_reports/RR2956.html (finding U.S. prescription-drug prices averaged 2.56 times those in comparison countries overall and 3.44 times higher for branded drugs, based on 2018 IQVIA MIDAS data).
[5] U.S. Food & Drug Admin., Generic Drugs (Mar. 2025), https://www.fda.gov/drugs/buying-using-medicine-safely/generic-drugs.
[6] Tomas J. Philipson, Deyu Zhang & Qi Zhao, International Comparison of Prices for Drug Prescriptions 1 (Policy Brief, Univ. of Chi. Initiative on Enabling Choice & Competition in Health Care, 2025), https://ecchc.economics.uchicago.edu/files/2025/06/Policy-Brief-International-Price-Differences-for-Drug-Prescriptions-June-7.docx.pdf.
[7] Although branded innovative drugs account for only about 10% of U.S. prescriptions, they represent roughly 88% of prescription-drug spending. Ass’n for Accessible Medicines, 2025 U.S. Generic & Biosimilar Medicines Savings Report (2025), https://accessiblemeds.org/resources/reports/2025-savings-report. Generic medicines likewise account for a high share of prescription volume across OECD countries, indicating that international price differences primarily reflect branded-drug prices rather than differences in generic uptake. Org. for Econ. Coop. & Dev., Health at a Glance 2023 (2023), https://www.oecd.org/content/dam/oecd/en/publications/reports/2023/11/health-at-a-glance-2023_e04f8239/7a7afb35-en.pdf.
[8] See Council of Econ. Advisers, supra note 3, at 5–8.
[9] Eur. Fed’n of Stat. in Pharm. Indus., German Benefit Assessment—White Paper: Latest Methodological Requirements in the German Benefit Assessment 4, 39 (May 2025), https://www.efspi.org/wp-content/uploads/2025/05/GermanHTA_WhitePaper_2025.pdf. “Key surrogate” and “intermediate endpoints” are clinical-trial measures used to estimate a treatment’s effect on patient outcomes. Surrogate endpoints, such as tumor shrinkage in cancer trials, stand in for direct clinical outcomes, such as survival. Intermediate endpoints, such as lower blood pressure or HbA1c levels in diabetes, reflect early changes that may predict long-term benefits. Researchers often use these markers when direct outcomes take years to observe, but regulators and payers should rely on them only when evidence links them to patient-relevant effects.
[10] Jacoline Bouvy, Should NICE’s Cost-Effectiveness Thresholds Change?, NICE Blog (Dec. 13, 2024), https://www.nice.org.uk/news/blogs/should-nice-s-cost-effectiveness-thresholds-change; John Appleby, Nancy Devlin & David Parkin, NICE’s Cost-Effectiveness Threshold, 335 Brit. Med. J. 358 (2007), https://pmc.ncbi.nlm.nih.gov/articles/PMC1952475/pdf/bmj-335-7616-edit-00358.pdf; Bank of Eng., Inflation and the 2% Target, https://www.bankofengland.co.uk/monetary-policy/inflation (last visited June 25, 2025) (£1 in 1999 was worth £1.92 as of June 25, 2025); Nat’l Inst. for Health & Care Excellence, Changes to NICE’s Cost-Effectiveness Thresholds Confirmed (Apr. 2026), https://www.nice.org.uk/news/articles/changes-to-nice-s-cost-effectiveness-thresholds-confirmed (raising the threshold bands to £25,000–£35,000, effective April 2026); Ass’n of the Brit. Pharm. Indus., Why the Government Must Urgently Raise the NICE Cost-Effectiveness Threshold (Oct. 2025), https://www.abpi.org.uk/media/blogs/2025/october/why-the-government-must-urgently-raise-the-nice-cost-effectiveness-threshold (estimating an inflation-adjusted equivalent of approximately £56,800).
[11] Marc A. Rodwin, What Can the United States Learn from Pharmaceutical Spending Controls in France? (Commonwealth Fund Issue Brief, Nov. 11, 2019), https://www.commonwealthfund.org/publications/issue-briefs/2019/nov/what-can-united-states-learn-drug-spending-controls-france.
[12] Teresa A. Reguly & Eileen M. McMahon, PMPRB Regulations: New Basket of Comparator Countries Has Arrived, Absent Guidance, Torys (July 7, 2022), https://www.torys.com/en/our-latest-thinking/publications/2022/07/pmprb-regulations.
