Key Takeaways
- President Trump’s most favored nation drug pricing policy, announced in an executive order relatively thin on details, will test the US’ trade and tariff leverage over other countries.
- The US government, as well as pharma companies, will be trying to force European and other nations to pay more for drugs.
- The EO announcement came as House Republicans released their reconciliation bill that included PBM reform and Medicare price negotiation changes to help pay for tax cuts.
President Trump intends to test the US government’s leverage in implementing his “most favored nation” drug pricing policy on industry and forcing other countries to increase spending on prescription drugs.
Trump called for “equalization” of the prices paid by the US and other nations, identifying European countries specifically in announcing the 12 May executive order. The proposal would base US Medicare prices on the lowest price paid by “comparably developed nations.”
The first Trump Administration issued a similar MFN proposed rule in 2020. But courts blocked it and the Biden Administration later withdrew it.
Trump argued during the 12 May announcement that pharmaceutical companies were forced by other countries to take lower prices, but added that they must be willing to walk away from countries that will not agree to increases. (See sidebar.)
“It’s going to happen because the other countries have no choice,” he said while signing the EO. “Now the drug companies are going to have to say, ‘Listen, if you don’t pay more, we’re not going to give you the drug.’ And they’re willing to do that.”
Trump’s MFN Executive Order More Rhetoric Than Action
Pharmaceutical companies already lose business in some European countries because the current prices are not deemed sufficient relative to the value of the products. Risking more countries potentially relinquishing access could mean the policy will be difficult to embrace.
But some pharma industry CEOs have called for Europe to pay higher drug prices to better support innovation.
Trade Threats
Trump also ordered his administration to help with the negotiation process. The EO directs the US Trade Representative and Commerce Department to ensure foreign nations “are not engaged in any act, policy, or practice that may be unreasonable or discriminatory or that may impair US national security and that has the effect of forcing American patients to pay for a disproportionate amount of global pharmaceutical research and development, including suppressing the price of pharmaceutical products below fair market value in foreign countries.”
Trump argued that the US government could limit trade with countries that refuse to increase their drug spending.
“If they want to get cute, then they don’t have to sell cars into the United States anymore,” he said.
Ian Spatz, a senior adviser at Manatt, Phelps and Phillips, questioned whether US trade officials had the power to force higher prices for drugs abroad.
“No previous [administration] has succeeded, and few have been willing, to advocate on behalf of drug company interests abroad,” he wrote on X.
Spatz told the Pink Sheet that “the US has leverage to the extent it makes drug pricing a part of overall trade negotiations with EU countries and other developed nations around the world.”
“In the past, the US has chosen not to link drug pricing to broader trade issues,” he said.
A Trump-aligned think tank already has suggested in a paper that CMS could impose MFN to lower prices in the US and prohibit Medicare participation for companies providing discounts to other countries. And USTR could impose tariffs to retaliate against countries undermining US industry efforts.
The MFN policy reemerged in recent days and seems to have worried pharmaceutical companies, in part because their 340B discount obligations could increase if the policy was applied to Medicaid.
Significant Pricing Progress Expected Or Else
Within 30 days, the US Centers for Medicare and Medicaid Services and other “relevant executive department and agency officials” must send MFN price targets to pharmaceutical manufacturers.
Less pharma-friendly options are available if no “significant progress” is made.
The order states the Health and Human Services Department then must propose a rulemaking plan to impose MFN pricing. HHS also could consider drug importation from other countries to lower US prices.
In addition, the FDA Commissioner would “review and potentially modify or revoke approvals granted for drugs, for those drugs that may be unsafe, ineffective, or improperly marketed,” if price decreases cannot be achieved. The language suggests a possible consequence could be drug withdrawal in the US, but the impact of pricing on the clinical benefits and risks the FDA must weigh when deciding whether drugs should stay on the market is unclear.
The order does not define “significant progress” or provide more detail on how drug approvals could be impacted if pricing progress is not achieved.
Not Punishing Industry, Trump Says
Trump at times during the announcement suggested he was not punishing industry and that he would defend US pharmaceutical companies.
The Pharmaceutical Research and Manufacturers of America (PhRMA) did not appear excited for Trump’s help. The group agreed foreign countries should be paying their “fair share” and that “US patients should not foot the bill for global innovation.”
But the drug industry trade organization also opposed using other countries’ prices to lower US costs.
“Importing foreign prices from socialist countries would be a bad deal for American patients and workers,” PhRMA CEO Stephen Ubl said in a statement. “It would mean less treatments and cures and would jeopardize the hundreds of billions our member companies are planning to invest in America, threatening jobs, hurting our economy and making us more reliant on China for innovative medicines.”
The Biotechnology Innovation Organization (BIO) also said the proposal was “deeply flawed” and would threaten American innovation.
“Importing socialized medicine will not make American’s healthier or our economy stronger,” BIO President and CEO John Crowley said in a statement. “It will only serve to empower China and our other adversaries and undermine our economic and national security.”
“The solution is investments that ensure the US continues to lead the world in medical innovation and policies that simplify the system,” Crowley added.
MFN Contributing To Tax Cuts?
House Budget Bill Includes Delayed Orphan Fix, Also Risks Downstream Cell and Gene Coverage
Interestingly, Trump announced the executive order soon after the House of Representatives released its reconciliation bill that included multiple drug pricing provisions.
Among them are several pharmacy benefit manager reforms, as well as an expansion of the orphan drug exemption from Medicare price negotiation. Trump apparently intends MFN to be part of the bill’s drug pricing effort. He said he told congressional leaders that the bill’s “score” should include MFN savings.
The bill includes a ban on spread pricing in Medicaid and increased reporting requirements for Medicare Part D. (See sidebar.)
The changes are intended to help pay for extending and expanding tax cuts that Trump promised during his campaign.
