The Rise of Geopolitics in Health Policy: “Most Favored Nation” Policy in the United States and International Reference Pricing

The Rise of Geopolitics in Health Policy: “Most Favored Nation” Policy in the United States and International Reference Pricing

Date: 2026
Jaume Puig Junoy

FUNCAS Social and Economic Studies, 11

This document deals with the economics of the new drug pricing policy measures in the United States (US) generically known as “Most Favored Nation” (MFN) and their expected impact in the US and in the European Union (EU). The main, though not the only, component of the MFN policy consists of the adoption of an international reference pricing (IRP) system in the US. Other components of the recent pricing policy in the US, such as tariff and trade policy, are not addressed here. The first part of this text describes the Economic lessons learned from several decades of IRP implementation in Europe: the advantages of this type of policies, the design elements and problems, and the implications for the United States of the evidence on its application in Europe. The second part reviews the evidence on the growing price differential between the US and Europe that has served to justify the new policy in the US. The third part analyses the theoretical and empirical arguments on the free riding of ex‑US prices and whether there really is an appropriate level of price differential. The fourth part describes the background and MFN policies in the US according to details known to this date (05/31/2026). The fifth part describes and analyses the expected impact of the MFN policies on prices, access, and R&D from both the US and European perspectives, emphasizing the economic logic and limitations of the reactive policies initially adopted in Europe as of this date (05/31/2026) to address the impact of the US MFN measures. Finally, the last section presents brief recommendations for Spain.

Summary

• ABBREVIATIONS USED
• ABSTRACT
• EXECUTIVE SUMMARY
• Capítulo 1. WHAT HAVE WE LEARNED FROM INTERNATIONAL REFERENCE PRICING IN EUROPE?
  • 1.1. International reference prices: Beggar-thy-neighbor?
  • 1.2. Differential prices versus (almost) uniform prices
  • 1.3. Ramsey rule and separable markets
  • 1.4. IRP design: Is “good practice” possible?
  • 1.5. Lessons from the European evidence on prices and launches
  • 1.6. Impact on innovation: How to align R&D and social priorities?
• Chapter 2. WHAT DO WE KNOW ABOUT THE LEVEL AND EVOLUTION OF THE PRICE DIFFERENTIAL BETWEEN THE UNITED STATES AND EUROPE?
  • 2.1. Are prices in the United States so high?
  • 2.2. What matters is the differential in net prices
  • 2.3. What (little) do we know about the net price differential

• Chapter 3. IS GLOBAL FREE RIDING ON THE PRICE OF MEDICINESIN THE UNITED STATES OVER?
  • 3.1. What are the causes of the price differential?
  • 3.2. Economics of Pharmacy Benefit Management (PBMs)
  • 3.3. Does global free riding exist?
  • 3.4. Can the fair price differential be determined?
    • 3.4.1. Free riding indices
    • 3.4.2. HTA in Europe as an excuse to pay less
    • 3.4.3. Optimal contribution to R&D
• Chapter 4. “MOST FAVORED NATION” (MFN) PRICING POLICY IN THE UNITED STATES: GLOBALIZATION OF INTERNATIONAL REFERENCE PRICING?
  • 4.1. Background: A bipartisan concern
    • 4.1.1. MFN for Medicare Parts B and D (2020)
    • 4.1.2. The Inflation Reduction Act (2022)
  • 4.2. MFN policies 2025-2026 (as of May 31, 2026)
    • 4.2.1. Executive Order 14297 (May 2025)
    • 4.2.2. Voluntary agreements
    • 4.2.3. Framework for the application of MFN pricing policy
    • 4.2.4. GENEROUS (Medicaid)
    • 4.2.5. GLOBE & GUARD (Medicare)
• Chapter 5. EXPECTED IMPACT ON PRICES, ACCESS AND INNOVATION: TOWARDS A GLOBAL COMPRESSION OF PRICES?
  • 5.1. Limitations of the framework for applying MFN prices
  • 5.2. Expected impact on prices and access
    • 5.2.1. Expected economic impact in the US
    • 5.2.2. Expected impact on prices and access
    • 5.2.3. Scenario of international price compression
    • 5.2.4. Intuitions from economic modelling on expected prices under MFN policies
  • 5.3. Expected impact on global innovation
  • 5.4. Early strategic responses of European health systems (as of May 31, 2026)
    • 5.4.1. Application framework: Certainties and uncertainties
    • 5.4.2. Strategies for adjustment to the externalities of MFN prices
    • 5.4.3. Adaptive behavior: United Kingdom (UK)
    • 5.4.4. Confidentiality clauses on net prices
    • 5.4.5. Financing and purchasing policies based on variable prices
• Chapter 6. RECOMMENDATIONS FOR A SUSTAINABLE PHARMACEUTICAL FINANCING POLICY IN SPAIN
  • 6.1. Recommendations on pharmaceutical policy as an instrument of economic policy
  • 6.2. Recommendations on financing and price regulation/intervention decisions
  • 6.3. Recommendations on evaluation of efficacy/effectiveness and efficiency
• BIBLIOGRAPHY
• ANNEX