On Monday, President Donald Trump signed an executive order that seeks to radically reform the drug pricing system in the United States, requiring pharmaceutical companies to offer American citizens the same low prices that other countries receive, or face penalties.
“Starting today, the United States will stop subsidizing healthcare in foreign countries, which is exactly what we have been doing,” Trump declared at a ceremony before signing the document. According to his own words, the measure could reduce drug prices by up to 90%."
The order establishes the principle of “Most Favored Nation,” which means that pharmaceutical companies must offer American patients the lowest price paid for a medication in comparable countries, or else face consequences. Trump instructed the Department of Health and Human Services (HHS) to set price targets within 30 days.
“Big Pharma will comply with this principle voluntarily, or we will use the power of the federal government to ensure that we pay the same as other countries,” warned the former president. However, it is not clear what authority the Executive branch has to impose prices in the private market.
The measure goes far beyond a similar policy proposed by Trump during his first term, which was limited to certain medications within the Medicare program and was blocked by federal courts in 2020 before being rescinded by the Biden administration in 2021.
The new executive order also includes repercussions in case of noncompliance by manufacturers, such as allowing the importation of more medications into the country, and directing the FDA to modify or revoke approvals for drugs that it deems unsafe, ineffective, or improperly marketed.
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Trump harshly criticized the European Union for forcing pharmaceutical companies to offer low prices, stating that trade with Europe is “more unpleasant than with China.” “That game is over,” he said. “If they want to get creative, then they won’t have to sell any more cars in the United States.”
In addition, the former president opened the door to imposing tariffs on the importation of pharmaceutical products, a measure that experts warn could worsen the shortage of certain medications, especially generics, and eventually increase prices.
Despite the announcement, the markets reacted calmly. The stocks of the main pharmaceutical companies remained up in the afternoon. The Pharmaceutical Research and Manufacturers of America (PhRMA), the main industry association, praised Trump’s approach towards foreign governments, although it expressed reservations about the domestic approach.
“The government is right to use trade negotiations to force other countries to pay their fair share for medications,” said Stephen Ubl, president of PhRMA. “But importing prices from socialist countries would be a bad deal for American patients and workers.”
Sector analysts consider that the measure could have more weight as a political tool than as a realistic reform. “It represents more of a headline risk than a paradigm shift,” said Evan Seigerman of BMO Capital Markets. He also emphasized that the legality of the approach is “uncertain” and that any lasting structural reform would require approval from Congress.
As the 2024 presidential elections approach, the announcement marks an attempt by former President Trump to strengthen his image as a consumer advocate against the pharmaceutical industry, although its legal and economic viability is yet to be seen.