ICLE Comments to USTR on Pharmaceutical Pricing
I. Introduction and Executive Summary
The International Center for Law & Economics (“ICLE”) commends the Office of the U.S. Trade Representative (“USTR”) for investigating pharmaceutical-pricing practices required by foreign jurisdictions that systematically force American patients to subsidize global drug development.[1] This investigation addresses a fundamental trade distortion, whereby foreign governments mandate discriminatory pricing mechanisms that shift the financial burden of pharmaceutical innovation disproportionately onto U.S. consumers, while allowing consumers in the foreign jurisdiction to benefit from artificially suppressed drug prices.
USTR occupies a uniquely important position to address these trade distortions. While we maintain that implementing a domestic “most favored nation” (“MFN”) pricing policy would be counterproductive—importing foreign market failures into the U.S. system—the underlying instinct to address discriminatory foreign practices is correct. Foreign governments do engage in pharmaceutical trade distortions that systematically disadvantage American consumers, warranting targeted corrective action through trade-policy mechanisms, rather than domestic price controls.
The methodological foundation underlying MFN proposals reveals a critical flaw that obscures the true nature of pharmaceutical-pricing dynamics. Generics constitute roughly nine out of 10 of all U.S. prescriptions, and those generics are the cheapest among peer countries.[2] International price comparisons that justify MFN policies typically examine only the top 7% most expensive prescriptions—the “Ferraris and Bentleys” of the pharmaceutical market—rather than the full distribution of patients’ prescription experiences.[3] This selective focus systematically ignores the bulk of patient interactions with the health-care system, where U.S. consumers already benefit from competitive generic pricing. When prescription costs are weighted by real-world prescription volumes, Medicare and Medicaid net prescription costs are approximately 18% lower than those in Germany, France, the United Kingdom, Canada, and Japan.[4]
The use of MFN pricing would create perverse incentives, while failing to address the underlying trade distortions that create pricing imbalances. The Centers for Medicare and Medicaid Services (“CMS”) has acknowledged that such policies are likely to have downstream effects that harm patients, noting that patients of providers who opt out of the affected programs “may experience access to care impacts by having to find alternative care providers locally, having to travel to seek care from an excluded provider, receiving an alternative therapy that may have lower efficacy or greater risks, or postponing or forgoing treatment.”[5]
In short, foreign price controls constitute discriminatory trade barriers that distort global pharmaceutical markets and disproportionately burden U.S. consumers. These practices systematically undermine competitive markets by creating monopsony conditions that artificially suppress pharmaceutical prices, forcing U.S. patients to bear a disproportionate share of global pharmaceutical research and development costs. The economic evidence demonstrates both the magnitude of this burden shifting and the specific mechanisms by which foreign governments accomplish this discriminatory outcome.
But the existence of foreign pricing distortions does not justify importing those same distortions domestically through MFN pricing; instead, it justifies correcting them through targeted trade policy. This approach requires surgical trade-policy responses that address documented anticompetitive market distortions, while preserving the innovation ecosystem that benefits global health outcomes. Such targeted measures can alleviate the disproportionate financial burden on American patients without undermining the revenue streams needed for continued pharmaceutical innovation that serves patients worldwide.
II. Economic Evidence of Foreign Price Distortions
The imbalance in global pharmaceutical financing is both substantial and quantifiable. While the United States accounts for roughly 30-40% of global pharmaceutical-market volume, it generates approximately 52.3% of worldwide pharmaceutical revenues.[6] This revenue concentration is even more pronounced when examining profit distribution: while the United States accounts for only about 40% of the total GDP of OECD countries,[7] American consumers provide more than 70% of the pharmaceutical profits earned across these nations.[8]
This disproportionate financial burden manifests in significantly higher drug prices for American patients. U.S. prices for brand-name prescription drugs currently average 2.56 to 3.44 times higher than prices both in the EU and across the OECD countries.[9] The price differential has grown substantially over time. As far back as 2003, EU buyers were already paying about half what U.S. consumers paid for the same patented drugs, a disparity that has only widened in subsequent decades.[10] Critically, these price differentials reflect the failure of foreign systems to adequately compensate for innovation, rather than evidence that U.S. prices are inherently excessive.
