Pharmaceuticals cost more in America than in any other developed nation. But copying Europe’s price controls with Most Favored Nation pricing (MFN) will not fix that problem. Washington should instead focus on a reform that is already reducing patients prices: direct-to-consumer (DTC) pharmaceutical sales.
President Trump launched the current MFN initiative through a May 2025 executive order directing the Department of Health and Human Services (HHS) to establish price targets based on what comparable developed countries pay for the same medicines. The administration has since negotiated voluntary MFN agreements with major pharmaceutical manufacturers and is seeking to make that approach permanent through legislation.
MFN relies on a form of price control known as external reference pricing (ERP), which European countries have used for decades. Rather than Washington directly choosing a price ceiling, regulators anchor American prices to negotiated or regulated prices in selected foreign countries.
Europe’s experience shows that price controls do not merely lower a number on a price tag. Manufacturers respond when prices are artificially restricted. When accepting a low price in one country can lower permissible prices in several others, manufacturers have reason to delay launching products in lower-cost countries.
That is not theoretical. A review of European ERP policies found manufacturers gaming the system through strategic launch delays, higher initial prices, product withdrawals, and reduced supply in markets where regulated prices generated problems in other markets. For consumers, this means lower price mandates could cut access altogether.
A study examining 85 new medicines across 25 countries likewise found regulating lower prices was associated with fewer new drug launches and longer delays for launches. A broader review found ERP programs like MFN contribute to launch delays, product withdrawals, and reduced medicine availability.
Europe also demonstrates how price controls degrade pharmaceutical innovation. Developing a medicine requires large investments immediately in exchange for uncertain revenue years later. Reduce the expected return enough, and many research projects stop making economic sense. An examination of European pharmaceutical firms found regulated markets were associated with lower R&D investment. In the pharmaceutical market delayed and abandoned research means fewer new medicines, more human suffering, and more preventable deaths.
But, America has a better option: encourage drug manufacturers and retailers to compete directly for consumers.
DTC pharmaceutical sales allow manufacturers and online pharmacies to post transparent cash prices that patients can compare against each other and their insurance copays. That also means bypassing layers of PBMs, insurers, and other intermediaries whose involvement may add cost without adding comparable value.
One study found that purchasing through Cost Plus Drugs could save patients money on about 11.8 percent of the generic prescriptions examined as compared to traditional insurance. And Cost Plus Drugs is hardly alone. DiRx, Amazon Pharmacy, GoodRx, and an increasing number of online pharmacies and pharmaceutical manufacturers now give patients ways to purchase medicines directly online, often at lower costs, without relying on the traditional insurance and PBM channel.
That is what a market should look like. Transparent prices that patients can easily compare.
Federal rules should also stop discouraging manufacturers from experimenting with lower consumer prices. The Medicaid Best Price rule is intended to ensure taxpayers receive the benefit of manufacturers’ lowest commercial prices, but its design also means a particularly deep discount offered through a DTC program can affect the rebates a manufacturer owes across its much larger Medicaid business. Congress can keep the rule while creating a pathway for broadly available DTC discounts that does not turn every experiment with lower consumer prices into a systemwide pricing obligation.
Federal anti-kickback rules create a related problem. Because the Anti-Kickback Statute can treat discounts or other benefits offered to Medicare and Medicaid beneficiaries as potentially unlawful inducements, manufacturers may hesitate to offer DTC discounts unless they know those discounts will not trigger liability. HHS took an important step in January by clarifying that properly structured DTC cash sales to Medicare and Medicaid beneficiaries generally present low risk under the Anti-Kickback Statute when no federal program pays for the drug. But that guidance is just that, guidance. It does not change the statute itself and enforcement remains case-specific. HHS should finish the job by establishing a clear, permanent safe harbor for legitimate DTC discounts, giving manufacturers confidence that competing for patients by lowering cash prices will not create legal risk.
States can also help by reducing barriers to interstate pharmacy competition by recognizing licensed out of state pharmacies. A patient ordering a routine medicine by mail should be able to shop nationally rather than be trapped in a fragmented state market.
MFN tries to lower prices by importing foreign price controls. Europe’s experience shows the predictable side effects: delayed launches, product withdrawals, strategic pricing, reduced access, and fewer new medicines. DTC moves in the opposite direction. It exposes prices to patients, removes barriers to access, and gives patients choices.
Rather than asking foreign governments what Americans’ medicines should cost, Washington should make pharmaceutical companies compete for American patients’ business.
Justin Leventhal is a senior policy analyst for the American Consumer Institute, a nonprofit education and research organization. For more information about the Institute, visit www.TheAmericanConsumer.Org or follow us on X @ConsumerPal.
