America plays its Trump card on drug pricing: The policy, the politics, and what to expect next

Harry Lewis examines the most-favoured nation drug pricing scheme adopted by the Trump administration and warns that although barriers to its implementation exist, the policy may still come into force in some form in the near future, with dramatic implications for the pharmaceutical industry worldwide.

President Donald Trump’s desire to cut US drug prices by comparing them to international prices has been known since his first term. Even before the announcement last week that his administration was pursuing most-favoured nation (MFN) pricing, a similar executive order had been signed in December 2020, one month before he left office [1]. This was struck down by the courts shortly afterwards. However, a renewed push to pursue the policy by a President with more than three years left in his term means the possibility of its implementation must be taken very seriously. Enactment of MFN pricing in the US would have a dramatic impact on pharmaceutical supply chains around the world, and pose questions regarding patient access that are not easily resolved. There are still significant barriers to overcome before that point is reached, but as the first five months of this administration has proven, things may move faster and with more focus than expected.

MFN pricing for pharmaceuticals as proposed in the executive order is a more radical form of international reference pricing (IRP), something which is used across the world, including in many European countries. The exact method of calculating prices under IRP can vary, some countries using a simple average of a selected ‘basket’ of other countries and others employing a slightly more complex process: Germany, for example, uses an arbitration board to set prices, but only in cases where negotiations through traditional health technology assessment (HTA) methods fail, and without a standardised formula [2]. IRP schemes, while by no means being uncontested or without their downsides, are an accepted part of the pharmaceutical policy landscape. What would make a turn by the US towards IRP so potentially impactful lies in both the outsized influence the country has on the global pharmaceutical industry, and the specific method chosen by the Trump administration to pursue lower prices.

To be clear, the US pursuing even a modest form of IRP would be a significant event. The text of the executive order signed by Trump claims that the US is responsible for around three-quarters of global pharmaceutical profits [3]; although this may be an exaggeration, it is undeniable that any policy which significantly reduces American prices would make a large dent in pharmaceutical profits. MFN pricing, however, goes further than the standard IRP model by setting prices at the lowest level found in the basket of countries, rather than calculating some sort of average. This is without precedent among major economies [4] and, even more so than IRP, would be likely to have adverse effects on access in the US and worldwide.

The reality is that although the US does actually face higher drug prices than the rest of the world, and reducing the cost of medicines to patients is therefore a very worthwhile pursuit, doing so in this way bumps up against the reality of the global pricing system. IRP policies typically incorporate some sort of additional negotiation process to guard against the fact that most countries from whom prices are sourced have confidential discounts that lower the actual price paid. Neither the 2020 nor 2025 order mentions the possibility of such negotiations. Instead, the latter authorises various government departments to take “enforcement actions” against “anti-competitive practices” including, alarmingly, “all necessary action regarding the export of pharmaceutical drugs…that may be fuelling the global price discrimination” and allowing the Commissioner of Food and Drugs to “modify or revoke approvals for drugs…that maybe be [sic] unsafe, ineffective, or improperly marketed”. This language could be used to justify any number of things, but it would be unsurprising if it was referred to in a situation where pharmaceutical companies pointed to high list prices in Europe as a way of explaining high actual prices in the US. Interestingly, the text also considers waivers that would allow drugs to be imported from countries which keep low prices, something which would appear to rub against the overall goal of the administration to lower the US trade deficit.

One can envision a scenario in which pharmaceutical companies, faced with an MFN pricing model in the US and an administration threatening punitive action against them for the use of confidential discounts elsewhere, delay the launch of products in European countries to manipulate the IRP mechanism and ensure continued revenue streams in what is by far their largest market. For products already on the market, price increases in referenced countries may be employed (if possible) to boost the price allowed to be charged in the US. In a worst case scenario, in circumstances where profits in the US are particularly important and other countries refuse to accommodate higher prices, products could even be removed from referenced markets altogether, or launches outside the US cancelled.

Of course, failing to properly take into account confidential price discounts significantly weakens the power of the MFN policy. These practices do not exist only in Europe – in the US, too, pharmaceutical companies offer discounts that significantly lower the actual price paid compared to the list price. That these negotiations take place with private insurance companies, not governments or HTA agencies, imposes a significant barrier to the idea that their outcomes might be disclosed for the purposes of enforcing MFN pricing with non-list prices. The system of pharmacy benefit managers, unique to the US, adds another layer of complexity: put alongside the difficulty of incorporating confidential discounts from outside the US into a reference basket, it is clear that “setting prices at the same level as other countries” is not as simple as it would initially seem.

The questionable legal strength of the executive order is another factor which limits its immediate impact. The executive order envisions a 30-day period in which pharmaceutical companies are instructed which prices would be acceptable; if “significant progress” is not made, enforcement actions will be taken. It is unclear from what legal authority the previously mentioned threats of export controls and revocation of marketing approval would be drawn, and even if an alternative is found the order would surely be challenged in the courts as it was in 2020. The US cannot simply demand that drug prices become as simple a topic as they would need to be to make MFN pricing work. For now, then, it seems unlikely the policy as dreamed up by Trump can be enacted on as short a timeline as he would like.

However, this does not mean that we will not see some form of IRP in the US in the short-to-medium term future. The Trump administration has proven itself to be more than willing to fight on behalf of its policies in the courts, and with a Justice Department coming more and more under the thumb of the executive it is not hard to imagine the issue eventually coming before a sympathetic Supreme Court should it remain a priority. Even in the event that the policy has to be pursued through legislation, there seems to be broad agreement among both Democrats and Republicans that drug prices in the US cannot remain as they are – President Biden abandoned the MFN pricing pursuit, but still aimed to bring down prices as part of the Inflation Reduction Act. Certainly some members of Congress will see the flaws of an MFN policy but may still be willing to accept it if it functions as a bargaining chip for other policy priorities; the somewhat threadbare nature of the executive order, which diminishes its utility as a practical means of lowering prices, would presumably be ironed out at this stage.

Even a weaker form of IRP in the US raises serious questions about the ability of the pharmaceutical industry to adapt its supply chains to a new reality that may come about quicker than it would like. The administration has so far shown no desire to engage with more systematic reform of the American healthcare system, which might reduce bureaucracy and prices without threatening access worldwide. When put alongside the pharmaceutical tariffs, previously discussed on this page, the possibility that the global drug pricing landscape will be entirely reshaped in the next few years cannot be discounted. Whether the focus of the administration will remain on this issue long enough to see through a wholesale reform is unclear. What is clear is that the US will operate according to its own timelines and priorities, and the whole industry must adapt to this new reality.

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America plays its Trump card on drug pricing: The policy, the politics, and what to expect next

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Harry Lewis

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