U.S. 'Most Favoured Nation' Drug Pricing Proposal Risks Driving Up Costs in Canada, Analysts Warn

Key facts

When a country implements a most-favoured-nation pricing policy, public health payers mandate that they will pay no more for a drug than the lowest price available in a selected group of economically comparable countries. In theory, the policy aims to leverage international price differentials to force pharmaceutical companies to drop high U.S. retail and wholesale prices to align with lower prices established in countries across Europe, Canada, and Japan.

However, health policy experts consulted by reporters Amina Zafar and Christine Birak outline a counter-intuitive dynamic driven by global corporate strategy. Because the United States represents the largest and most profitable pharmaceutical market in the world, generating a disproportionate share of global revenues for major drug makers, companies will prioritize protecting U.S. profit margins above maintaining market share in smaller foreign nations.

If selling a medication in Canada at a lower price threatens to automatically lower the price of that same drug across the vast U.S. Medicare system, pharmaceutical companies face a distinct financial incentive to alter their international pricing strategies. Industry experts warn that drug makers are likely to adopt three main strategies: refusing to agree to lower prices during Canadian negotiations, demanding price increases on existing treatments during contract renewals, or choosing not to launch new medications in Canada altogether.

This dynamic exposes a fundamental vulnerability in international reference pricing. When a massive market like the United States adopts reference pricing linked to smaller countries, it transforms those smaller countries' internal price negotiations into global price ceilings for pharmaceutical companies. As a result, Canadian provincial drug plans and private insurers could face severe upward pressure on drug costs, while patients could see diminished access to newly developed therapies.

Why it matters

The financial and clinical implications for Canada’s healthcare system are substantial. Canada relies heavily on public drug formularies operated by provincial and territorial governments, alongside private health insurance plans, to subsidize prescription medications. If pharmaceutical companies adjust their global strategies to counter U.S. policy, Canadian price negotiations will become significantly more adversarial.

For provincial payers operating through the Pan-Canadian Pharmaceutical Alliance, which negotiates confidential drug discounts on behalf of public drug plans across all provinces and territories, foreign benchmark policies severely erode negotiating leverage. If a drug company knows that accepting a 30 percent discount in Canada will trigger an identical price reduction across the multi-billion-dollar U.S. Medicare program, the manufacturer will likely reject the Canadian discount, preferring to forfeit the Canadian market rather than compromise its primary revenue stream.

Furthermore, Canadian patients could face chronic delays in accessing life-saving specialized treatments, particularly oncology therapies, biologics, and rare-disease medications. Pharmaceutical companies often launch new products first in the U.S. due to higher return rates. If lower Canadian prices carry systemic risks for U.S. pricing, manufacturers may simply opt out of filing for regulatory approval or commercial distribution in Canada. This risk threatens to reverse decades of Canadian policy aimed at ensuring affordable access to patented medicines.

The concept of most-favoured-nation drug pricing was first championed by Donald Trump during his first presidential term. In November 2020, the Trump administration issued an interim final rule through the Centers for Medicare & Medicaid Services that sought to test an MFN model for Medicare Part B drugs—medications administered in physician offices and hospital outpatient settings. That original rule proposed indexing U.S. Medicare reimbursement rates for 50 high-cost single-source drugs to an international price index calculated from 22 member countries of the Organisation for Economic Co-operation and Development, including Canada, the United Kingdom, France, and Germany.

However, the 2020 MFN rule encountered immediate legal resistance. Major industry trade groups, including the Pharmaceutical Research and Manufacturers of America and Biotechnology Innovation Organization, filed federal lawsuits arguing that the administration had bypassed required public comment periods and exceeded statutory authority under the Social Security Act. Federal courts issued preliminary injunctions halting the rule's implementation, and the Biden administration subsequently rescinded the MFN regulation in late 2021, favoring instead the direct Medicare price negotiation framework later enacted under the Inflation Reduction Act of 2022.

In Canada, drug prices are overseen by the Patented Medicine Prices Review Board, a quasi-judicial federal agency created in 1987 under the Patent Act to ensure that prices charged by patent-holding pharmaceutical companies are not excessive. The Patented Medicine Prices Review Board monitors factory-gate prices of patented drugs by comparing them against a set basket of foreign reference countries—a practice known as international therapeutic class comparison. Historically, Canada's reference basket included countries such as the U.S., the U.K., France, Germany, Italy, Sweden, and Switzerland. Modernization attempts by the Canadian government to update the regulatory basket by removing high-priced jurisdictions like the U.S. faced years of industry litigation and regulatory delays, illustrating the high sensitivity of cross-border drug pricing models.

Reaction

The potential spillover effects of U.S. MFN pricing have drawn sharp scrutiny from Canadian drug policy experts, health economists, and patient advocacy groups, as highlighted by reporting from Amina Zafar and Christine Birak. Policy analysts caution that cross-border drug policy cannot be viewed in isolation, as pharmaceutical markets operate as interconnected global ecosystems.

While pharmaceutical trade associations in the United States have historically opposed MFN proposals on the grounds that foreign price controls stifle domestic innovation and research investment, industry observers note that manufacturers will adapt to regulatory shifts by adjusting their global commercial footprints. In Canada, public health stakeholders and provincial health ministries are expected to closely monitor U.S. regulatory filings and federal legislative actions to evaluate the potential impact on public drug formularies.

Canadian health policy experts emphasize that federal regulators like Health Canada and the Patented Medicine Prices Review Board, alongside provincial negotiation bodies like the Pan-Canadian Pharmaceutical Alliance, may need to re-evaluate their pricing frameworks if foreign policy changes disrupt standard negotiation dynamics.

What we don't know yet

Several critical uncertainties remain regarding how an MFN drug pricing model would be implemented and enforced. It remains unclear precisely which drug categories—whether Medicare Part B physician-administered drugs, Medicare Part D retail prescription drugs, or both—would be subject to external reference pricing under any finalized policy. Additionally, the exact list of benchmark countries included in the U.S. reference basket has not been finalized, leaving open the question of how heavily Canadian price points would weigh into the overall international price calculation.

Furthermore, it is uncertain how pharmaceutical companies would respond in practice to individual drug products. While experts anticipate broad upward price pressure and potential market withdrawal strategies, the actual decisions will depend on drug-specific profit margins, patent longevity, global supply chain structures, and alternative market opportunities. It also remains unknown whether Canadian regulatory authorities would enact counter-measures, such as altered confidentiality rules around net drug prices, to insulate domestic markets from U.S. benchmark tracking.

What to watch

Key indicators in the coming months will reveal the scope and severity of potential cross-border drug market disruptions. Watch for official administrative announcements, executive orders, or rulemaking notices published by the U.S. Department of Health and Human Services and the Centers for Medicare & Medicaid Services detailing the technical architecture of any proposed MFN model, including its specific international index methodology and targeted drug lists.

Monitors should also track legal challenges initiated by pharmaceutical trade organizations in U.S. federal district courts, which previously halted similar pricing initiatives. In Canada, observers should watch for public statements and policy guidance from the Patented Medicine Prices Review Board and the Pan-Canadian Pharmaceutical Alliance regarding negotiation strategies. Additionally, monitoring regulatory submission rates and product launch timelines for new patented medicines at Health Canada will provide early evidence of whether pharmaceutical manufacturers are delaying market entry into Canada.

This article contains reporting based on original coverage by Amina Zafar and Christine Birak.