Executive order on drug costs: what employers need to know

President Donald Trump has issued an executive order (EO) aimed at reducing prescription drug prices by aligning them with those of other wealthy nations.

If successful, this order could spell significant savings for employee health plans, though analysts caution that optimism should be tempered.

Key components

The EO outlined a four-step approach to lowering U.S. drug prices:

• Ensuring fair market prices: Directs the U.S. Trade Representative and Secretary of Commerce to prevent foreign countries from “purposefully and unfairly undercutting market prices.”
• Communicating price targets: Orders the administration to directly inform pharmaceutical manufacturers of expected price reductions.
• Facilitating direct purchases: Directs the Secretary of Health and Human Services (HHS) to create a mechanism where American patients can acquire drugs at a “Most-Favored-Nation” (MFN) price, bypassing middlemen.
• Implementing MFN pricing: Instructs HHS to propose rules or adopt “other aggressive measures” to enforce MFN pricing.

The EO highlights that while the U.S. constitutes less than five percent of the world’s population, it finances approximately 75% of global pharmaceutical profits.

MFN strategy

In a follow-up, HHS elaborated on its plan to enforce the MFN pricing policy.

According to a press release, the department has identified specific targets pharmaceutical manufacturers are expected to meet.

The MFN target requires that U.S. drug prices for brand products without generic or biosimilar competition match the lowest in any Organization for Economic Cooperation and Development (OECD) country with a GDP per capita of at least 60% of the U.S. GDP per capita. That would reduce U.S. drug prices to levels seen abroad, which can be as much as three to five times lower.

Challenges expected

Industry insiders express skepticism about the plan’s feasibility. Critics label the pricing expectations as “extreme,” suggesting that such policies could jeopardize the U.S.’s position as a leader in biopharma innovation and investment.

Trump’s previous administration encountered legal hurdles when attempting to link Medicare Part B reimbursement rates to international pricing benchmarks.

Analysts predict that similar judicial challenges could arise with the current proposal. Employers, therefore, are encouraged to maintain their own cost-management strategies while federal actions play out.