Most-Favored-Nation (MFN) Drug Pricing, Explained
MFN pricing would tie US drug prices to the lowest levels paid in comparable developed countries. Here is what it means, how the 2025 executive order works, how it differs from IRA negotiation — and why, for a cross-border dealmaker, compressing US prices reshapes asset valuation and the value of ex-US rights.
What MFN Pricing Actually Means
Strip away the politics and most-favored-nation pricing is a simple idea borrowed from trade language: the United States should pay no more for a brand drug than the lowest price the same manufacturer charges in a peer country. It is a species of international reference pricing — a tool many European systems already use — but with an unusually aggressive benchmark. Rather than referencing an average or a median of foreign prices, the US variant reaches for the floor.
The motivation is the gap itself. By widely cited estimates, the United States accounts for roughly 70% of global pharmaceutical profits despite being a minority of global volume, and brand prices here often run several times higher than in Germany, the UK, or Japan. Proponents frame this as Americans subsidizing the rest of the developed world — “global freeloading,” in the administration’s phrasing. MFN is the proposed correction: import the foreign price, and let the cut fall on the manufacturer.
The complication, which the rest of this guide unpacks, is that a drug’s price is not a single number. It differs by country, by channel (Medicare Part B vs Part D vs Medicaid vs commercial vs cash), by gross-to-net rebating, and by whether you mean list or net price. “The lowest price in a comparable country” is therefore a definition, not a fact — and how you draw it determines how deep the cut goes and who absorbs it.
A Short History: 2020 to 2025
MFN is not new. In November 2020, the first Trump administration published an interim final rule applying MFN pricing to certain Medicare Part B (physician-administered) drugs as a nationwide demonstration. It was projected to save tens of billions of dollars over its model period by paying the lowest price among comparable OECD economies.
It never took effect. Multiple federal courts blocked the rule in late 2020, principally on procedural grounds: the administration had issued it as an interim final rule without the notice-and-comment process the Administrative Procedure Act (APA) normally requires, and the courts found no “good cause” to skip it. The incoming Biden administration formally rescinded the rule in December 2021. The lesson — that process, not just substance, can sink a drug-pricing rule — is central to reading the 2025 effort.
The 2025 revival arrived as Executive Order 14297, Delivering Most-Favored-Nation Prescription Drug Pricing to American Patients, signed on May 12, 2025. It is broader in ambition than the 2020 rule — reaching beyond Part B toward Medicaid, newly launched drugs, and direct-to-consumer sales — but it has so far leaned on negotiated manufacturer agreements rather than a single contested rule, a sequencing choice that looks designed to avoid a repeat of 2020.
How the 2025 Order Works
The executive order directed the Department of Health and Human Services (HHS) to communicate MFN price targets to manufacturers (with an initial target date of June 11, 2025) and gave manufacturers roughly 180 days — to around November 8, 2025 — to reach terms, after which HHS was instructed to consider rulemaking. The targets focus on single-source brand drugs — those without an approved generic or biosimilar. Manufacturers were pressed to extend MFN prices to Medicaid patients, to guarantee MFN-level pricing for newly launched drugs, and to stand up direct-to-consumer channels.
In late 2025, CMS released the regulatory scaffolding in the form of three proposed models, each a different slice of the program:
- GLOBE — targets Medicare Part B (physician-administered) drugs.
- GUARD — targets Medicare Part D (retail/pharmacy) drugs.
- GENEROUS — a Medicaid model. Reporting indicates its benchmark is based on the manufacturer-reported second-lowest net price across a basket including Canada, Denmark, France, Germany, Italy, Japan, Switzerland, and the UK, adjusted for GDP by a purchasing-power-parity method.
A notable design detail on the Medicaid side: CMS clarified that supplemental rebates under the GENEROUS model are intended not to alter Medicaid “best price” and therefore not to drag down 340B ceiling prices — a carve-out that matters enormously to manufacturers, because an MFN benchmark feeding into best price would cascade discounts across the entire 340B and Medicaid rebate system.
The most visible consumer-facing piece is TrumpRx, a direct-to-consumer platform launched in early 2026 routing patients to discounted cash prices. The administration has publicized steep examples — a Boehringer Ingelheim diabetes product cited at roughly $55 versus a $525 list, and Gilead’s hepatitis-C therapy Epclusa cited near $2,425 versus about $24,920 — though such headline cash prices are not the same as system-wide net prices across insured channels.
