- President Trump signed an executive order designed to lower drug costs where U.S. pays more than foreign countries.
- The effort targets prices in general, but government has more cost control with Medicare and Medicaid than other programs.
- Critics, including drug companies, say the effort could stifle innovation and backfire.
President Donald Trump on Monday signed an executive order taking aim at the fact that the U.S. pays as much as three times what those in other nations pay for prescription medications.
Drug manufacturers are being given 30 days to work with the U.S. Department of Health and Human Services to lower what they charge the U.S. for drugs. If that doesn’t happen, they will be faced with U.S.-mandated limitations on what the government will pay under a “most favored nation” policy that would set prices for the U.S. on par with the lower prices other countries pay.
It’s not clear how much folks who get queasy filling their prescriptions at the local pharmacy will benefit directly from the order, however. It certainly applies to medications obtained through Medicare and Medicaid. But the order suggests that direct-to-consumer efforts to lower costs will be bolstered as well.
The order says to consider as much as is legal, encouraging direct-to-consumer purchasing programs that would make it possible to sell medication at the lower prices enjoyed in other countries.
Since Part B Medicare enrollees are responsible for a portion of the cost of medications they get during doctor visits and there’s no out-of-pocket cost cap on that, individuals could benefit a lot should the order succeed in lowering even just those drug prices.
CBS reported that Medicare Part B spending on medication exceeded $33 billion in 2021.
About 70 million older Americans are covered by Medicare.
Trump predicted the order would save the U.S. “trillions of dollars.”
“We’re going to equalize. We’re all going to pay the same. We’re going to pay what Europe pays,” Trump said at a Monday press conference.
But as the Associated Press reported, Health and Human Services is “limited in its control of drug pricing. It has the most authority around the drug prices it pays for Medicare and Medicaid, which covers roughly 80 million poor and disabled Americans. The price that millions of Americans covered by private insurance pay for drugs is harder for the agency to manipulate."
The executive order is likely to be controversial. While there’s a lot of support for lowering drug costs in America, which are among the highest in the world, drug companies say such measures will stifle innovation and reduce research and development of new drugs. And others worry that prices will stay high in the U.S. as manufacturers work with other countries to institute rebates that will effectively lower their costs while keeping America’s artificially high.
Not Trump‘s first attempt to lower costs
It’s not the first time the president tried to lower drug costs through a “favored nation” strategy. Near the end of his first presidential term, he signed an executive order that applied to Medicare Part B drugs administered in a doctor’s office, but a court order prevented it from taking effect.
Per CBS, “The Biden administration abandoned the proposal in 2022, blaming court orders blocking the model and concerns raised by stakeholders, including fears that it could cut off some Medicare beneficiaries from drugs and strain providers."
As the Associated Press reported, “The pharmaceutical industry argued that Trump‘s 2020 attempt would give foreign governments the ‘upper hand’ in deciding the value of medicines in the U.S.”
“Importing foreign prices will cut billions of dollars from Medicare with no guarantee that it helps patients or improves their access to medicines,” Stephen J. Ubl, president and CEO of PhRMA, said in a statement quoted by AP. “It jeopardizes the hundreds of billions our member companies are planning to invest in America, making us more reliant on China for innovative medicines.”
Also in the executive order
The executive order notes that the U.S. has “less than 5% of the world’s population and yet funds around three-quarters of global pharmaceutical profits. This egregious imbalance is orchestrated through a purposeful scheme in which drug manufacturers deeply discount their products to access foreign markets, and subsidize that decrease through enormously high profits in the United States.”
It calls the practice an “abuse of Americans’ generosity,” noting that “as the largest purchaser of pharmaceuticals, Americans should get the best deal.”
The order includes a set of graduated steps to lower the drug prices, should initial steps prove to be inadequate. Among other measures:
The Department of Justice and the Federal Trade Commission are told to consider what enforcement action they can take that impacts drug prices.
The secretary of Commerce and the U.S. trade representative are told to take action to ensure that foreign countries are not engaged in “unreasonable or discriminatory” acts or policies that hurt national security or make the U.S. pay more than its share for global pharmacy research and development.
Consumers worried about drug prices
A 2023 KFF survey found drug prices are a big worry on both sides of the aisle, with 82% of Democrats and 68% of Republicans agreeing there isn’t enough government regulation to cap the high cost of medication. In the survey, nearly 3 in 10 adults said they have trouble paying for their medication and a very slightly higher share said that they mitigate those costs by skipping a prescription, cutting pills in half or substituting over-the-counter drugs.
The Biden administration’s attempt to rein in runaway drug prices in the Medicare program focused on negotiating better prices for high-utilization, expensive drugs in the program. The effort operates in steps, with a certain number of drug prices to be negotiated each year, adding additional ones as time passes.
While Trump‘s order is painted as a blow to drug manufacturers, Barron’s reported that the executive order “could be a blessing in disguise,” noting the potential for “fundamentally restructuring the U.S. drug industry in a way that hurts pharmacy-benefit managers,” rather than Big Pharma.
Pharmacy-benefit managers are companies that negotiate drug prices and manage benefits for insurance companies and employers, among others. They decide what’s on drug formularies and at what price, negotiate rebates and in some cases decide what pharmacies can be used to fill prescriptions.
Barron’s believes that consumers could be directly affected by the executive order and that it is likely to apply to more than Medicare drugs. According to Barron’s, the order could make it easier to sell medication directly to consumers. And it noted that by midmorning, “Big Pharma stocks were rebounding” after a premarket drop.
Pfizer, Eli Lilly and Merck were all up between 2% and 4% after Trump signed the order, per Barron’s, while “shares of the insurance giants that own the pharmacy-benefit managers, meanwhile, were falling hard.” It noted that CVS Health and Cigna were both down around 5%, while UnitedHealth Group was flat.