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President Donald Trump signed an executive order aimed at lowering drug prices in the U.S. by addressing international pricing discrepancies and reducing the influence of intermediaries within the pharmaceutical supply chain. The move focuses on ensuring that Americans no longer pay higher prices for medications compared to citizens in other countries. Trump’s administration introduced the “Most Favored Nation” pricing scheme, which requires U.S. pharmaceutical companies to match the lowest prices offered by peer nations.

Federal Push to Lower Drug Prices for Americans

President Trump’s executive order is a direct challenge to inflated drug prices in the U.S., where consumers have consistently paid more for prescription medications than those in other countries. The new measure outlines a requirement for pharmaceutical companies to adopt the “Most Favored Nation” pricing system, meaning prices for drugs must align with the lowest prices available in comparable countries. Trump emphasized that the policy is designed to save Americans billions of dollars, potentially reducing drug costs by up to 90%.

The U.S. Department of Health and Human Services (HHS) has been tasked with formulating the necessary benchmarks for pricing within 30 days. While the move has been praised as a potential breakthrough in reducing drug costs, questions remain about its legal enforceability and whether such a system could be implemented effectively in private markets.

Targeting Pharmaceutical Middlemen

One of the primary goals of the new executive order is to tackle the role of pharmacy benefit managers (PBMs), which have long been blamed for inflating drug prices by acting as intermediaries between manufacturers and insurers. PBMs often negotiate discounts and rebates, but critics argue they add unnecessary layers to the pricing process, driving up costs for consumers.

Trump’s order proposes measures to allow patients to purchase medications directly from pharmaceutical producers, bypassing these middlemen. Additionally, the order emphasizes expanding the importation of drugs from countries like Canada, where drug prices are significantly lower than in the U.S. This move aims to introduce more competition and reduce the market power of pharmaceutical middlemen.

Legal and Political Challenges Loom

While Trump’s executive order marks an aggressive approach to addressing drug prices, the implementation of such policies faces legal and political challenges. The previous administration attempted a similar strategy through a Medicare-only model of Most Favored Nation pricing, but this was blocked by the courts and eventually reversed by President Joe Biden. The new executive order extends the initiative to both public and private markets, a broader scope that could face significant opposition from the pharmaceutical industry.

Critics of the executive order, including pharmaceutical trade groups, have raised concerns about the potential consequences of adopting international price benchmarks. Stephen Ubl, CEO of PhRMA, the leading trade association for the pharmaceutical industry, expressed cautious support for the challenge to foreign pricing models but warned that mimicking pricing structures from socialist countries could harm U.S. innovation. He highlighted the risks of job losses, fewer treatments, and increased dependence on foreign pharmaceutical supply chains.

U.S. Prices Outpacing Global Norms

The disparity between U.S. drug prices and those in other nations has been a longstanding issue. According to a 2022 report from the HHS, Americans paid 2.78 times more for prescription drugs than consumers in other peer nations. For branded drugs, the gap was even more pronounced, with U.S. consumers paying over three times the price of their counterparts abroad, even after accounting for rebates.

Trump’s administration has made it clear that it intends to investigate foreign pricing practices that contribute to these inflated costs. The executive order mandates that the U.S. Trade Representative and the Commerce Department conduct inquiries into how international pricing mechanisms may be affecting the cost of drugs in the U.S. The goal is to identify practices that could be adjusted to ensure that Americans are not paying excessively for life-saving medications.

Impacts of Retaliatory Tariffs

Another component of the executive order is the potential use of retaliatory tariffs against foreign governments that manipulate drug prices. Trump has criticized European nations, particularly, for pressuring pharmaceutical companies into offering discounted prices. He warned that if these nations continue their practices, they could lose access to the U.S. auto market.

The introduction of tariffs on pharmaceutical imports, which had previously been excluded from trade levies, could add complexity to the issue. Experts have expressed concern that such actions could exacerbate drug shortages, particularly in the realm of generic medications, and ultimately drive prices higher for consumers.

Mixed Reactions from the Pharmaceutical Industry

While the pharmaceutical industry’s response has been mixed, there are indications that the announcement has sparked interest. Pharmaceutical stocks rose following the executive order, suggesting optimism in the sector. However, industry leaders have expressed reservations about the broader implications of adopting foreign price controls.

Evan Seigerman, an analyst at BMO Capital Markets, noted that the executive order might be more symbolic than practical. “This reads more like a political message than a regulatory overhaul,” he said, adding that implementing such a system could prove to be a difficult task.

Trump’s Promises of Significant Savings

President Trump has promised swift reductions in drug prices as a result of the executive order. On social media, he predicted that drug prices would fall by as much as 59%. He reiterated that the U.S. would no longer allow other countries to benefit from lower drug prices at the expense of American consumers. However, the timeline for these price reductions remains uncertain, and the details of the implementation are yet to be fully outlined.

Despite the challenges, Trump’s executive order signals a bold attempt to reshape the U.S. pharmaceutical market, aiming to deliver lower costs for Americans and curtail the influence of foreign pricing practices and middlemen in the drug supply chain.

President Trump’s executive order represents a bold and aggressive move to address the rising cost of prescription drugs in the U.S. While the proposed changes have sparked mixed reactions from the pharmaceutical industry, the administration is pushing ahead with plans to level the playing field and ensure that American consumers are no longer burdened with inflated drug prices. The full impact of the executive order will depend on its implementation and the legal hurdles it must overcome in the coming months.