Most-Favored-Nation Benchmarking Versus Value-Based Contracting: Institutional Fit of Pharmaceutical Pricing Tools in the United States,Canada,and the United Kingdom

Introduction

In August 2024, the Centers for Medicare and Medicaid Services (CMS) publicly disclosed, for the first time, the negotiated prices for high-cost drugs under the Medicare Drug Price Negotiation Program for the 2026 coverage year. ¹ Simultaneously, its UK counterpart introduced a reformed voluntary scheme for brand medicine pricing, access, and growth (VPAG), tightening revenue limits and easing access flexibility. ² With these reforms, a turning point has occurred in pharmaceutical policy in high-income countries, as governments face rising expenditures while aiming to preserve innovation and protect equitable access and financial protection.

Despite increasing investments in biomedical research, costly medicines continue to widen access gaps and strain public resources.^3,4 Policymakers face the difficult challenge of balancing drug affordability and fairness without stifling innovation or overwhelming administrative systems.

The two pricing reform strategies in both countries are the Most Favored Nation (MFN) pricing, which bases domestic prices on international standards, and Value-Based Care (VBC), which aligns payments with clinical outcomes.^5,6 MFN can result in short-term budget cuts but may reduce innovation and lead to litigation challenges. VBC can support long-term cost reduction while delivering value, but it depends on strong infrastructure, clear metrics, and payer cooperation. ⁷ CMS Innovation Center model designs have advanced international benchmark-based approaches through GENEROUS (Medicaid) and proposed mandatory models for Medicare Part B (GLOBE) and Part D (GUARD); these initiatives are at the design stage and require future evaluation of realized effects.^8-10

This study compares the MFN/VBC functioning in three institutional environments: Canada, the United Kingdom, and the United States. Canada’s centralized pricing oversight through the PMPRB supports cost control, but system performance is constrained by inter-jurisdictional processes and negotiated coverage pathways that can reduce transparency and slow access to new medicines.^11,12 In the United Kingdom, the approach combines cost-effectiveness with outcome-linked pricing under NICE and the reformed VPAG program within its centralized National Health Service (NHS) system.^2,13 Meanwhile, U.S. reforms are hindered by fragmented payers, disputed authority, and underdeveloped infrastructure.

Using a trade-off matrix within a structured framework, we evaluated the performance of the MFN and VBC models across four policy goals: cost containment, value-linked incentive design, equity of access, and implementation feasibility. This research is guided by institutional and governance theories, highlighting how health system design influences the implementation of reform.^14,15

This study contributes (1) a cross-contextual framework for comparing pricing instruments, (2) an institutional account of why tool performance varies across governance settings, and (3) a hybrid U.S. pathway that combines international price anchoring with value-linked reimbursement calibrated to implementation constraints.^16-19

Knowledge Gap and Contribution

Existing research on international/external reference pricing and performance- or outcomes-based agreements often evaluates these tools within individual jurisdictions and emphasizes observed price effects, coverage decisions, or implementation experience in specific systems rather than comparative institutional fit. ²⁰ Less attention has been given to how governance capacity, legal authority, administrative/analytic capability, and data/coordination infrastructure, conditions whether these tools can be implemented at scale and aligned with cost containment, value-linked incentive design, equity of access, and implementation feasibility. ⁷ Drawing on institutional and governance theories^15,18 and policy-capacity concepts, ²¹ , this study applies a rubric-anchored trade-off matrix to assess policy design features across the United States, Canada, and the United Kingdom. In doing so, it shifts the focus from whether a pricing tool is attractive in principle to whether it is institutionally workable across contrasting governance configurations.

This research addresses a critical policy moment: as the U.S. begins Medicare drug price negotiations under the Inflation Reduction Act (IRA) and the UK reorganizes VPAG, a comparative study of institutional pricing tools is both timely and essential. Our trade-off matrix offers a conceptual and practical framework to guide these reforms.^1,2 Accordingly, this study makes three contributions. First, it provides a structured cross-national framework for comparing two major families of pharmaceutical pricing tools. Second, it explains why tool performance may vary across governance settings even when similar pricing concepts are invoked. Third, it offers a more institutionally realistic interpretation of U.S. reform options by considering when benchmark-based pricing and value-linked contracting may function as complements rather than stand-alone solutions.