The Manufacturer Agreements
The defining feature of the 2025–2026 effort is that it has advanced largely through voluntary agreements, not a mandate. On July 31, 2025, the administration sent letters to 17 manufacturers. Pfizer became the first to sign, on September 30, 2025. On December 19, 2025, the White House announced a batch of nine further agreements (naming Amgen, Boehringer Ingelheim, Bristol Myers Squibb, Genentech, Gilead, GSK, Merck, Novartis, and Sanofi), and Regeneron was reported as a later signatory in April 2026.
By early 2026, press accounts put the count at roughly 16 to 17 major manufacturershaving announced agreements on selected products, also including AbbVie, AstraZeneca, Eli Lilly, EMD Serono, Johnson & Johnson, and Novo Nordisk. Several agreements were paired with large stated US manufacturing commitments. The terms, however, are not fully public — a point of growing congressional scrutiny — and reporting has flagged that some signatories continued to raise list prices on other products, so the real-world net effect remains contested.
“Voluntary” is doing a lot of work
MFN vs IRA vs Reference Pricing
MFN is easy to confuse with the other forces compressing US drug prices. They are different instruments with different legal footing, and they stack rather than substitute. The table below separates them.
| Dimension | MFN pricing (2025 EO) | IRA negotiation | Classic international reference pricing |
|---|---|---|---|
| Legal basis | Executive order plus voluntary agreements / proposed CMS models | Statute (Inflation Reduction Act, 2022) | National law/regulation in adopting countries |
| How the price is set | Benchmarked to lowest/near-lowest price in a peer-country basket | Negotiated “maximum fair price” between CMS and maker | Formula vs a reference basket (often average or median) |
| Scope | Single-source brand drugs; aims at Medicaid, new launches, DTC | Defined, growing list of high-spend Medicare drugs past exclusivity | Typically the national health system’s reimbursed list |
| Depth of cut | Generally deeper — reaches toward the foreign floor | Shallower on average; one study found MFPs above reference prices | Varies; often less aggressive than a pure “lowest price” |
| Maturity | New, evolving, partly litigated, terms largely undisclosed | Operational; first negotiated prices took effect 2026 | Long-established across Europe and elsewhere |
The depth comparison is the one dealmakers should internalize. A peer-reviewed analysis comparing Medicare’s IRA-negotiated maximum fair prices to MFN-style international reference benchmarks for Part D drugs found the negotiated prices ran, on average, well above the reference prices — by a large relative margin. In plain terms: where both could bite the same molecule, an MFN benchmark would generally cut deeper than IRA negotiation. That ordering matters when you are modeling a worst case for a US-heavy asset.
For the broader patent-cliff and pricing backdrop these tools operate against, see our biosimilars and patent-cliff licensing analysis.
The Legal and Authority Questions
The 2025 effort is built on the memory of 2020. The central legal risk is the same one that sank the earlier rule: whether HHS has the statutory authority to impose MFN pricing through a payment model, and whether it can do so without full notice-and-comment rulemaking under the APA. In 2020, courts found the interim final rule procedurally defective and unsupported by “good cause” to bypass comment — a financial-savings rationale was held not to clear that bar.
The voluntary-agreement route is, in part, a way around this: a manufacturer that chooses to sign cannot easily argue it was coerced by an invalid rule. But the proposed CMS models (GLOBE, GUARD, GENEROUS) reintroduce the rulemaking-authority question for any maker that does not sign, and a mandatory model would likely draw the same constitutional and APA challenges — including arguments about the limits of CMS’s demonstration authority and, potentially, non-delegation and major-questions doctrine. Related 2026 tariff actions have leaned on national-security authority (Section 232), which carries its own litigation exposure.
The number that frames the stakes
What It Does to Pharma Strategy
Whatever its final legal shape, MFN has already changed how commercial and BD teams think. The clearest effect is on launch sequencing. The conventional global sequence launched the US first to capture high early prices, then rolled out to Europe and Japan. Under reference pricing, that logic inverts at the margin: launching early into a low-price reference country can set a low benchmark that an MFN formula then imports back into the US, eroding the largest profit pool. The rational response is to delay, re-sequence, or even skip low-price markets — which is precisely the behavior that worries health authorities outside the US, who fear delayed access as a spillover cost.
