A new U.S. policy could reshape drug pricing across the world

As of May 21, the U.S. Department of Health and Human Services (HHS) is working on a policy that aims to reduce prescription drug prices based on a “most-favored-nation” pricing strategy. If implemented, the new policy would tie the price of drugs in the U.S. market to the lowest possible price paid by countries that are members of the Organisation for Economic Co-operation and Development (OECD). 

On average, the U.S. pays almost three times more for prescription drugs than other developed countries. To cut prescription costs, the HHS intends to match U.S. drug prices with those in countries where people earn at least 60% as much as Americans do (per capita GDP).

However, since the U.S. is the largest single market for prescription drugs, implementing a “most-favored-nation” policy could disrupt pricing strategies worldwide. To avoid declining global prices, pharmaceutical companies would need to renegotiate their contracts with countries that have paid lower rates. Thus, countries that meet the 60% per capita GDP threshold, like Germany and Canada, might see higher prescription costs. That being said, countries that fall below the 60% per capita GDP level may be unaffected.

Another ripple effect would be the reduction of pharmaceutical R&D investments derived from smaller profit margins in an industry already under financial strain. As of May 2025, the SPDR S&P Pharmaceutical exchange-traded fund (XPH.P)‌ is down nearly 5% while the broader S&P 500 has had a small gain.

The announcement of the policy has generated a variety of comments that range from skepticism to concern. BMO Capital Markets analyst Evan Seigerman considered it a negotiating tactic to drive global prices higher, rather than a strategy to lower pharmaceutical profits in the U.S. Meanwhile, the Pharmaceutical Research and Manufacturers of America (PhRMA) expressed that for lowering drug costs in the U.S., American policymakers should address deeper issues that affect drug prices such as the role of middlemen in price inflation and foreign countries not paying a fair share.

Robert F. Kennedy Jr., the U.S. health secretary, is expected to release more details regarding the policy, its implementation, and pricing targets in the upcoming weeks.