Conceptual Framework and Methodology

Analytical Strategy: Trade-Off Matrix for Institutional Design

Documents were analyzed using deductive content analysis. Extracts were categorized into four predefined groups: (1) mechanisms of cost containment, (2) incentive design, (3) equity of access, and (4) implementation feasibility. We rated alignment in each category for each country-policy pair (eg, MFN/IRP-United States; VBC-Canada) on a 1 to 5 scale. Ratings were based on documented policy design features rather than realized outcomes and were calibrated through within-case synthesis and cross-case comparison. This matrix approach aligns with comparative policy methods in health system research.^23,24

To strengthen transparency and reduce subjectivity, the 1 to 5 scores were assigned using pre-specified rubric anchors for each dimension (Appendix), and each cell score is accompanied by a brief justification and a mapped evidence set (policy primary sources plus supporting peer-reviewed or synthesis sources). When evidence supported adjacent scores, a conservative rule was applied (the lower score) unless multiple independent sources supported a stronger alignment. Scoring emphasizes implementability-related design features (eg, legal authority, administrative/analytic capacity, and data/coordination infrastructure) rather than claimed or expected effects.

A sensitivity analysis was conducted by re-examining borderline cells under a stricter interpretation of the scoring rubric. In practical terms, this involved reassessing cases in which adjacent scores were plausible, such as whether the United States should receive a 2 rather than a 3 on cost containment, or whether Canada should receive a 3 rather than a 4 on implementation feasibility. The overall comparative pattern remained unchanged: the United Kingdom continued to show the most consistent institutional alignment across dimensions, while the United States remained lowest on equity and feasibility. Divergences were therefore resolved through rubric-guided reassessment and conservative scoring rather than ad hoc preference. ²⁸

As shown in Figure 1, the United Kingdom demonstrates the most consistently high institutional alignment across the four dimensions. The matrix summarizes comparative alignment for cost containment, value-linked incentive design, equity of access, and implementation feasibility, illustrating how governance capacity and institutional configuration condition the implementability of MFN/IRP anchoring and value-linked contracting approaches.^1,2,11,13 Scores reflect coded policy design features rather than realized outcomes (Appendix).

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Figure 1.

Institutional alignment heatmap for MFN/VBC-related pricing governance (1-5).

Results: Comparative Trade-Offs Across Systems

We used the trade-off matrix to evaluate the performance of MFN and VBC models across four key dimensions in the United States, Canada, and the United Kingdom: cost containment, incentive design, equity of access, and implementation feasibility. Table 1 summarizes these scores based on institutional characteristics and published policy tools, rather than outcome measures.

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Table 1.

Comparative institutional alignment scores across three pharmaceutical pricing systems.

Dimension	U.S. (MFN/VBC)	Canada (PMPRB)	UK (NICE/VPAG)
Cost containment	3/5—Suspended MFN, fragmented VBC	5/5—Strong regulatory ceilings	5/5—NICE + revenue caps
Innovation incentives	3/5—Mixed; VBC supports R&D	3/5—Conservative pricing, weak VBC	5/5—Value-linked access
Equity	2/5—Fragmented coverage	5/5—Broad baseline access	5/5—NHS universalism
Feasibility	2/5—Legal and political hurdles	4/5—Provincial variation	5/5—Centralized integration

United States: MFN-Style Proposals and Fragmented VBC Infrastructure

The U.S. MFN pricing experiment under the CMS 2020 interim final rule highlights the difficulty of applying international benchmarks within a politically contested system. Although it was projected to save $85.5 billion over 7 years, legal challenges were quickly filed against the rule, leading to its eventual suspension.^5,16 Value-based care models, including those associated with the CMS Innovation Center, remain underutilized, with only four of 50 demonstrations yielding net savings. ¹⁷ Structural barriers, such as weak interoperability of outcome data, dispersed payer alignments, and misaligned provider incentives, continue to obstruct scaling value-based care.^6,21

CMS Innovation Center model designs have also advanced international benchmark-based approaches through the GENEROUS model (Medicaid) and proposed mandatory models for Medicare Part B (GLOBE) and Part D (GUARD).^8-10 These initiatives remain largely at the design stage and therefore provide limited empirical evidence of realized impacts.