[13] Off. of the Parliamentary Budget Officer (Can.), Canadian Patented Drug Prices: Gauging the Change in Reference Countries, Report RP-2223-008-S (June 14, 2022), https://www.pbo-dpb.ca/en/publications/RP-2223-008-S–canadian-patented-drug-prices-gauging-change-in-reference-countries (estimating that the PMPRB11 basket would have reduced 2018 patented-drug spending by 19%, or approximately C$2.8 billion).
[14] Seung-Rae Yu, Improving the Reimbursement Process for New Drugs: A Case Study of a Two-Waiver System in South Korea, 31 J. Evaluation Clinical Prac. e70074 (2025), https://pmc.ncbi.nlm.nih.gov/articles/PMC11959314.
[15] See Shanker A. Singham, Market Distortions and How Best to Deal with Them: Sugar Sector Case Study, Competere (2024), https://shankersingham.com/wp-content/uploads/2024/10/Market-Distortions-and-How-Best-to-Deal-with-Them_-Sugar-Sector-Case-Study.pdf.
[16] Because this conduct would constitute foreign state action, it would not qualify as legally cognizable cartel behavior, except perhaps in a World Trade Organization proceeding. The analogy helps identify the nature of the harm.
[17] See Kristian Stout, The Risks of Adopting Foreign Price Controls for Drugs, Truth on the Mkt. (May 9, 2025), https://truthonthemarket.com/2025/05/09/the-risks-of-adopting-foreign-price-controls-for-drugs; Joseph Golec & John A. Vernon, European Pharmaceutical Price Regulation, Firm Profitability, and R&D Spending, Nat’l Bureau of Econ. Rsch., Working Paper No. 12676 (Nov. 2006), https://www.nber.org/papers/w12676 (documenting EU–U.S. research-and-development divergence from 1986 to 2004); Stephen Ezell, Lessons from Europe’s Loss of Biopharma Leadership, and Its Attempts to Recover, Info. Tech. & Innovation Found. (Mar. 18, 2026), https://itif.org/publications/2026/03/18/lessons-from-europes-loss-of-biopharma-leadership-and-attempts-to-recover.
[18] Joseph A. DiMasi, Henry G. Grabowski & Ronald W. Hansen, Innovation in the Pharmaceutical Industry: New Estimates of R&D Costs, 47 J. Health Econ. 20 (2016), https://doi.org/10.1016/j.jhealeco.2016.01.012 (estimating mean out-of-pocket R&D costs of $1.395 billion and capitalized costs of $2.558 billion per approved new compound); Duxin Sun, Wei Gao, Hongxiang Hu & Simon Zhou, Why 90% of Clinical Drug Development Fails and How to Improve It?, 12 Acta Pharmaceutica Sinica B 3049 (2022), https://pmc.ncbi.nlm.nih.gov/articles/PMC9293739.
[19] See Frank P. Ramsey, A Contribution to the Theory of Taxation, 37 Econ. J. 47 (1927); Marcel Boiteux, Sur la gestion des monopoles publics astreints à l’équilibre budgétaire, 24 Econometrica 22 (1956), translated in On the Management of Public Monopolies Subject to Budgetary Constraints, 3 J. Econ. Theory 219 (1971); William J. Baumol & David F. Bradford, Optimal Departures from Marginal Cost Pricing, 60 Am. Econ. Rev. 265 (1970).
[20] See Patricia M. Danzon, Price Discrimination for Pharmaceuticals: Welfare Effects in the US and the EU, 4 Int’l J. Econ. & Bus. 301 (1997), https://www.tandfonline.com/doi/abs/10.1080/758523212 (arguing that conventional welfare analysis of price discrimination does not apply to pharmaceuticals once the sunk, global joint costs of R&D are considered and that Ramsey pricing—setting prices inversely proportional to demand elasticity—is the second-best efficient approach); Patricia M. Danzon & Adrian Towse, Differential Pricing for Pharmaceuticals: Reconciling Access, R&D and Patents, 3 Int’l J. Health Care Fin. & Econ. 183 (2003), https://doi.org/10.1023/A:1025384819575 (arguing that Ramsey-style differential pricing is the second-best efficient means of financing the global joint costs of pharmaceutical R&D and that parallel trade and external reference pricing undermine it); Patricia M. Danzon, Adrian Towse & Jorge Mestre-Ferrandiz, Value-Based Differential Pricing: Efficient Prices for Drugs in a Global Context, 24 Health Econ. 294 (2015), https://doi.org/10.1002/hec.3021 (extending the framework to support value-based differential pricing as the efficient global pricing structure).
