Pharmaceutical firms under pressure: Trump issues 60-day deadline for 17 corporations to decrease drug prices
President Trump has once again taken aim at high drug prices in the United States, issuing an executive order on May 12, 2025, and sending letters to major pharmaceutical companies demanding that they lower U.S. drug prices to match the lowest prices offered in other developed nations. This initiative, known as the "Most Favored Nation" (MFN) pricing policy, aims to reduce drug costs by as much as 59% for Medicaid, Medicare, and commercial insurers by aligning U.S. prices with the lowest internationally.
In the letters, Trump made clear that the discussions between Health and Human Services (HHS) officials and the companies did not yield acceptable results. However, the Pharmaceutical Research and Manufacturers of America did not immediately respond to a request for comment.
The demands include providing MFN prices for all Medicaid patients, ensuring manufacturers do not offer lower drug prices to other developed nations than in the U.S., offering an option for manufacturers to sell directly to patients at no higher than the MFN price, and supporting trade policies that encourage reinvestment of revenues from higher international prices into lowering U.S. drug costs.
The precise legal mechanisms to compel pharmaceutical companies to comply with these demands are not explicitly detailed. While Trump has issued an executive order and sent direct letters threatening to "deploy every tool in our arsenal," no particular statutory or regulatory authority to mandate price reductions is specified, and enforcement plans remain vague.
This MFN policy revives a similar initiative from 2020 that faced legal challenges and was rescinded by the Biden administration, indicating potential legal hurdles ahead. The pharmaceutical industry and trade groups have criticized the policy as undermining American innovation and leadership, suggesting further legal and political resistance is expected.
The May executive order goes beyond the previous measure, as it is not limited to drugs purchased by Medicare nor to a certain number of pharmaceuticals. If the companies refuse to step up, Trump has threatened to deploy every tool in the arsenal to protect American families from continued abusive drug pricing practices. This includes directing HHS to craft a rule implementing the policy, allowing more drug importation into the U.S., reviewing drug exports, and having the Food and Drug Administration modify or revoke approvals granted for drugs that may be "unsafe, ineffective, or improperly marketed."
Trump has given the companies 60 days to comply with the demands. However, some industry experts have described the May executive order as more bark than bite. The S&P 500 Pharmaceuticals Industry Index was down a little more than 2% following the announcement. The stock prices for several companies, including Eli Lilly, Merck, Johnson & Johnson, GSK, and Amgen, experienced a decrease between 1% to 4% in mid-afternoon trading.
The Trump administration is considering imposing tariffs on pharmaceutical imports, which could exacerbate shortages of certain drugs, particularly generic medicines, and eventually raise prices, experts have warned. Trump also ordered the manufacturers to participate in programs to sell certain drugs directly to consumers or businesses at "Most Favored Nation" prices.
Americans are demanding lower drug prices, according to the executive order. However, the enforceability of these demands depends on future legal and regulatory developments, with no clear statutory authority currently identified to compel compliance. The industry's response remains to be seen, but opposition from industry trade groups is expected.
- The MFN policy, which aims to reduce drug costs significantly, has progressed from a 2020 initiative and broadened from focusing only on Medicare-purchased drugs to cover a wider range of pharmaceuticals.
- The pharmaceutical industry and trade groups have expressed concern over the MFN policy, claiming it undermines American innovation and leadership, suggesting potential legal and political resistance.
- The enforcement of the MFN policy is contingent upon future legal and regulatory developments, with the S&P 500 Pharmaceuticals Industry Index showing a decrease following the announcement, indicative of industry anticipation and potential opposition.