Furthermore, MFN-type approaches target prices directly but face legal unpredictability and implementation risk. ⁵ VBC aligns payment with clinical outcomes but relies heavily on stable governance, usable endpoints, and enabling infrastructure. ⁷ These tool families have not eliminated persistent inequities in drug access in the United States, particularly across payer types and among uninsured or underinsured populations. ³

Canada: PMPRB-Based Price Regulation and Limited Outcome-Linkage

Canada’s pricing system, primarily overseen by the Patented Medicine Prices Review Board (PMPRB), demonstrates strong cost control through reference-based approaches and regulatory measures. ¹¹ Public coverage plans and risk pooling support baseline access, although equity is challenged by provincial formulary differences and coverage levels. ¹²

Incentive design remained moderate. Although national Canada’s Drug Agency (CDA) endorse Health Technology Assessment (HTA) and reimbursement recommendation processes support value-based assessments, pricing, and coverage arrangements have not consistently shifted toward outcomes-based contracting. The latest PMPRB guidelines (2025-2026) emphasize procedural transparency but do not institutionalize performance-linked pricing at scale. Political feasibility is also moderate: federal pricing tools operate within a federal/provincial landscape, and jurisprudential rulings have constrained some price-formula mechanisms. ¹¹

United Kingdom: NICE/VPAG and Integrated Value-Based Design

UK alignment scores were consistently high across all four areas. NICE appraisal processes are integrated into coverage decisions, while VPAG governance includes revenue controls and mechanisms that can support access arrangements.^2,13 The NHS single-payer structure enhances feasibility through centralized reimbursement management, coordinated implementation, and standardized access pathways.^15,18 To avoid conflating institutional design with performance, these scores reflect governance integration and documented policy design features rather than realized outcomes in innovation, access, or population health equity. ²⁹

Cross-System Comparison: Institutional Fit and Relative Design Strengths

Table 1 summarizes institutional alignment scores across the four dimensions. Overall, the United Kingdom demonstrates the most consistent alignment, reflecting centralized integration of HTA, pricing, and coverage tools. Canada shows strong alignment on cost containment and equity, with feasibility moderated by provincial implementation variation and a more conservative posture toward value-linked contracting. The United States shows comparatively lower alignment on equity and feasibility, reflecting fragmented coverage and contested authority; while MFN/IRP and VBC elements exist, implementation has been episodic and difficult to scale.^5,11,18,21

The United Kingdom aligns most consistently; Canada is strong on cost containment and equity, with feasibility moderated by provincial variation; the United States is lowest on equity and feasibility due to fragmented coverage and contested authority.^5,11,18,21

Discussion: Institutional Fit, Design Trade-Offs, and Policy Implications

This analysis indicates that institutional design—not only the selection of pricing tools, but also the conditions under which pharmaceutical pricing reforms can plausibly align with cost containment, equity of access, incentive design, and implementation feasibility. While MFN/IRP anchoring and VBC arrangements are often presented as competing strategies, the cross-system comparison suggests they are modular tools whose performance depends on compatibility with governance structures and policy capacity.^18,21

Figure 2 shows the governance-to-tool pathways that drive these differences. Institutional coherence, especially the coordination of regulatory authority, purchasing power, and evaluation functions, determines how pricing tools lead to expected trade-offs across the four dimensions.

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Figure 2.

Governance-tool pathway model.

The UK case illustrates the advantages of centralized integration: NICE appraisal processes are closely linked to coverage decisions, and VPAG governance provides system-level mechanisms relevant to price control and access arrangements.^2,13 In contrast, the United States operates within contested authority and fragmented purchasing, making MFN-type approaches and broad VBC scaling vulnerable to litigation risks, stakeholder resistance, and uneven infrastructure, constraints that can delay implementation and reduce feasibility.^5,16,21 The UK’s “high alignment” reflects governance integration and policy design features; it should not be interpreted as evidence of superior realized equity or innovation outcomes.

