Frankfurt School of Finance & Management research shows Trump's drug pricing cap could shrink US economy and reduce innovation
FRANKFURT AM MAIN, Germany , June 24, 2025 /CNW/ -- U.S. President Donald J. Trump issued an Executive Order on May 12, 2025 , directing the Department of Health and Human Services to communicate "Most-Favored-Nation" price targets to pharmaceutical manufacturers. Under the order, U.S. patients must pay no more than the lowest price available for the same drug in any comparably developed nation.
Trump's Executive Order risks reducing the health sector's amount of funding for innovation, and thus negatively impacting U.S. GDP, warns health economist, Afschin Gandjour, from Frankfurt School of Finance & Management.
Professor Gandjour explores the economic trade-offs of international reference pricing. He states that by lowering allowable prices without addressing structural inefficiencies, Trump's order risks reducing the funds available for innovation, employment, and capital investment domestically.
Focusing on brand-name drugs (which make up 80% of drug spending), Professor Gandjour found that around 16% of industry revenues are reinvested in domestic R&D and capital projects. With U.S. brand-name drug spending estimated at $482 billion, and assuming 50% of that spending goes to domestically manufactured drugs, about $241 billion accrues to the local economy.
However, 41% is absorbed by intermediaries – providers, insurers, and pharmacy benefit managers – with $142 billion reaching manufacturers. Of this, approximately $23 billion is reinvested in the U.S. driving a total GDP contribution of $46 billion, based on the assumption that for every dollar reinvested, an additional dollar is generated through activity before and after production.
Professor Gandjour's analysis suggests that a significant price cut under the new Executive Order would likely decrease reinvestment in innovation and GDP growth. Although Americans pay significantly higher drug prices, a substantial amount remains within the U.S. economy. Inefficiencies come from features of the U.S. health system itself – including the high degree of financialization in the pharmaceutical sector and intermediaries that absorb a large portion of profit.
Even if high pharmaceutical prices stimulate the U.S. economy through reinvestment and multiplier effects, the immediate financial burden falls disproportionately on patients. This is primarily a problem of how health expenditures are financed, not of drug pricing.
"Policy responses focused solely on international reference pricing may overlook deeper inefficiencies in both the allocation and financing of pharmaceutical spending. The real challenge is not determining how high drug prices should be, but how effectively spending is translated into domestic value creation," says Professor Gandjour.
About Frankfurt School of Finance & Management
Frankfurt School of Finance & Management (FS) is a private business school accredited by AACSB, AMBA and EQUIS. The university focuses on finance, economics and management, and offers Bachelor, Master, MBA and doctoral programmes as well as executive education courses and seminars for professionals and trainees. Frankfurt School is regularly placed among the top performers in major university rankings. For example, it ranks 41 st in the latest Financial Times (FT) European Business School Ranking and is listed as the best German business school in the Times Higher Education Global University Employability Ranking. In the latest UTD Top 100 Business School Research Rankings Frankfurt School has also secured the top position in Germany . In addition to the main Frankfurt campus, Frankfurt School has study centres in Hamburg and Munich and is globally connected with over 125 partner universities. www.frankfurt-school.de
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