How the most favored nation drug pricing policy is quietly reshaping drug development and clinical research

Most favored nation (MFN) drug pricing is a policy mechanism designed to ensure that the U.S. pays no more for drugs than other countries do.

MFN pricing requires that a drug manufacturer charge the U.S. government (typically through Medicare) a price no higher than the lowest price paid by a defined set of peer nations — other wealthy countries such as Germany, the United Kingdom, Japan, France and Canada.

This article focuses specifically on MFN-style Medicare drug pricing proposals that would benchmark certain U.S. drug prices against the lower prices paid in other developed countries.This is controversial because the U.S. has historically paid significantly more for prescription drugs than other wealthy nations — sometimes two to four times more — for the same medication. Other countries achieve lower prices through centralized negotiation, price controls or reference pricing systems. The U.S., by contrast, has largely left drug pricing up to the market.

MFN pricing is politically popular but fiercely opposed by the pharmaceutical industry, which argues that U.S. prices effectively subsidize global research and development. Lower U.S. prices could reduce innovation investment over time, says the industry.

To calculate MFN pricing, the government identifies a basket of comparable countries and tracks what they pay for specific drugs. Medicare reimbursement rates are capped at the lowest price among that group. Manufacturers who want to sell to Medicare must accept that price or lose access to the market, a powerful lever given Medicare's scale

But what many people — including politicians — don't know is that the MFN drug pricing policy is quietly reshaping drug development and clinical research in the following ways.

Changing clinical trial priorities. Pharma companies are making changes to how they design and prioritize clinical trials, with lower-priced therapeutics taking a back seat to more profitable ones. There may be a lesson here from the Inflation Reduction Act (IRA) of 2022. A peer-reviewed study found that in the 29 months following passage of the IRA, monthly small molecule drug clinical trial starts dropped by 25% for preapproval trials and nearly 30% for post-approval trials. Biologics, which face a longer timeline before becoming eligible for price negotiation, saw no statistically significant decline. Many anticipate the same effect on drug development from the MFN.

Novel therapies are being prioritized. Less pricing pressure on innovative treatments versus new versions of existing treatments means drug companies are driving investments towards breakthrough therapies (that are harder to compare) rather than incremental improvements. A recent Deloitte analysis found that assets with a novel mechanism of action rose sharply to 53% of total programs in 2025, up from 35% in 2024. That increase isa clear signal that pricing pressure is accelerating the shift toward breakthrough rather than incremental therapies.

Therapeutic area rebalancing. Investment is flowing toward rare disease and oncology with reduced pricing pressure and away from chronic conditions, such as heart disease and obesity, where price comparisons will likely lead to lower prices. Orphan drugs are projected to account for roughly 20% of prescription drug sales by 2026, growing at roughly twice the rate of no-orphan drugs, and investigational therapies for rare diseases are projected to make up nearly a third of total pharma pipelines, in in part because ingle-indication orphan drugs are currently exempt from Medicare price negotiations.

Comparative trial design. Clinical studies are shifting from drug-versus-placebo to drug-versus-comparator formats to demonstrate superior clinical effects and justify premium pricing. This approach allows manufacturers to generate evidence of differentiated value, making it more difficult for payers to benchmark their products against lower-cost alternatives and supporting the case for premium U.S. pricing.

Launch-aligned trial strategy. Clinical trials increasingly prioritize geographies aligned with planned commercial launch, as sponsors limit studies in markets where drugs are unlikely to be made available. A GlobalData analysis found a 35% decline in pharmaceutical launches across Europe in the ten months following the MFN executive order, compared to the prior ten months, with approximately 92% of newly approved products in 2025 launched first in the U.S. - and 97% of those not yet introduced in other markets.

Drugs are being pulled from international markets. Pharma companies are taking drugs off the market in certain countries — or declining to launch in new ones — to ensure their MFN pricing in the U.S. does not decrease. The net effect is that patients in those countries are losing access to life-saving drugs. 

The MFN policy was designed to make drugs more affordable for American patients. But the market is already responding in ways its architects may not have anticipated. The consequences extend far beyond U.S. borders.

The pharmaceutical companies aren't wrong that U.S. pricing has long subsidized global research and development. What's becoming clear is that when that subsidy shrinks, the industry doesn't simply accept lower margins - it adapts. It chases premium-justified breakthroughs over incremental improvements. It retreats from therapeutic areas where price comparisons are unfavorable. It limits launches in markets that would undercut its U.S. pricing position. These are predictable responses, not irrational ones.

The harder question — and the one policymakers have yet to fully reckon with — is who bears the cost of that adaptation. If investment flows away from common chronic conditions toward rare diseases and oncology, patients with heart disease or diabetes may find fewer new options over time. If clinical trials increasingly avoid certain geographies, patients in those markets may lose access to emerging therapies entirely.

MFN pricing may well deliver lower drug costs in the short term. But the real ledger, measured in research not pursued, diseases not prioritized, and markets left behind, will take years to fully calculate. The policy debate deserves to catch up with the market reality that's already unfolding.

Ariel Katz is CEO and co-founder of H1, a healthcare technology company.