President Mandates Lower Drug Prices

President Trump Monday signed an executive order aimed at reducing prescription drug costs by establishing a “most-favored-nation” (MFN) pricing policy, which would benchmark U.S. drug prices to those paid in economically comparable countries.

The order directs the Department of Health and Human Services (HHS) to initiate programs enabling American patients to purchase medications directly from manufacturers at the lowest price offered in other developed nations. If pharmaceutical companies decline to offer such prices voluntarily, HHS is instructed to pursue rulemaking to mandate MFN pricing, as well as broader enforcement measures to address alleged anti-competitive behavior.

Citing data that Americans pay more than triple what other OECD countries pay for the same brand-name drugs, the administration contends that foreign governments underpay for medications while U.S. taxpayers underwrite global pharmaceutical profits.

“The United States has less than five percent of the world’s population and yet funds around three-quarters of global pharmaceutical profits,” the order states. “Americans should no longer be forced to subsidize low-cost prescription drugs and biologics in other developed countries.”

The executive order also:
• Directs the U.S. Trade Representative and Secretary of Commerce to identify and counteract foreign pricing policies deemed discriminatory or harmful to U.S. consumers;
• Instructs the Food and Drug Administration to explore mechanisms for authorizing drug importation under Section 804(j) of the Federal Food, Drug, and Cosmetic Act;
• Calls for the Federal Trade Commission and Department of Justice to take enforcement action against anti-competitive practices identified in a forthcoming HHS report;
• Orders a review of pharmaceutical exports and the impact of global pricing disparities;
• Requires potential revocation or modification of drug approvals deemed unsafe, ineffective, or improperly marketed.

The policy revives and expands upon efforts launched in Trump’s first term, many of which were delayed or rescinded during the Biden administration. Notably, the new order broadens the scope of MFN pricing to include Medicaid alongside Medicare and calls for aggressive trade and regulatory measures to confront what the administration terms “global freeloading.”

Industry reaction is pending, but similar measures in the past have drawn opposition from pharmaceutical manufacturers and trade groups, which argue such policies could reduce innovation and limit access.

The order becomes effective immediately, with HHS required to communicate pricing targets within 30 days. Further action will depend on the pharmaceutical industry’s response and the viability of proposed regulatory pathways.

Regulatory and Litigation Risks 

The executive order signed by President Trump exposes pharmaceutical companies to the following regulatory and legal risks:

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1. Mandatory Most-Favored-Nation (MFN) Pricing Enforcement
• Risk: If manufacturers do not voluntarily comply with MFN pricing targets, HHS is instructed to initiate rulemaking to impose mandatory MFN pricing.
• Implications: This could override existing contractual arrangements with pharmacy benefit managers (PBMs) and insurers, triggering legal disputes over pricing, reimbursement, and exclusivity arrangements.

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2. Importation Under Section 804(j) of the FDCA
• Risk: If HHS certifies that importation from developed nations poses no additional health or safety risk and significantly reduces prices, FDA may authorize expanded importation of lower-cost drugs.
• Implications: U.S. drugmakers could face competition from foreign-sourced products, reducing their market share and undermining domestic pricing structures.

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3. Antitrust Investigations and Enforcement
• Risk: The order calls on DOJ and FTC to pursue enforcement actions under the Sherman Act and FTC Act based on anti-competitive practices detailed in a forthcoming HHS report.
• Implications: Manufacturers could face scrutiny for price coordination, exclusionary contracting, or abuse of market dominance, particularly in the biologics and specialty drug sectors.

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4. Export Controls on Pharmaceutical Inputs
• Risk: Commerce is instructed to review pharmaceutical exports and may impose controls or restrictions if such exports contribute to global pricing disparities.
• Implications: Export restrictions could affect global supply chains, licensing, and joint ventures, particularly in cross-border manufacturing arrangements.

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5. Regulatory Reexamination of Drug Approvals
• Risk: The FDA is directed to review approvals of drugs deemed unsafe, ineffective, or improperly marketed.
• Implications: This may lead to post-market withdrawal, labeling changes, or increased compliance burdens for certain products, especially legacy or imported drugs.

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6. Public Price Disclosure Requirements
• Risk: The order builds on earlier transparency mandates and may require manufacturers to disclose pricing, discounting, and foreign sales data.
• Implications: Heightened transparency could expose firms to litigation, reputational harm, or pressure from payers and lawmakers.

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7. CFIUS and Trade Retaliation Exposure
• Risk: Foreign manufacturers benefitting from discriminatory pricing schemes could be targeted under Section 301 or CFIUS scrutiny if tied to state-sponsored pricing controls.
• Implications: Firms with cross-border ownership or supply chain dependencies could face transactional reviews or trade retaliation.

[Executive Order]

Prescription Drugs; Efforts To Deliver Most-Favored-Nation Pricing in U.S. (EO 14297)