President Trump’s revival of “most favored nation” pricing for prescription drugs could save American seniors billions while pharmaceutical companies face a potential trillion-dollar impact.
Key Takeaways
- Trump’s executive order will cap Medicare drug prices at the lowest rates paid by other wealthy nations, potentially saving taxpayers over $85 billion.
- The strategy directly addresses the problem of Americans paying up to 10 times more for medications than patients in other developed countries.
- The pharmaceutical industry strongly opposes the plan, claiming it could cost them up to $1 trillion and is likely to mount legal challenges as they did in 2020.
- The executive order includes additional measures to increase transparency, promote generic competition, and reevaluate the role of pharmacy benefit managers.
- A KFF poll shows more than 3 in 4 U.S. adults find medication costs unaffordable, suggesting strong public support for the measure.
America First Prescription Drug Pricing
President Trump has signed a comprehensive executive order aimed at drastically reducing prescription drug prices for American seniors. The policy resurrects his previous “most favored nation” pricing strategy that would ensure Medicare pays no more for medications than the lowest prices paid by other wealthy nations. This approach directly addresses the substantial price gap between U.S. and international drug markets, where Americans often pay many times more for identical medications than patients in other developed countries.
The executive order builds upon previous Trump administration efforts to encourage the development of generic and biosimilar drugs while expanding access to imported lower-cost medications. It also directly criticizes the Biden Administration for reversing previous progress and implementing the Inflation Reduction Act, which Trump’s order claims led to higher premiums and reduced coverage for seniors. The comprehensive approach focuses on optimizing federal healthcare programs to provide affordable access to prescription drugs through multiple avenues.
Closing the International Price Gap
The centerpiece of Trump’s plan is instructing federal health officials to adopt a “most favored nation” pricing model for Medicare-covered drugs. This would effectively cap what the U.S. government pays at the lowest prices available in other economically advanced nations. The previous iteration of this policy, attempted in 2020, was estimated to save U.S. taxpayers over $85 billion over seven years before it was halted by legal challenges from pharmaceutical manufacturers. Health policy experts broadly support the approach, arguing that price matching with other countries is both reasonable and necessary.
“Known as the ‘pill penalty,’ this discrepancy threatens to distort innovation by pushing investment towards expensive biological products, which are often indicated to treat rarer diseases, and away from small molecule prescription drugs, which are generally cheaper and treat larger patient populations.” – Donald J. Trump, President of the United States
The plan addresses what Trump calls the “pill penalty” by proposing to align the treatment of small molecule drugs with biological products. This measure aims to correct a market distortion that has pushed pharmaceutical investment toward expensive biological products for rare diseases rather than more affordable drugs that treat larger patient populations. The executive order also calls for improved value assessments for high-cost drugs in Medicare and surveys to align Medicare payments with actual hospital acquisition costs.
Industry Opposition and Implementation Challenges
The pharmaceutical industry has immediately opposed Trump’s plan, with the trade group PhRMA suggesting the policy could cost the industry up to $1 trillion. Rather than accepting price controls, drug manufacturers are attempting to shift focus to pharmacy benefit managers (PBMs), which they claim inflate drug prices despite negotiating discounts. These middlemen have faced increasing scrutiny for their role in the pharmaceutical supply chain, and Trump’s order does address the need to reevaluate their influence on pricing.
Implementation remains a significant challenge, as the previous attempt at this policy was quickly blocked by federal courts after pharmaceutical companies filed lawsuits. Similar legal challenges are expected this time, potentially delaying or derailing the initiative once again. Additionally, there are questions about how this approach will integrate with existing Medicare drug pricing negotiations. Despite these obstacles, the administration appears determined to move forward, citing overwhelming public support for addressing prescription drug affordability.
Additional Reform Measures
Beyond the international reference pricing mechanism, Trump’s executive order includes numerous other provisions aimed at lowering drug costs. It calls for accelerating the approval of generics and biosimilars, improving the process for reclassifying prescription drugs as over-the-counter medications, and streamlining drug importation programs. The order also addresses costly care settings for seniors by proposing regulations to prevent shifts in drug administration to more expensive healthcare environments.
The comprehensive approach also includes ensuring affordable access to life-saving medications like insulin and epinephrine, promoting innovation in Medicaid drug payment systems, and improving transparency in pharmacy benefit manager fee disclosures. By attacking the drug pricing problem from multiple angles, the administration hopes to create meaningful cost reductions for seniors while navigating the expected opposition from pharmaceutical companies and potential legal challenges to come.
