Trump wants to slash U.S. drug prices with 'most favored nation' policy – here's what to know

CNBC

12-05-2025

President Donald Trump on Monday moved forward with a plan to lower U.S. drug costs by linking prices to those paid in other developed countries – a proposal he will have a tough time putting into effect, experts said.
Trump signed a sweeping executive order directing several federal agencies to renew that effort to cut prices, called the "most favored nation" policy. It essentially aims to tie the prices of some medicines in the U.S. to significantly lower ones abroad, or what Trump described as "equalizing" prices.
He did not disclose which exact medications the order will apply to, but said it will affect the commercial market as well as the public Medicare and Medicaid programs. That's broader than a similar policy proposal from Trump's first term, which was ultimately blocked in court after the pharmaceutical industry challenged it.
Trump is taking aim at a longstanding issue that past administrations have also tried to confront: U.S. prescription drug prices are two to three times higher on average than those in other developed nations – and up to 10 times more than in certain countries, according to the Rand Corporation, a public policy think tank.
The president claimed the order will help lower drug prices between 59% and 80%, or "I guess even 90%." But health policy experts said it is still unclear how much the policy could reduce prices for patients, how much it will affect drugmakers' profits, which medicines will be targeted — and whether Trump can even put the plan into effect in the first place.
Investors seemed to shrug Monday about how much the plan would hit major drugmakers. Shares of Gilead rose 7%, Merck climbed 5%, Pfizer, Bristol Myers Squibb and Amgen climbed more than 3% and Eli Lilly rose more than 2%.
JPMorgan analysts on Monday called the policy "challenging to practically implement" because it would likely require congressional approval and could run into legal challenges from drugmakers. Notably, several Republican lawmakers opposed including a most favored nation provision in the major economic policy bill they plan to pass in the coming months.
"The road ahead could be muddy," the analysts wrote in a note.
While experts backed the idea of lowering prices, they raised doubts about whether other nations and drugmakers will do what Trump hopes to accomplish with the order.
"We're unlikely to get the drug companies to voluntarily decrease their prices, and we're not going to get the other countries to voluntarily increase their prices, right?" said Gerard Anderson, professor of health policy and management at the Johns Hopkins Bloomberg School of Public Health.
Trump's order takes aim in part at other countries, many of which have single-payer health systems with more leverage to negotiate down drug prices with manufacturers. In contrast, the U.S. has a patchwork of public and private insurance and partly relies on middlemen to set prices.
The president's policy directs the Office of the U.S. Trade Representative and the Department of Commerce to fight what the administration called "unreasonable and discriminatory policies" in foreign countries that "unfairly undercut market prices and drive price hikes in the United States."
In a statement on Monday, the pharmaceutical industry's biggest lobbying group, PhRMA, lauded Trump for taking aim at other nations for what they deemed "not paying their fair share."
But other countries' governments are simply negotiating within the limits of their national health budgets, not using "unfair" methods like Trump claims, said Lawrence Gostin, a professor of public health law at Georgetown University. He added that they are securing fair prices for their own countries, which "has nothing to do with undercutting the U.S."
It's unclear what actions the U.S. could take to force other nations to take action, but Anderson said there is currently no incentive for them to hike their prices.
"They have a system that works for them and they get lower prices. Countries like France and Switzerland are all not going to sit there and say, 'Hey, now I want to pay more,'" he said.
The pharmaceutical industry would likely want to to see price hikes in countries within the European Union before it voluntarily lowers any drug prices in the U.S., JPMorgan analysts said. That makes other pieces of the executive order appear unlikely to come to pass.
Trump's order directs the Health and Human Services secretary to establish a way for U.S. patients to buy their drugs directly from manufacturers at "most favored nation" prices, cutting out middlemen. The order mentions "direct-to-consumer purchasing programs," without further details.
His plan also calls for HHS Secretary Robert F. Kennedy Jr. to give drugmakers price reduction targets within the next 30 days, which will open up negotiations with the companies. If "adequate progress" is not made toward those goals within six months of the order being signed, HHS will impose most favored nation pricing on drugs through rulemaking or "other aggressive measures," according to the order.
But Anderson said it would likely take far longer for the government and drugmakers to agree on a price. Under a provision of the Inflation Reduction Act, Medicare and drug manufacturers typically take six months to a year to negotiate prices.
