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Highlights
- Trump’s revived drug pricing plan could slash Medicare costs by tying prices to international benchmarks.
- Pharma stocks dropped up to 3% after reports of Trump’s executive order plan.
- Drugmakers warn the pricing model may stall innovation and trigger new legal battles.
President Donald Trump is expected to sign an executive order early next week to push forward a policy tying Medicare drug prices to lower rates paid in other countries. This move, known as the “most favored nation” approach, aims to lower costs for some of the most expensive prescription drugs in the U.S.
US President Donald Trump Big Announcement
According to three individuals familiar with the discussions, the White House is preparing to reintroduce the pricing model after teasing the announcement as one of the biggest of his presidency. President Donald Trump previously attempted to launch a similar initiative during his first term, but it was blocked by the courts and later dropped by the Biden administration.
The proposal seeks to base U.S. drug prices on those paid by other developed countries, which often pay much less. For example, drug prices in the U.S. are sometimes nearly three times higher than those in Europe or Canada. Trump said Tuesday,
“We’re being ripped off, as you know, very badly being ripped off compared to the rest of the world.”
The policy is expected to target a limited group of high-cost drugs within the Medicare program. However, the final list of drugs has not been confirmed. One official familiar with the matter said the policy would look similar to the 2020 version, although it may contain fewer specifics. The announcement comes hours after Federal Reserve Chair Jerome Powell said inflation is not easing quickly, partly due to the uncertainty created by Trump’s tariff policies. Moreover, the Fed recently held interest rates steady, citing trade disruptions as a key factor.
Executive Order Instead of Legislation
Officials say the White House initially tried to include the plan in broader legislation, but it faced opposition from Republican lawmakers. As a result, the administration is now expected to move forward using executive authority without needing congressional approval.
This decision would allow the Centers for Medicare & Medicaid Services (CMS) to pilot the pricing model. A senior administration official said last month that drugmakers had already been warned about the coming order.
The previous version of the policy was estimated by the Donald Trump administration to save taxpayers more than $85 billion over seven years. However, it was legally challenged for failing to follow required procedures and never took effect.
Pushback From the Pharmaceutical Industry
Pharmaceutical companies are expected to strongly oppose the new effort. Industry leaders argue that the pricing model could reduce investments in new drug development. One executive called the plan an “existential threat to U.S. biosciences innovation.”
On Wednesday, shares of major drugmakers dropped in after-hours trading following reports of the policy revival. Eli Lilly’s stock fell over 3%, while Merck, Gilead Sciences, and Bristol Myers Squibb each saw losses of around 2%.
Legal action is also likely if the plan moves forward. Several industry groups previously sued to stop the same policy in 2020, and experts expect similar challenges this time.
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