Opinion: Pharmaceutical companies could derail executive orders to lower drug prices

A few weeks ago, the White House reported that President Donald Trump had signed an executive order to significantly lower prescription drug prices. Since then, not much has been heard about what, if any, progress is being made between the Trump administration and pharmaceutical companies to actually reduce prices. Still, there is much hope, as many Americans remain burdened by high—or astronomically high—costs for several prescribed drugs.

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Trump’s executive order follows action taken by the Biden administration last year under the Inflation Reduction Act (IRA) to reduce the prices of a number of drugs used by patients on Medicare. That much-hailed measure empowers Medicare to negotiate prices for certain high-cost drugs. Initially, negotiations will affect 10 drugs in 2026, expanding to 20 drugs by 2029. The law also caps annual out-of-pocket prescription drug costs for Medicare Part D beneficiaries at $2,000, starting this year. In addition, the IRA capped insulin—a critically important drug for people with diabetes—at $35 per month for Medicare beneficiaries. This represents a significant reduction from the previous cost of up to $65 per month for Medicare patients. The costs for patients not on Medicare and the uninsured were even higher, averaging around $90 monthly.

Trump’s executive order, titled Most-Favored-Nation (MFN) Pricing, is much broader than the IRA’s drug reduction policy. The MFN mandates that U.S. drug prices for Medicare, Medicaid, and potentially the broader commercial market should not exceed the lowest prices paid by comparable countries like Canada and the UK. The goal is to reduce U.S. drug prices by aligning them with international rates. Pharmaceutical companies were given 30 days to voluntarily reduce their prices to meet MFN targets. Failure to comply could lead to regulatory action by the Department of Health and Human Services.

An earlier Trump executive order also permits the importation of prescription drugs from countries like Canada to increase market competition and consequently lower prices. Proponents of the MFN suggest that the measure could lead to drug cost reductions ranging from 30% to 80%.

Not surprisingly, there are critics—mostly from the pharmaceutical industry—of both Biden’s IRA initiative and Trump’s MFN policy. These critics argue that such policies could undermine pharmaceutical innovation by reducing the financial incentive to develop new drugs.

But to many Americans, these criticisms ring hollow. For the past 20 years or so, U.S. drug manufacturers have set exorbitant prices for treatments for serious diseases, including heart disease, cancer, diabetes, and Parkinson’s. Often, even with Medicare coverage, patients must pay significant out-of-pocket costs for some medications, depending on what portion of the drug’s cost is covered by Medicare or private insurers. It’s estimated that Americans spend $3.4 billion annually on out-of-pocket prescription drug expenses.

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The success of both the Biden and Trump initiatives depends largely on the intensity of pharmaceutical industry opposition. However, Trump’s policy—being an executive order—is more vulnerable to pharmaceutical pushback, including legal challenges to its provisions and to the president’s authority in issuing it.

By contrast, the IRA is a law passed by Congress, and the drug price reduction policies under it are more permanent. While pharmaceutical companies may also challenge parts of the law, any significant changes would require new or amended legislation.

Unfortunately, pharmaceutical companies have long evolved into a powerful industrial force. It would be premature for Americans to celebrate any general reduction in drug prices until pharmaceutical countermeasures are thwarted and full cooperation is secured.

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That said, the federal government—beyond authorizing the Department of Health and Human Services to enforce the executive order—has other tools at its disposal. These include disqualifying non-compliant drug manufacturers from selling under Medicare, Medicaid, or other government programs, and terminating contracts to supply drugs for government agencies. But these measures could prompt prolonged legal battles. If the Trump administration truly hopes to see its price-reduction goals realized, it may be advisable to take a cue from the Biden administration and work with Congress to pass broader, more durable drug pricing legislation.

In the meantime, both the Biden and Trump drug policy initiatives aim to reduce prescription prices, but they differ in methodology, scope, and potential long-term impact. The IRA, as legislation, offers a structured and phased approach focused on Medicare. Trump’s MFN executive order presents broader, more immediate targets but is vulnerable to delays due to expected legal challenges from the pharmaceutical industry.

 

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