These statistics reveal more than mere price differences; they demonstrate a systematic pattern whereby foreign governments leverage their regulatory and purchasing power to extract below-market pricing from pharmaceutical companies, who then recoup their research and development investments primarily from the U.S. market. This effectively creates a subsidy whereby American patients finance pharmaceutical innovation that provides health benefits to patients worldwide at artificially reduced costs to foreign consumers.
Critically, however, U.S. consumers do not overpay in every pharmaceutical market segment. Rather, they face systematically distorted pricing only in the narrow slice of branded drugs that foreign governments target for discriminatory treatment. When prescription costs are weighted by real-world prescription volumes—rather than focusing solely on the highest-priced medications—Medicare and Medicaid net prescription costs are approximately 18% lower than in Germany, France, the United Kingdom, Canada, and Japan.[11] This finding demonstrates that the true distortion lies not in universal American overpayment, but rather in how the financial burden of pharmaceutical innovation is distributed. Foreign governments can systematically suppress prices for high-value innovative medicines while allowing U.S. consumers to bear disproportionate costs for precisely those drugs that require the most substantial R&D investments.
A. Examples of Foreign Price Distortions
There are several interconnected mechanisms that foreign governments may employ to artificially suppress pharmaceutical prices below competitive market levels, each of which functions as a nontariff trade barrier that discriminates against U.S. pharmaceutical companies and shifts costs to American consumers.
Centralized-negotiation systems represent an important mechanism through which foreign governments distort pharmaceutical pricing.[12] Countries that operate national health-care systems or single-payer models can leverage their massive buying power to negotiate or impose stringent price limits on medications.[13] These centralized systems effectively create monopsony conditions under which pharmaceutical companies face a single buyer with overwhelming market power, eliminating the competitive-pricing dynamics that would otherwise prevail.
Biased health-technology assessments continue to suppress value-based prices abroad. In Germany, the Federal Joint Committee (“G-BA”) routinely refuses to recognize key surrogate or intermediate endpoints—such as progression-free survival or HbA1c—unless the sponsor clears very strict requirements.[14] The UK’s National Institute for Health and Clinical Excellence (“NICE”) has held its £20k-£30k per “quality adjusted life year” range unchanged since 1999, despite cumulative UK inflation of approximately 90%.[15] And France’s Comité Économique des Produits de Santé routinely ties each new drug to a five-year volume contract.[16] Once in-market sales reach the agreed cap, manufacturers face mandatory claw backs that can reach 50–70% of “excess revenue.”[17] Moreover, because these agencies also discount future health gains, they can underweight the decades-long cumulative benefits of curative or disease-modifying therapies.[18]
External-reference pricing systems compound these distortions by systematically benchmarking pharmaceutical prices to suppress market values. These systems ensure that foreign drug prices remain systematically low—well below what would naturally emerge under competitive-market conditions.[19] For example, Canada’s 2022 move to the Patented Medicine Prices Review Board 11 (“PMPRB11”) basket deliberately removed the United States and Switzerland—its two highest-price peers—and substituted six mid-priced OECD countries.[20] The Canadian Parliamentary Budget Officer estimates that adopting this slimmer benchmark would have cut Canada’s 2018 spending on patented drugs by about 19%.[21] South Korea’s “two-waiver” pathway is even starker: a drug must first be priced below the lowest figure in the A7 high-income comparators (which includes the United States), and the subsequent National Health Insurance Service (“NHIS”) negotiation then references “OECD countries other than A7,” explicitly omitting U.S. prices and locking Korean ceilings well below other advanced-economy levels.[22] Such reference pricing creates a “race to the bottom” effect, where artificially suppressed prices in one jurisdiction become the ceiling for pricing in others, further entrenching below-market pricing globally.