Canada falls between these poles. The PMPRB provides structured ceiling-setting and supports affordability objectives, but adoption of outcomes-linked payment at scale remains limited and heterogeneous across provincial coverage contexts.^11,12 These patterns underscore the difficulty of layering new instruments onto existing structures without complementary investments in infrastructure, contracting capability, and inter-jurisdictional coordination.^11,12,21

For U.S. policymakers, the findings suggest that relying on MFN/IRP anchoring or VBC arrangements as stand-alone reforms is unlikely to succeed without parallel investments in authority clarity and implementation capacity. A sequenced hybrid approach may be more workable, using international benchmarks as negotiation inputs while expanding value-linked agreements in contexts where endpoints, data infrastructure, and contracting mechanisms are sufficiently mature.^6,7,21

However, the CMS Innovation Center’s GENEROUS model and the proposed GLOBE (Part B) and GUARD (Part D) models reflect continued federal interest in international benchmark-based designs beyond the 2020 MFN rule.^8-10 Because these initiatives are recent and largely at the design stage, future evaluation will be required to assess realized impacts on affordability, access and equity, administrative burden, and incentive effects.

This interpretation is consistent with the National Academies’ emphasis on combining pricing leverage with implementation-realistic purchasing strategies. ⁴ It also aligns with findings from a switching-behavior analysis in competitive insurance markets, which show that price and value signals influence decisions only when consumers are presented with credible alternatives. ²⁴ As Bardach and Patashnik ³⁰ argue, successful reform frequently depends less on selecting a single “best” tool than on assembling feasible combinations that can pass through institutional bottlenecks.

Accordingly, U.S. reforms should not assume a straightforward transfer of UK or Canadian mechanisms; rather, the most defensible approach is selective adaptation (eg, VPAG-type governance levers or PMPRB-type comparator structures) calibrated to U.S. legal authority, payer fragmentation, and data/contracting constraints.^18,21 Finally, beyond the U.S. case, the trade-off matrix offers a structured approach to assess whether proposed pricing reforms are institutionally implementable and aligned with stated policy goals across governance contexts. This framework is intended as a diagnostic of institutional alignment and implementability, not a direct measure of realized health, equity, or innovation outcomes.^18,21

Limitations of a Design-Focused Comparative Approach and Directions for Future Research

This research was limited by its document-based analysis, without stakeholder interviews or process tracing. Trade-off scores measure institutional design rather than realized outcomes. In particular, VBC models are defined and implemented differently across contexts, complicating direct comparison. Additionally, the analysis considers only three high-income countries, limiting transferability to middle-income settings or decentralized systems. Importantly, UK “high alignment” scores should not be interpreted as evidence of superior realized equity or innovation outcomes; outcome performance may diverge from design alignment.

Future research should broaden this framework to include additional governance archetypes and mixed-payment systems, incorporate perspectives from payers and industry, and apply process tracing to observe implementation dynamics over time. It should also examine how a U.S.-specific value assessment framework could help define the policy endpoint of MFN-type pricing reforms, rather than relying only on external price benchmarks. ³¹ Comparative stakeholder-focused research and ethnographic methods may help explain how actors manage tensions among affordability, incentive design, and equitable access.

Conclusion and Recommendations: Designing Feasible, Value-Oriented Pricing Regimes

Pharmaceutical pricing reform involves more than selecting a tool; it requires aligning policy design with governance capacity. This cross-case comparison indicates that MFN/IRP anchoring and VBC approaches vary in institutional alignment depending on legal authority, administrative capacity, and payer/data infrastructure.^18,21 Because the UK’s centralized architecture integrates HTA and pricing governance, it can more readily support routinized appraisal-linked reimbursement and access governance. The United States and Canada, by contrast, illustrate the constraints of implementing similar tool designs in fragmented or partially coordinated systems.^15,18

For the United States, the findings support a mixed approach grounded in institutional realism and sequenced implementation. Three practical steps follow:

These recommendations align with the principle that feasible combinations of reforms often outperform single-tool solutions when policy change must pass through institutional bottlenecks.

In general, the trade-off matrix offers a reproducible approach for assessing institutional alignment and implementability of pharmaceutical pricing reforms across governance contexts. Future research should extend the framework to additional high-income archetypes and incorporate stakeholder evidence to characterize implementation pathways over time.