Most Favored Nation – Why Is It Part of the Drug Pricing Debate?
I’ve written ad nauseum about how the use of the most favored nation (MFN) concept is the wrong approach to ensure every country pays for the research and development (R&D) of new medicines. I would like to back up a little and talk about how this term came to be used in this context.
The term “most favored nation” sounds a little discriminatory, but its origin is just the opposite. The concept dates back to medieval times with the goal being that groups or merchants would receive treatment no worse than any other trading partner. MFN became popular in the centuries since and was carried forward into the World Trade Organization (WTO) framework in 1995.
While it might sound fair, when it comes to the drug pricing debate, it isn’t. In fact, it can lead to limiting competition and discouraging innovation.
There is no doubt that many other countries are not paying their fair share for the R&D required to bring a new drug to market. The process isn’t cheap, and one of the main reasons is that many drugs that are researched and brought through the stages of approval fail at some point. From what I know you couldn’t make any baseball team if your batting average was equal to the percentage of drugs that actually get approved. This is a sunk cost that needs to be spread across all those who benefit from it. My point has always been that using this fair sounding most favored nation approach is not the way to do it.
A trade agreement is established through mutual agreeable negotiations. When you are talking about tying a maximum drug price to a price that reflects the country’s particular healthcare system and their way of controlling access and the timing for release of the medicine, you inherit their way of providing healthcare to their citizens. Our healthcare is different than many other countries and our citizens have come to expect quicker and broad access to new life improving and lifesaving drugs. The complete answer to ensuring other countries pay their fair share of R&D hasn’t been found yet, but I do know that using MFN as a basis for price controls is certainly not it.
There’s another facet of this question that I think deserves some discussion – onshoring. The goal is to produce more of the goods we need in the U.S, and one reason has to do with our country’s security. You can see why it would be a source of concern if a country that became hostile to us was also an important manufacturer or a key supplier of an ingredient of a vital prescription drug. Giving them this leverage would be detrimental but, more importantly, could cause harm to U.S. citizens who rely on this medicine. This threat to our security is well founded.
While onshoring is important and some companies have already agreed to increase their investment in domestic manufacturing, it is also important that our allies recognize that their security and access to new medicines would be enhanced if they found a way to pay their fair share of the cost of R&D. There has got to be a way for us to arrive at an equitable solution to this problem. I certainly don’t know what the solution is, but I do know that a thinly disguised price fixing approach - like MFN - is not the answer.
We can’t afford to put more roadblocks in the way of innovation. We developed a fertile basis for discovering new medicines and became the world leader in innovation. It not only has given us hope as we find ways to slow or stop diseases but has also produced an economic juggernaut for our country. Our allies will be less likely to support the cause of preserving ours and their security if they can benefit from recruiting our best scientists by offering a more fertile environment for innovation. We are in the midst of great changes to our country’s healthcare. It will be easy to forget that our focus should be centered on our country’s patients who look to us for hope for a healthier future.
Best, Thair