III. Foreign Practices as Anticompetitive Market Distortions
Foreign pharmaceutical-pricing practices constitute anticompetitive market distortions (“ACMDs”) that may warrant targeted trade remedies under established legal frameworks. These practices systematically undermine competitive-market conditions and create discriminatory barriers to U.S. pharmaceutical companies, distinguishing them from legitimate domestic health policies. By applying rigorous analytical frameworks to identify ACMDs, policymakers can develop precise, calibrated responses that address specific competitive harms without disrupting beneficial trade relationships or legitimate regulatory objectives.
A. Applying ACMD Framework to Pharmaceutical Pricing
The concept of ACMDs provides a methodological framework to identify and quantify the specific harms arising from foreign-government actions that disadvantage U.S. firms. An ACMD is characterized as a government intervention in the economy that (1) substantially lessens competition, (2) cannot be justified by an overriding legitimate public-policy objective, and (3) empowers certain private interests or entities to obtain or retain artificial competitive advantages over their rivals.[23]
Application to foreign price controls reveals that pharmaceutical-pricing regimes in many foreign jurisdictions satisfy all three elements of this framework. First, these systems substantially lessen competition by artificially suppressing pharmaceutical prices below competitive market levels. As noted above, foreign governments employ centralized negotiation and external-reference pricing systems that eliminate competitive-pricing dynamics, thereby creating monopsony conditions where pharmaceutical companies face overwhelming buyer power that distorts normal market operations.
Second, while foreign governments may cite domestic health-policy objectives, their pricing regimes lack overriding legitimate justification when they systematically discriminate against foreign pharmaceutical companies and shift competitive and innovative burdens to other markets. This is particularly the case insofar as these systems refuse to internalize the costs of innovation for developing new therapies, and instead focus their price controls on static views of the market. The key distinction lies not in the existence of domestic health-policy goals, but in whether those policies create discriminatory trade effects that extend beyond legitimate regulatory objectives.[24]
Third, these pricing systems create artificial competitive disadvantages for U.S. pharmaceutical companies by preventing them from realizing competitive returns on their innovations in foreign markets, while simultaneously forcing them to recoup R&D investments disproportionately from U.S. consumers. Such mechanisms effectively subsidize foreign pharmaceutical consumption at the expense of American patients and undermine the competitive position of U.S. firms globally.
Further, while these comments canvassed some specific price distortions created by foreign managed health-care systems, the scope of practices potentially constituting ACMDs in the pharmaceutical context is much broader. These distortions include regulatory barriers designed to disproportionately hinder market access for foreign firms,[25] artificial cost reduction through government actions that lower operating costs for domestic entities,[26] and targeted subsidies that provide competitive advantages to select firms or industries without clear public-policy justification.[27] Foreign pharmaceutical-pricing regimes encompass elements of each category, creating comprehensive barriers to competitive market access.
B. Distinguishing Legitimate Regulation from Trade Distortions
A critical analytical distinction must be drawn between legitimate domestic health policy and discriminatory trade practices that create ACMDs. While overtly discriminatory pricing regimes that explicitly disadvantage U.S. pharmaceutical companies clearly constitute impermissible trade barriers, the more pervasive and subtle problem lies in foreign governments systematically ignoring their own consumption of American-financed innovation.
These nations structure their pricing frameworks to deliberately exclude or minimize the positive externalities generated by U.S. pharmaceutical innovation—the decades of research investment, clinical trials, regulatory approval costs, and failed drug development that American companies absorb in order to bring breakthrough therapies to global markets. Though foreign governments may claim legitimate cost-containment objectives, pricing systems that refuse to internalize any meaningful portion of innovation costs, while free riding on the benefits of American-funded medical breakthroughs, constitute a massive scheme of industrial policy and subsidization that shifts the entire financial burden of global pharmaceutical development to U.S. patients.
The key test for distinguishing legitimate regulation from trade distortion would be to focus on whether pricing policies create barriers to U.S. market access and fair competition that extend beyond legitimate regulatory objectives. Typically, these policies constitute ACMDs where they systematically prevent U.S. pharmaceutical companies from competing on equal terms, shift competitive burdens disproportionately to foreign markets, or create artificial advantages for domestic competitors.
