On a recent Monday, President Donald Trump announced a revival of a contentious policy aimed at reducing drug costs in the United States by aligning the prices paid by the government for certain medications with the significantly lower prices available in other countries. This move, known as the “most favored nation” policy, was formalized through an executive order that Trump signed, which includes several actions to advance this initiative.
The White House explained that the primary goal of this policy is to address what officials describe as an unfair situation where foreign nations benefit from lower drug prices at the expense of American consumers, who often face much higher costs for the same medications. An official emphasized Trump’s commitment to reducing drug prices, highlighting that the president is serious about making medication more affordable for Americans.
The announcement had an immediate impact on the stock market, with shares of major U.S. pharmaceutical companies experiencing a notable drop in premarket trading. For instance, Eli Lilly's shares fell more than 5%, while Pfizer, Merck, and Johnson & Johnson each saw declines of over 2%. However, the White House did not specify which drugs would be affected by the new order, although they indicated that the scope would be broader than a previous attempt during Trump’s first term, which targeted only Medicare Part B drugs. The current order intends to focus on medications that have significant price disparities and expenditures, potentially including popular treatments for weight loss and diabetes, such as GLP-1 drugs.
Despite Trump’s optimistic assertion on social media that drug prices could be reduced by 59% or more, the effectiveness of the policy in actually lowering patient costs remains uncertain. The order instructs the Office of the U.S. Trade Representative and the Department of Commerce to take action against foreign policies deemed unreasonable and discriminatory, which allegedly suppress drug prices abroad. According to officials, these measures are designed to prevent other countries from negotiating unfairly with pharmaceutical companies, which often have to negotiate drug discounts at a national level—an ability the U.S. lacks due to its decentralized healthcare system.
White House officials anticipate that drugmakers will respond to the administration’s efforts by offering discounts uniformly across markets. Additionally, the executive order directs the Department of Health and Human Services (HHS) to urge pharmaceutical companies to offer most favored nation prices for direct-to-consumer sales. Within 30 days, the HHS Secretary is expected to establish specific targets for price reductions across U.S. markets, leading to negotiations between HHS and pharmaceutical companies. If these negotiations do not meet the expected progress, HHS Secretary Robert F. Kennedy Jr. will enforce most favored nation pricing through rulemaking.
Moreover, the order tasks the Food and Drug Administration (FDA) with considering the expansion of drug imports from developed countries beyond Canada. Trump had previously signed an order to improve the process for states to import cheaper medications from Canada. The recent order also directs the Department of Justice and the Federal Trade Commission to rigorously enforce actions against practices that maintain high drug prices in the U.S. The Department of Commerce is also reviewing export restrictions that might contribute to low pricing abroad.
This policy initiative is part of Trump’s broader effort to control U.S. prescription drug prices, which significantly exceed those in other developed nations, sometimes by tenfold, according to the Rand Corporation. The move comes as a blow to the pharmaceutical industry, which is already preparing for Trump's proposed tariffs on prescription drugs. The industry argues that the most favored nation policy would reduce profits and hinder the development of new medications.
White House officials argue that pharmaceutical companies can still profit after price cuts if they recognize that the U.S. cannot solely bear the cost of innovation and if they adjust prices abroad to increase revenues. The policy aims to address the widespread concern among Americans regarding high medication costs, with a significant majority finding them unaffordable.
The pharmaceutical industry had previously opposed similar initiatives during Trump’s first term, which a federal judge blocked after a lawsuit. The Biden administration later rescinded the policy. The Trump administration had initially sought to include a most favored nation provision in a major reconciliation bill, specifically targeting Medicaid drug costs, but faced opposition from several Republican lawmakers.
The industry’s trade group, PhRMA, estimated that Trump’s Medicaid proposal could cost drugmakers up to $1 trillion over a decade. Some health policy experts are skeptical about the effectiveness of the most favored nation policy, noting that it cannot change the fundamental economics of the global drug market, where the U.S. accounts for 70% of pharmaceutical profits. They