The second effect is on ex-US price defense. If US prices reference foreign prices, every foreign price negotiation becomes a US pricing decision. Manufacturers gain a strong incentive to hold the line — or raise — prices in reference countries, putting upward pressure on European and other payers and turning what were once independent country P&Ls into a single interconnected pricing system. The era of treating ex-US markets as separable, low-stakes follow-ons is ending.
The third effect is portfolio-level. If the US net-price ceiling falls, the relative attractiveness of therapeutic areas, modalities, and indications shifts toward those that preserve volume and durability rather than peak price. That reweighting feeds directly into M&A and licensing appetite — a theme we develop in our 2026 biotech M&A trends analysis.
The Cross-Border and Deal-Value Angle
For a cross-border licensing advisor, MFN is not a political story — it is a valuation input. Almost every risk-adjusted NPV model for a clinical asset is anchored by US peak sales, because the US is where price and access combine to produce the bulk of lifetime revenue. Compress the US net price and you compress the single largest term in the model. The asset is the same molecule; the number a buyer will pay for US or global rights is smaller.
That mechanical effect has several consequences for deal structure. It raises the analytical premium on getting the US pricing assumption right — see our rNPV valuation guide for how the discounting works in practice. It makes territory carve-outs sharper: if US value is more uncertain, the relative value of clean ex-US rights — and of structures that let a licensor retain optionality on specific geographies — rises. And it pushes more consideration into contingent, milestone-and-royalty terms rather than large upfronts, because both sides are pricing a moving regulatory target.
The China dimension sharpens all of this. A large and growing share of global out-licensing now originates from Chinese biotechs, whose home market already prices well below US levels. If US prices drift toward international references, the historical arbitrage — buy ex-China rights cheaply, monetize them at full US prices — narrows, and buyers must underwrite a lower terminal US price from the outset. At the same time, a Chinese originator launching domestically at a low price could, in a fully implemented MFN world, inadvertently shape the US reference benchmark for the licensed asset — a reason to think carefully about launch timing and reference-basket exposure inside the deal terms. We track this dynamic in our China out-licensing report.
The repricing is not symmetric
What Is Still Unsettled
Honesty about the open questions is part of the analysis. As of mid-2026, several things remain genuinely undecided, and any plan should treat them as ranges, not facts:
- Legal durability. The mandatory CMS models have not been tested in court; a serious challenge on APA or authority grounds could narrow or delay them, as happened in 2020.
- Net vs headline impact. Much of the visible action is in direct-to-consumer cash prices via TrumpRx; how far MFN actually moves system-wide net prices across insured channels is still unclear, and undisclosed agreement terms make it hard to measure.
- Foreign reaction. If US referencing pushes manufacturers to raise or defend ex-US prices, payers abroad may respond — through confidential net pricing, delayed listings, or their own counter-measures — changing the very benchmarks MFN relies on.
- Durability across administrations. An executive-order-driven policy can be unwound by a successor, as the 2020 rule was. Long-dated deal models should not assume permanence.
None of this means MFN is theater. The direction of travel — sustained political pressure to bring US prices closer to international levels — is durable across both parties, even if this specific instrument is not. The prudent posture is to plan for a structurally lower US net-price ceiling over time while declining to over-fit any single year’s rule.
The Bottom Line
Most-favored-nation pricing is international reference pricing with an aggressive benchmark: pay no more than the lowest comparable foreign price. The 2025 executive order revived a 2020 concept the courts had blocked, and routed it this time mainly through voluntary manufacturer agreements and proposed CMS models for Medicare and Medicaid, with TrumpRx as the consumer-facing edge. It is deeper-cutting than IRA negotiation where both apply, still partly litigated, and far from fully implemented.
For dealmakers, the signal beneath the noise is simple. The US revenue pool that anchors asset valuation is under structural, bipartisan pressure to shrink toward international levels. That lowers risk-adjusted NPVs, raises the value of disciplined US-price assumptions and clean territory carve-outs, and makes launch sequencing a pricing decision rather than a logistics one. In cross-border and China licensing, it narrows the old US-premium arbitrage and rewards buyers who underwrite a realistic US ceiling from the start.
The firms that navigate this well will not be the ones who guess the next executive order — they will be the ones who structure deals robust across a range of US pricing outcomes. If you are valuing or structuring an asset whose economics turn on the US price, talk to our team.