Trade distortions need not, however, explicitly favor domestic champions to create discriminatory effects; pervasive systemic-pricing distortions that artificially suppress pharmaceutical returns below competitive market levels can disadvantage American companies and patients. This is true even where, for example, domestic EU pharmaceutical innovation has become moribund, as evidenced by Europe’s dramatic decline from leading global pharmaceutical innovation in the 1970s to its current marginal role.[28]
These systemic distortions operate by fostering market conditions that render it impossible for any innovator—domestic or foreign—to earn competitive returns on pharmaceutical R&D within those jurisdictions. This effectively forces U.S. companies to recoup their innovation investments disproportionately from American markets, while foreign patients benefit from artificially subsidized access to American-financed medical breakthroughs. That is, foreign governments routinely use industrial policy to shift surplus to their own health-care consumers. Thus, a thorough analysis would examine both the stated objectives of foreign policies and their practical competitive effects on international trade, recognizing that systematic market distortions can create discriminatory burdens even in the absence of explicit preferences for domestic firms.
IV. Policy Recommendations
Addressing foreign pharmaceutical-pricing distortions requires a strategic approach that emphasizes surgical corrective measures over broad protectionist responses. The evidence demonstrates that foreign price controls systematically disadvantage U.S. pharmaceutical companies and shift innovation costs to American consumers, warranting targeted trade remedies calibrated to specific competitive harms. Simultaneously, policymakers must avoid importing these same distortions into domestic markets through misguided price-control policies that would replicate the innovation-deterrent effects observed in foreign jurisdictions.
ACMD tariffication provides a framework for implementing calibrated tariffs that specifically target the quantifiable effects of foreign price distortions.[29] This approach involves applying tariffs to imports from those countries that impose anticompetitive market distortions, with tariff levels precisely calibrated to neutralize the estimated detrimental effects of the distortion. The core objective is to discover the quantifiable harms generated by trading partners’ domestic policies and remedy those in a targeted fashion, requiring demonstration of: (1) the existence of an ACMD that substantially lessens competition without legitimate justification; (2) demonstrable anti-competitive effects; and (3) evidence of harm to domestic industry.[30] Such targeted measures should be temporary tools to provide incentives for trade reform, not permanent trade barriers.
Bilateral negotiations should leverage trade agreements to address discriminatory pharmaceutical-pricing practices directly. Further, the USTR should reframe trade negotiations to focus on market distortions that include not only price controls but also insufficient intellectual-property protections that make it difficult for U.S. firms to compete abroad.[31] Bilateral agreements can establish specific commitments regarding pharmaceutical-pricing transparency, nondiscriminatory treatment of foreign pharmaceutical companies, and mechanisms for addressing pricing disputes that create artificial competitive disadvantages.
Multilateral coordination with allied nations can establish fair pharmaceutical-pricing standards that distinguish legitimate health-policy objectives from discriminatory trade practices. Critically, these negotiations should work to include the cost of American innovation in the standards that are set. Beyond these structural approaches, policymakers should pursue complementary, lower-friction policy levers that can address pricing distortions without escalating trade tensions.
First, bilateral and multilateral negotiations should establish pharmaceutical spending floors tied to GDP per-capita, ensuring that wealthier nations contribute proportionally to global innovation financing, rather than systematically free riding on American investment.
Second, trade agreements should negotiate country-specific reforms to outdated cost-effectiveness thresholds and reimbursement-delay rules that artificially suppress pharmaceutical valuations—such as updating NICE’s quality-adjusted life-year thresholds, or reforming Germany’s overly restrictive surrogate endpoint requirements.
Third, any negotiated commitments must include binding implementation timelines and bilateral-consultation clauses that provide mechanisms for ongoing enforcement and dispute resolution, ensuring that agreements translate into measurable changes in foreign pricing practices, rather than merely symbolic commitments that perpetuate existing distortions.
V. Conclusion
Addressing foreign pharmaceutical-pricing distortions requires surgical trade-policy responses that target specific discriminatory practices, while preserving the innovation ecosystem that benefits global health outcomes. The evidence demonstrates that foreign governments systematically exploit American pharmaceutical innovation through pricing regimes that refuse to internalize R&D costs, while freely consuming the benefits of American-financed medical breakthroughs, creating a massive international subsidization scheme that disproportionately burdens U.S. patients.