He added, "Why would any drug company ever lower their prices voluntarily?" Anderson noted that the order did not provide details on the exact actions the administration could take against drugmakers who don't agree, so the incentives are unclear.
The Department of Justice and Federal Trade Commission will also take action against "anti-competitive actions" that keep prices high in the U.S., White House officials said.
"There will be an expectation that those prices should come down. And then if they don't, we will be looking at our various policy levers that can be used to force those prices down," one official said. 'We absolutely are going to get a better deal.'"
The order also directs the Food and Drug Administration to consider expanding imports from other developed nations beyond Canada. Trump signed a separate executive order in April directing the FDA to improve the process by which states can apply to import lower-cost drugs from Canada, among other actions intended to lower drug prices.
The Trump administration claims that some drug prices will fall by up to 90% "almost immediately."
White House officials also said the administration will have a particular focus on drugs that have the "largest disparities and largest expenditures," which could include popular weight loss and diabetes treatments called GLP-1 drugs.
But experts cast doubts on whether the administration can cut prices significantly, as it's still unclear which drugs and nations will be targeted, and whether other countries and drugmakers will comply.
"We don't know the list of nations included," said Tricia Neuman, executive director for the program on Medicare policy at KFF, a health policy research group. "Their pricing would make a big difference in what our prices would be, which could then affect access in the U.S."
In Anderson's view, the order as written won't be effective at lowering drug prices.
"It's a great idea to pay international prices, but it's how you get to implement it. There are no details and ability to effectuate it," he said.
Gostin also added that Americans will likely not see lower prices "in the foreseeable future."
Still, AARP, which advocates for older Americans, thanked Trump for issuing the order in a statement on Monday.
"It's safe to say that we are excited about any attempts to help bring down prescription drug prices," said Leigh Purvis, the prescription drug policy principal in AARP's Public Policy Institute. "This approach is unusually understandable to the public because I think there's a general understanding that America does pay the highest prescription drug prices in the world."
She added that the "devil is in the details, and that's what we're looking forward to seeing more of."
The pharmaceutical industry has argued that a "most favored nation" policy will hurt its profits and ability to research and develop new drugs. Last week, PhRMA even estimated that Trump's proposal – if applied to the Medicaid program specifically – could cost drugmakers as much as $1 trillion over a decade.
But Monday's executive order seems to be "more of a headline risk" than the sweeping shift for the pharmaceutical industry many had feared, BMO Capital Markets analyst Evan Seigerman said in a note on Monday.
He pointed to the uncertain path forward for the plan, saying it "could be more rhetoric than actual implementable policy." Seigerman added that Trump appeared to be somewhat sympathetic to U.S. manufacturers, with the president arguing that European nations are not supporting drug research and development due to their lower prices.
Anderson said the pharmaceutical industry may be breathing a "sigh of relief today," pending further details on what the administration's retaliatory actions could look like.
Trump's order suggests that it is ultimately voluntary for drugmakers to lower prices and, subsequently, profits, so "he did not propose something that is mandatory and really has teeth here."
Still, while PhRMA agreed with Trump's decision to target other countries, the group emphasized that "importing foreign prices from socialist countries would be a bad deal for American patients and workers.
"It would mean less treatments and cures and would jeopardize the hundreds of billions our member companies are planning to invest in America – threatening jobs, hurting our economy and making us more reliant on China for innovative medicines," the group said in a statement.
Some analysts and experts said Trump could alternatively implement his most favored nation policy through an existing tool to push down drug prices: Medicare drug price negotiations.
It's a key provision of the Biden administration's Inflation Reduction Act that gives Medicare the power to negotiate certain prescription drug prices with manufacturers. The federal program is currently in its second ever round of talks with drugmakers.
The Trump administration could use the "most favored nation" price for a given drug as the initial offer to manufacturers at the beginning of negotiations, Anderson said.
"You'd be starting the negotiation at an even lower price than they have in the past," he said, adding that it would not require any help from Congress.
JPMorgan analysts added that "we see a clearer pathway for the administration to implement [the most favored nation policy] at a smaller scale through Medicare IRA price negotiations, where the impact would be limited to a small number of drugs" and make the hit to drugmaker profits more gradual.