[21] Daron Acemoglu & Joshua Linn, Market Size in Innovation: Theory and Evidence from the Pharmaceutical Industry, 119 Q.J. Econ. 1049 (2004), https://doi.org/10.1162/0033553041502144.
[22] Pierre Dubois, Olivier de Mouzon, Fiona Scott Morton & Paul Seabright, Market Size and Pharmaceutical Innovation, 46 RAND J. Econ. 844 (2015), https://onlinelibrary.wiley.com/doi/10.1111/1756-2171.12113.
[23] Pierre Dubois, Pharmaceutical Regulation and Incentives for Innovation in an International Perspective tbl. 4 (Toulouse Sch. of Econ., Working Paper No. 1674, Dec. 2025), https://www.tse-fr.eu/sites/default/files/TSE/documents/doc/wp/2025/wp_tse_1674.pdf.
[24] Cong. Budget Off., Effects of Drug Price Negotiation Stemming from Title I of H.R. 3, the Lower Drug Costs Now Act of 2019, on Spending and Revenues Related to Part D of Medicare 1, 5 (Oct. 11, 2019), https://www.cbo.gov/system/files/2019-10/hr3ltr.pdf (estimating that H.R. 3 would reduce manufacturer revenue by $0.5 trillion to $1 trillion over a decade, or roughly 7% to 20% of the projected $5 trillion to $7 trillion U.S. pharmaceutical-manufacturer revenue base).
[25] Rexford E. Santerre & John A. Vernon, Assessing Consumer Gains from a Drug Price Control Policy in the U.S., Nat’l Bureau of Econ. Rsch., Working Paper No. 11139 (Feb. 2005, rev. Feb. 2006), https://www.nber.org/papers/w11139 (estimating that a CPI-capped price regime from 1981 to 2000 would have reduced capitalized R&D by $265 billion to $293 billion, cut new-drug approvals by roughly 38%, and imposed lives-lost costs more than 28 times larger than the consumer-surplus gains).
[26] Id.
[27] Id.
[28] Margaret E. Blume-Kohout & Neeraj Sood, Market Size and Innovation: Effects of Medicare Part D on Pharmaceutical Research and Development, 97 J. Pub. Econ. 327 (2013), https://doi.org/10.1016/j.jpubeco.2012.10.003.
[29] Craig Garthwaite, Rebecca Sachs & Ariel Dora Stern, Which Markets (Don’t) Drive Pharmaceutical Innovation? Evidence from U.S. Medicaid Expansions, Nat’l Bureau of Econ. Rsch., Working Paper No. 28755 (May 2021), https://www.nber.org/papers/w28755.
[30] Yunan Ji & Parker Rogers, The Long-Run Impacts of Regulated Price Cuts: Evidence from Medicare 4, Nat’l Bureau of Econ. Rsch., Working Paper No. 33083 (2024), https://www.nber.org/papers/w33083 (reporting that manufacturers more exposed to Medicare price cuts saw a 44% revenue decline, 25% fewer Food and Drug Administration device submissions, 75% fewer U.S. patents, an implied Medicare price elasticity of 1.05, and 53% lower R&D spending); id. at 3 (finding an average price reduction of 61% over seven to 10 years); id. at 5 & n.3 (noting that the elasticity “mirrors the average elasticity in the pharmaceutical industry” and describing prior pharmaceutical evidence as theoretical, simulation-based, and correlational).
[31] Id. at 4 (finding a 49% decline in new entrants, driven by a 90% decline in entry by U.S. manufacturers, with no significant change among foreign manufacturers; a 28% increase in outsourcing to foreign manufacturers among incumbent manufacturers; a 0.8 percentage-point increase in device repair and replacement rates—equal to 200% of the pre-period rate; and a 129% increase in hospital-reported adverse events among manufacturers that outsourced production, with larger increases among those using foreign contractors).
[32] Ali Yurukoglu, Eli Liebman & David B. Ridley, The Role of Government Reimbursement in Drug Shortages, 9 Am. Econ. J.: Econ. Pol’y 348 (2017), https://www.aeaweb.org/articles?id=10.1257/pol.20160035.