The path forward requires rejecting counterproductive domestic policies and instead pursuing targeted international remedies. Rejecting MFN pricing for Medicaid represents a critical policy imperative to avoid importing foreign distortions into the U.S. market. Implementing MFN pricing that benchmarks U.S. reimbursement rates to foreign prices would significantly undermine revenue streams critical to funding ongoing innovation, risking replication of Europe’s historical experience; similar policies transformed the continent from the global leader in pharmaceutical innovation in the 1970s to its current marginal role.
Instead, policymakers should target specific distortions through calibrated trade remedies, including ACMD tariffication, bilateral negotiations with binding enforcement mechanisms, and multilateral coordination that addresses documented competitive harms without disrupting beneficial trade relationships. Complementary measures—such as GDP-based spending floors and reforms to outdated cost-effectiveness thresholds—offer surgical tools to restore competitive balance to international pharmaceutical markets.
A phased approach would ensure that policy changes occur gradually, in order to avoid supply disruptions or abrupt alterations to complex global pharmaceutical supply chains that might undermine the innovation capacities that protective measures aim to enhance. The choice is clear: import foreign market failures through misguided domestic price controls, or address the root cause of pricing distortions through targeted trade policy that restores competitive balance, while preserving the revenue streams needed for continued medical breakthroughs.
[1] Request for Comments Regarding Foreign Nations Freeloading on American-Financed Innovation, Off. U. S. Trade Represent. (May 23, 2025), available at https://ustr.gov/sites/default/files/files/Press/Releases/2025/pharma%20FRN.pdf.
[2] Generic Drugs, U.S. Food Drug Adm. (Mar. 2025), available at https://www.fda.gov/drugs/buying-using-medicine-safely/generic-drugs.
[3] Tomas J. Philipson, Deyu Zhang, & Qi Zhao, International Comparison of Prices for Drug Prescriptions (Policy Brief), Univ. Chic. (2025), at 1, available at https://ecchc.economics.uchicago.edu/files/2025/06/Policy-Brief-International-Price-Differences-for-Drug-Prescriptions-June-7.docx.pdf.
[4] Id. at 8.
[5] Most Favored Nation (MFN) Model, Cent. Medicare Medicaid Serv., 42 CFR Part 513 (Nov. 20, 2020), available at https://www.cms.gov/priorities/innovation/media/document/mfn-ifc-rule.
[6] The Pharmaceutical Industry in Figures: Key Data 2023, European Fed’n Pharm. Indus. Ass’ns (2023), available at https://www.efpia.eu/media/rm4kzdlx/the-pharmaceutical-industry-in-figures-2023.pdf.
[7] GDP (Current US$), World Bank Data, https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?locations=OE (last visited Jun. 25, 2025).
[8] Funding the Global Benefits to Biopharmaceutical Innovation, Counc. Econ. Advis. (2020), at 17, available at https://trumpwhitehouse.archives.gov/wp-content/uploads/2020/02/Funding-the-Global-Benefits-to-Biopharmaceutical-Innovation.pdf
[9] Andrew W. Mulcahy et al., International Prescription Drug Price Comparisons: Current Empirical Estimates and Comparisons with Previous Studies (RAND Corp. Research Report No. RR-2956-ASPEC, 2021), available at https://www.rand.org/pubs/research_reports/RR2956.html.
[10] CEA, supra note 7 at 4.
[11] Philipson et al., supra note 2 at 8.
[12] See CEA, supra note 7 at 5-8.
[13] Id.
[14] German Benefit Assessment – White Paper: Latest Methodological Requirements in the German Benefit Assessment, Eur. Fed. Stat. Pharm. Ind. (May 2025), at 4, 39, available at https://www.efspi.org/wp-content/uploads/2025/05/GermanHTA_WhitePaper_2025.pdf. (“Key surrogate” and “intermediate endpoints” refer to measurable indicators used in clinical trials to approximate the effect of a treatment on meaningful patient outcomes. Surrogate endpoints (e.g., tumor shrinkage in cancer trials) function as substitutes for direct clinical outcomes (e.g., survival), while intermediate endpoints (e.g., blood pressure reduction or HbA1c levels in diabetes) reflect early changes that may predict long-term benefits. These markers are often used when direct outcomes take years to observe, but their validity for regulatory or reimbursement decisions depends on evidence linking them to patient-relevant effects.)
