New US policy brief calls for reform of international drug pricing practices

As the US contributes a significant share of global pharmaceutical R&D costs, a new policy brief examines how international drug pricing practices could be adjusted to better support innovation and expand patient access.

A recent issue brief from the America First Policy Institute explores the concept of ‘global freeloading’ in pharmaceutical innovation, a reference to the economic imbalance created when other wealthy nations pay significantly lower prices for drug developed in the US. The brief argues that while American patients and taxpayers fund most global pharmaceutical R&D, other developed countries benefit from these innovations without contributing proportionally to their cost.

The paper highlights that chronic diseases, such as cancer, diabetes, and heart disease, remain among the most serious health burdens in the US, requiring ongoing innovation to improve treatment options and patient outcomes. Pharmaceutical advances, often enabled by public funding through the National Institutes of Health (NIH) and private sector investments, have historically contributed to increased life expectancy and quality of life. For example, the article quotes that NIH-funded research was linked to 354 of the 356 drugs approved by the FDA between 2010 and 2019.

However, the article contends that international pricing policies reduce drug manufacturers' revenue, which could otherwise be reinvested into R&D. Many countries set drug prices using external or internal reference pricing models, or implement payback mechanisms that limit total national drug spending. This disparity is seen as limiting global pharmaceutical investment and reducing the number of new treatments available to patients worldwide.

According to the America First Policy Institute, higher foreign drug prices could incentivize more pharmaceutical innovation, increasing global access to new treatments. For instance, a 1% increase in global pharmaceutical revenue could lead to a 3.5% increase in new drug approvals. This, in turn, could lead additional drugs beings developed per year, benefiting patients globally.

To address these concerns, the brief proposes a series of policy measures that, “put patients first and end global freeloading off American drug innovation.” One such measure is the implementation of a Most-Favored Nation (MFN) pricing model, which would tie US government reimbursement for drugs to the lowest prices paid by comparable countries. Initially proposed under the first Trump administration and later withdrawn, this model could be reintroduced through the Centers for Medicare and Medicaid Services (CMS), the Federal Employees Health Benefits (FEHB) program, or the Medicare drug price negotiation provisions in the Inflation Reduction Act.

Other proposals include:

• Applying the MFN model specifically to new drugs or the most expensive drugs for Medicare beneficiaries.
• Extending the MFN model to certain drugs in the commercial insurance market.
• Enacting an International Pricing Index (IPI) model that sets drug prices based on the average paid in other wealthy countries.
• Conditioning Medicare participation on a requirement that drug manufacturers not offer lower prices abroad than they do in the US.
• Using existing trade tools to encourage international partners to contribute more equitably to pharmaceutical innovation.

The brief concludes that rebalancing global contributions to drug development could benefit patients both in the US and abroad. By encouraging more equitable international funding of pharmaceutical innovation, US policymakers could gain more flexibility to lower domestic drug prices without compromising future investment in life-saving treatments.