[33] See David Bardey, Antoine Bommier & Bruno Jullien, Retail Price Regulation and Innovation: Reference Pricing in the Pharmaceutical Industry, 29 J. Health Econ. 303 (2010), https://doi.org/10.1016/j.jhealeco.2009.11.001 (modeling that reference pricing reduces overall R&D intensity and delays or discourages follow-on, or “me-too,” entry; finding theoretically ambiguous effects on first-in-class innovation, but reduced patient welfare under the authors’ calibration; and distinguishing between major first-in-class innovation and minor incremental innovation); Acemoglu & Linn, supra note 21 (developing the foundational market-size mechanism); Dubois, supra note 23 (presenting international evidence on the elasticity of pharmaceutical innovation with respect to expected market size, including regional estimates).
[34] See Patricia M. Danzon, Y. Richard Wang & Liang Wang, The Impact of Price Regulation on the Launch Delay of New Drugs—Evidence from Twenty-Five Major Markets in the 1990s, 14 Health Econ. 269 (2005), https://www.nber.org/papers/w9874; Margaret K. Kyle, Pharmaceutical Price Controls and Entry Strategies, 89 Rev. Econ. & Stat. 88 (2007), https://www.jstor.org/stable/40043076.
[35] Most Favored Nation Model, 85 Fed. Reg. 76,180 (Nov. 27, 2020), https://www.federalregister.gov/documents/2020/11/27/2020-26037/most-favored-nation-mfn-model; see also Most Favored Nation Model, 86 Fed. Reg. 73,986 (Dec. 29, 2021), https://www.federalregister.gov/documents/2021/12/29/2021-28225/most-favored-nation-mfn-model (rescinding the 2020 interim final rule, effective Feb. 28, 2022).
[36] Most Favored Nation Model, supra note 35, at 76,199.
[37] Hanke Zheng, Julie A. Patterson & Jonathan D. Campbell, Early Impact of the Inflation Reduction Act on Small Molecule vs. Biologic Post-Approval Oncology Trials, 3 Health Affs. Scholar qxaf152 (Aug. 28, 2025), https://doi.org/10.1093/haschl/qxaf152.
[38] Thomas J. Philipson, Yier Ling & Ruiquan Chang, The Impact of Price Setting at 9 Years on Small Molecule Innovation Under the Inflation Reduction Act (Univ. of Chi. Initiative on Enabling Choice & Competition in Health Care Policy Brief, Oct. 2023).
[39] Notice of Request for Public Comments on Section 232 National Security Investigation of Imports of Pharmaceuticals and Pharmaceutical Ingredients, 90 Fed. Reg. 15,951 (Apr. 16, 2025), https://www.federalregister.gov/documents/2025/04/16/2025-06587/notice-of-request-for-public-comments-on-section-232-national-security-investigation-of-imports-of.
[40] Singham, supra note 15.
[41] Id.
[42] Growth Comm’n., 2024–25 Growth Presidency Memo: A Research Report from the Growth Commission (Nov. 13, 2024), https://www.growth-commission.com/wp-content/uploads/2024/11/Growth-Commission-Presidency-Report-for-Capitol-event.pdf.
[43] World Bank, Unfair Advantage: Distortive Subsidies and Their Effects on Global Trade (2023), https://thedocs.worldbank.org/en/doc/0534eca53121c137d3766a02320d0310-0430012022/related/Unfair-Advantage-Distortive-Subsidies-and-Their-Effects-on-Global-Trade-2023.pdf.
[44] Growth Comm’n, supra note 42.
[45] Eric Fruits, Non-Tariff Barriers, Int’l Ctr. for L. & Econ. (Feb. 27, 2025), https://laweconcenter.org/resources/non-tariff-barriers; see also World Bank, supra note 43.
[46] Singham, supra note 15.
[47] Council of Econ. Advisers, supra note 3.
[48] Id.
[49] Eur. Fed’n of Stat. in Pharm. Indus., supra note 9.
[50] Bouvy, supra note 10.
[51] Rodwin, supra note 11.
[52] Reguly & McMahon, supra note 12; Off. of the Parliamentary Budget Officer (Can.), supra note 13.
[53] Yu, supra note 14.
[54] See Kristian Stout, Comments of the International Center for Law & Economics on the Section 232 Investigation into Pharmaceuticals, Int’l Ctr. for L. & Econ. (May 7, 2025), https://laweconcenter.org/wp-content/uploads/2025/05/232-Pharma-Comment.pdf.
[55] Id.
[56] Id.
[57] Id.
[58] Id.
[59] Council of Econ. Advisers, supra note 3; ICLE USTR Comments, supra note 2.
[60] Stout, supra note 17.