A new paper by the America First Policy Institute, a think tank with close ties to the Trump administration, has revived the debate over global drug pricing.
The paper points out that patients in the United States tend to pay considerably more for brand-name prescription drugs than those in most other wealthy nations. The think tank argues that the Trump administration should find ways to force other countries to pay more for drugs — and thus pick up a more equitable share of the cost of developing new medicines.
The intent is right. Unfortunately, the paper's methods for achieving it would slow global innovation — and fail to compel other countries to pay more for drugs.
Foreign countries are indeed "freeloading" on American pharmaceutical investment, as the AFPI paper puts it. U.S. gross prices for brand-name drugs are 422% higher, on average, than in 33 other developed nations analyzed by the RAND Corporation in a 2024 study.
What's behind this yawning price gap? Price controls, mainly. Much of the developed world caps the prices of drugs sold within its borders. Often, those prices are linked to what other countries pay. So if one country imposes stiff price controls on a drug, then those prices are automatically exported to other countries.
One consequence of international reference pricing schemes like these is that Americans end up paying more for their medicines in order to make up for systematic underpayments elsewhere. This, more than any other factor, explains why the same drug can cost substantially less in Canada, France, or Germany than it does in the United States.
Of course, many drugs are not available in countries with price controls. Drug companies tend to prioritize selling their products in countries where they can earn the greatest return. Nearly 60% of drugs that launched between 2012 and 2021 hit the market first in the United States. Less than one-fourth were launched first in the European Union.
In a just world, other wealthy nations would pay more for their medicines. "If other countries paid higher drug prices," the AFPI paper notes, "drug manufacturers could invest in more R&D to develop additional medications or could lower prices for American patients."
But then the paper engages in some magical thinking. It calls on the United States to create a reference-pricing system of our own. This new policy, known as the most-favored nation (MFN) model, "would limit how much Medicare and Medicaid spend on certain high-cost drugs based on the drug's lowest price in other wealthy countries."
It's unclear how adopting the very price controls other countries impose on prescription drugs will result in higher prices abroad. AFPI seems to think that drug companies will be able to negotiate better deals with foreign governments under this new system.
But drug companies would have done so already if they could have. They charge lower prices abroad today because they have little choice. And if they refuse to sell their products in a particular country unless it agrees to higher prices — as AFPI's plan would require — then that nation could easily retaliate by seizing the company's intellectual property.
If multiple drug companies banded together to try to force countries to pay higher prices in line with AFPI's plan, they'd likely be treated as a cartel — and penalized under European Union competition law.
Importing foreign price controls on prescription drugs into the United States will lead to much less revenue for the pharmaceutical industry — and much less money to invest in the development of the next generation of medicines.
Today, it takes well over $2 billion and more than a decade to create a new drug. Only 1 in 10 drugs that enter clinical trials reaches patients. Given those steep expenses and long odds, we can expect far fewer novel drugs to be developed if the United States adopts international reference pricing.
The only feasible way of ending foreign prescription drug freeloading is through direct negotiations between governments. For that to work, the Trump administration will need to steer clear of price-control policies here at home. Otherwise, it will squander any chance of ending those same policies abroad.
Sally C. Pipes is President, CEO, and Thomas W. Smith Fellow in Health Care Policy at the Pacific Research Institute. Her latest book is The World's Medicine Chest: How America Achieved Pharmaceutical Supremacy — and How to Keep It (Encounter 2025). Follow her on X @sallypipes. Read Sally Pipes' Reports — More Here.
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