President Donald Trump has signed a sweeping executive order aimed at drastically reducing U.S. prescription drug prices.
The order mandates that Medicare and Medicaid pay pharmaceutical companies the lowest prices offered in other developed nations — a policy known as the “Most-Favored Nation” (MFN) pricing model. This move could potentially cut drug costs by up to 90%, addressing the long-standing issue of significantly higher drug prices in the U.S. compared to other countries.
What Is the Most-Favored Nation Pricing Model?
The MFN pricing model ties the prices paid by U.S. government programs like Medicare and Medicaid to the lowest prices paid by other developed countries. This approach aims to eliminate the disparity where Americans pay significantly more for the same medications than patients in countries like France or Canada.
Potential Savings for American Consumers
By aligning U.S. drug prices with international rates, the executive order could lead to substantial savings for American consumers. For instance, the diabetes drug Ozempic, which costs $936 per month in the U.S., is priced at $83 in France. Such adjustments could alleviate financial burdens for many patients.
Impact on the Pharmaceutical Industry
The pharmaceutical industry has expressed concerns that the MFN policy could hinder innovation and reduce future treatments. Trade group PhRMA warned that it might discourage investment and foster dependence on foreign sources like China. Legal challenges to the order are anticipated.
Timeline for Implementation
The executive order sets a 30-day deadline for drugmakers to lower prescription drug prices. If significant progress isn’t made within six months, the administration plans to take further action to enforce the pricing model.
Inclusion of Weight-Loss Drugs
The administration hasn’t specified which drugs will be affected, but officials indicated that GLP-1s — a class of drugs including Ozempic, Wegovy, and Zepbound — are expected to be among them. This could lead to lower costs for these popular weight-loss medications.
Direct-to-Consumer Sales Initiative
The order instructs the Department of Health and Human Services to facilitate direct-to-consumer purchasing programs, allowing pharmaceutical manufacturers to sell products directly to American patients at the most-favored-nation price. This could bypass intermediaries and reduce costs.
International Trade Implications
Trump has threatened trade sanctions, including restrictions on automobile imports, against countries that fail to comply with the new pricing model. This move aims to pressure foreign nations to raise their domestic drug prices, thereby ending what he described as their exploitation of American pharmaceutical pricing.
Comparison to Previous Policies
This executive order builds upon previous measures like President Biden’s Inflation Reduction Act, which allowed negotiation of drug prices starting in 2026. However, Trump’s order accelerates the timeline and expands the scope to include both Medicare and Medicaid.
Market Reactions
Following the announcement, pharmaceutical stocks initially dipped but later rebounded as the broader market rallied on news of a U.S.-China trade deal. Analysts warned that a wide application of the policy could result in an average net income decline of 15% for pharmaceutical companies due to significant potential cuts in profit margins.
What This Means for You
If implemented successfully, the executive order could lead to significantly lower prescription drug costs for American patients. However, the policy faces legal challenges and opposition from the pharmaceutical industry, which could delay or alter its effects. Patients should stay informed about developments to understand how it may impact their medication expenses.