[15] Jacoline Bouvy, Should NICE’s Cost-Effectiveness Thresholds Change?, NICE Blogs (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 Br. Med. J. 358 (2007), available at https://pmc.ncbi.nlm.nih.gov/articles/PMC1952475/pdf/bmj-335-7616-edit-00358.pdf; As of June 25, 2025, £1 in 1999 is worth £1.92. Current inflation rates can be calculated on the Bank of England’s site. Inflation and the 2% Target, Bank Eng., available at https://www.bankofengland.co.uk/monetary-policy/inflation (last visited Jun. 25, 2025).
[16] 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.
[17] Id.
[18] Value Assessment Methods and Pricing Recommendations for Potential Cures: A Technical Brief, Inst. Clin. Econ. Rev. (Aug. 6, 2019) at 13, available at https://icer.org/wp-content/uploads/2020/10/Valuing-a-Cure-Technical-Brief.pdf.
[19] CEA, supra note 7 at 5-8.
[20] Teresa A. Reguly & Eileen M. McMahon, PMPRB Regulations: New Basket of Comparator Countries Has Arrived, Absent Guidance, Torys (Jul. 7, 2022), https://www.torys.com/en/our-latest-thinking/publications/2022/07/pmprb-regulations.
[21] Canadian Patented Drug Prices: Gauging the Change in Reference Countries, Parliam. Budg. Off. (Jun. 14, 2022), available at https://distribution-a617274656661637473.pbo-dpb.ca/1135d8aba4de3c35a1098e80fd5209fddb097920d354f8ac79ec3b1cf8918ff5.
[22] Seung-Rae Yu, Improving the Reimbursement Process for New Drugs: A Case Study of a Two-Waiver System in South Korea, 31 J. Evaluation Clin. Prac. e70074 (2025), available at https://pmc.ncbi.nlm.nih.gov/articles/PMC11959314.
[23] Shanker A. Singham, Market Distortions and How Best to Deal with Them: Sugar Sector Case Study, Competere (2024), available at https://shankersingham.com/wp-content/uploads/2024/10/Market-Distortions-and-How-Best-to-Deal-with-Them_-Sugar-Sector-Case-Study.pdf.
[24] See generally 2024–25 Growth Presidency Memo: A Research Report from the Growth Commission, Growth Comm. (Nov. 13, 2024), available at https://www.growth-commission.com/wp-content/uploads/2024/11/Growth-Commission-Presidency-Report-for-Capitol-event.pdf (discussing how industrial policy can be used as a tool to skew the competitive landscape).
[25] Eric Fruits, Non-Tariff Barriers, Int’l Ctr. L. Econ. (Feb. 27, 2025), https://laweconcenter.org/resources/non-tariff-barriers.
[26] See Singham, supra note 22.
[27] Unfair Advantage: Distortive Subsidies and Their Effects on Global Trade, World Bank (2023), available at https://thedocs.worldbank.org/en/doc/0534eca53121c137d3766a02320d0310-0430012022/related/Unfair-Advantage-Distortive-Subsidies-and-Their-Effects-on-Global-Trade-2023.pdf.
[28] See Kristian Stout, The Risks of Adopting Foreign Price Controls for Drugs, Truth Mark. (May 9, 2025), https://truthonthemarket.com/2025/05/09/the-risks-of-adopting-foreign-price-controls-for-drugs.
[29] See Singham, supra note 22.
[30] Id.
[31] See Kristian Stout, Comments of the International Center for Law & Economics on the Section 232 Investigation into Pharmaceuticals, Int’l Ctr. L. Econ. (May 7, 2025), at nn. 54-73 and accompanying text, available at https://laweconcenter.org/wp-content/uploads/2025/05/232-Pharma-Comment.pdf.