Trump’s Bold Move: Tying U.S. Drug Prices to Global Rates

President Donald Trump announced a new initiative on Monday designed to reduce drug prices in the United States by linking them to costs paid in other developed countries. However, experts suggest that implementing this plan will present significant challenges.

Through a comprehensive executive order, Trump tasked various federal agencies with revitalizing efforts to cut pharmaceutical prices, known as the “most favored nation” policy. The aim is to align U.S. drug prices with the lower prices seen in other nations, a strategy Trump described as creating a more equitable pricing system.

While the specific medications included in this initiative were not revealed, the order is set to impact both the commercial market and government programs like Medicare and Medicaid. This broader scope diverges from an earlier attempt during Trump’s first term, which faced legal challenges ultimately halting its implementation.

Addressing a persistent issue that has plagued previous administrations, Trump noted that prescription drug prices in the U.S. are, on average, two to three times higher than those in other developed countries—and, in some cases, up to ten times greater, according to the Rand Corporation.

The president has claimed that his new order could lead to reductions in drug prices ranging from 59% to as much as 90%. However, health policy experts have raised questions about the order’s potential effectiveness, the impact on pharmaceutical companies’ profits, and the specific medicines that might be subject to these changes.

Investor reactions on Monday suggested a level of indifference regarding the implications of this plan for major pharmaceutical firms. Shares of companies such as Gilead rose 7%, while Merck, Pfizer, Bristol Myers Squibb, and Amgen saw increases of over 3%. Eli Lilly’s stock gained more than 2% as well.

Analysts from JPMorgan have characterized the proposed policy as “challenging to practically implement,” highlighting that it would likely require congressional approval and may face legal complications from drug manufacturers. Notably, several Republican lawmakers have voiced opposition to including a most favored nation provision in a forthcoming economic policy bill.

“The road ahead could be muddy,” the analysts pointed out in their assessment.

Experts concur that while the intention to reduce drug prices is laudable, there are doubts about whether other countries and pharmaceutical companies will cooperate with Trump’s objectives.

“It’s improbable that drug companies will voluntarily lower their prices, nor will other nations agree to raise theirs,” remarked Gerard Anderson, a health policy professor at the Johns Hopkins Bloomberg School of Public Health.

The order specifically targets countries with single-payer health systems that have more leverage in negotiating drug prices than the U.S., which operates on a mixed insurance model and often depends on intermediaries to establish pricing.

Trump’s plan directs the Office of the U.S. Trade Representative and the Department of Commerce to challenge what the administration describes as “unreasonable and discriminatory policies” in other countries that allegedly harm U.S. market prices and contribute to rising costs domestically.

The Pharmaceutical Research and Manufacturers of America (PhRMA), a leading lobbying group for the pharmaceutical sector, commended Trump’s focus on foreign nations for not paying their fair share. However, experts like Lawrence Gostin argue that these countries are simply negotiating prices that align with their national health budgets and are not engaged in undercutting U.S. prices.

It remains unclear what measures the U.S. could enact to compel other nations to alter their pricing structures, as there currently exists no incentive for them to increase costs for medications.

Countries such as France and Switzerland are unlikely to agree to pay more simply due to U.S. pressure, underscoring the complexities involved.

The order also mandates that the Health and Human Services (HHS) Secretary establish a framework for U.S. patients to purchase drugs directly from manufacturers at the most favored nation prices, eliminating intermediaries. This aspect of the order mentions “direct-to-consumer purchasing programs,” though specific details are lacking.

Additionally, it instructs HHS Secretary Robert F. Kennedy Jr. to set price reduction targets for drug manufacturers within 30 days, initiating negotiations. If “adequate progress” is not achieved in six months, HHS will employ most favored nation pricing through regulatory measures.

Anderson stated it is likely that negotiations will take substantially longer than anticipated, with Medicare and drug manufacturers typically requiring six months to a year to agree on prices under the Inflation Reduction Act.

He questioned the likelihood that drug companies would voluntarily reduce their prices, citing a lack of clarity on potential repercussions for those that resist compliance.

Moreover, the Department of Justice and the Federal Trade Commission will scrutinize anti-competitive practices that maintain high drug prices in the U.S., according to White House officials.

One official emphasized, “There will be an expectation for prices to come down. If they don’t, we will explore policy levers to enforce reductions.” The commitment to securing better deals remains clear.

Another facet of the order involves the FDA considering broader imports from developed nations beyond Canada. Trump previously signed an order in April aimed at facilitating state-level importation of lower-cost drugs from Canada, as part of broader initiatives to tackle drug affordability.

The Trump administration suggests that certain drug prices could decrease by up to 90% “almost immediately.”

Officials indicated that particular attention would be directed toward drugs with substantial pricing disparities and high expenditure, such as GLP-1 drugs used for weight loss and diabetes treatment.

However, experts express skepticism regarding the administration’s ability to enact meaningful price cuts, particularly as the specific drugs and target countries have not been disclosed.

“We are unaware of which nations will be involved,” commented Tricia Neuman, executive director of the Medicare Policy Program at KFF, a health policy research organization. “Their pricing frameworks will significantly impact the prices we encounter here, subsequently affecting access in the U.S.”

From Anderson’s perspective, the order as presented lacks the effectiveness needed to reduce drug prices significantly.

“While paying international prices is a commendable goal, the challenge lies in its implementation. The lack of specific details undermines its efficacy,” he said.

Gostin echoed this sentiment, predicting that Americans are unlikely to see price reductions in the near future.

Nevertheless, AARP, which advocates for older Americans, expressed appreciation for the order, stating they welcome any initiatives aimed at reducing prescription drug costs.

“We are enthusiastic about efforts to help lower prices,” said Leigh Purvis, the organization’s principal for prescription drug policy. “This approach resonates with the public, who generally understand that the U.S. pays the highest drug prices globally.”

She added, “The critical elements lie in the details, and we look forward to learning more.”

The pharmaceutical industry has cautioned that a most favored nation policy could harm profitability and stifle innovation in drug development. PhRMA recently estimated that if Trump’s initiative were applied to the Medicaid program, it could lead to losses of $1 trillion over ten years.

However, analysts suggest that Monday’s executive order may represent “more of a headline risk” than a transformative action for the industry. Evan Seigerman from BMO Capital Markets noted that the rollout appears fraught with uncertainties and may consist largely of rhetoric rather than actionable policy.

Seigerman observed that the order shows Trump may be sympathetic to U.S. manufacturers, claiming that European countries do not adequately support drug development in light of their lower prices.

Anderson suggested that the pharmaceutical industry may find temporary relief until further details about potential punitive measures come to light.

Notably, Trump’s order implies that any price reductions on the part of pharmaceutical companies would remain voluntary, lacking any enforceable mandates.

While PhRMA acknowledged Trump’s focus on foreign pricing, the organization underscored that “importing prices from socialist countries would be detrimental to American patients and workers, leading to fewer treatments and jeopardizing substantial investments in innovation by our member companies.”

Some analysts have proposed that Trump could consider utilizing existing frameworks to implement the most favored nation policy and reduce drug prices through Medicare negotiations.

This is a key component of the Biden administration’s Inflation Reduction Act, which empowers Medicare to negotiate prices on certain medications. The program is currently engaged in its second round of discussions with pharmaceutical companies.

Anderson remarked that adopting the most favored nation price as a baseline for initial negotiations would lower starting points for discussions with manufacturers without necessitating congressional assistance.

JPMorgan analysts further observed a clearer pathway for implementing the most favored nation policy on a smaller scale through Medicare, producing a more gradual effect on pharmaceutical profits while limiting its application to a select number of drugs.