The executive order pressures drug companies to lower their prices in the U.S. and directs federal agencies to set targets.
President Donald Trump is taking aim at the high cost of drugs in the United States, signing an executive order that aims to get pharmaceutical companies to lower prices.
The executive order pressures drug companies to lower their prices in the U.S. and directs federal agencies to set targets. If those targets are not achieved, the action directs Secretary of Health and Human Services Robert F. Kennedy Jr. to propose a “most favored nation” pricing scheme that pegs drug prices to levels paid by other countries.
Drug prices in the U.S. are two to three times higher on average than those of comparable developed nations.
Northeastern Global News spoke with Gary Young, director of Northeastern University’s Center for Health Policy and Healthcare Research, about the likely effects of the executive order — what it signals to drugmakers, and whether it’s sufficient to move the needle on prices.
His comments have been edited for brevity and clarity.
You don’t want to look at this in isolation. Keep in mind that the Biden administration had the Inflation Reduction Act, which empowered the federal government to — for the first time, really — negotiate through Medicare the prices of prescription drugs.
If you’re a pharmaceutical executive, you’re looking at this and you’re saying, well, the tide has changed here. The landscape has changed; clearly the government is being more aggressive in trying to rein in drug prices, and they’re using federal initiatives to help try to do that — some of which may not hold up in court.
I think it does have an impact. Just in the past, over the last few decades, when there was a lot of noise about drug prices on the federal government side, drug companies did become more cautious. This executive order, in part, isn’t anything more than just authorizing the secretary of Health of Human Services to begin to have discussions and negotiations with drug companies, not exclusively Medicare, but also on the commercial side. (The Inflation Reduction Act focused exclusively on Medicare.) But it’s another aggressive step in terms of signaling to the drug companies that there are deep concerns about the price of prescription medications, and that the government is prepared to do a lot more than it has done in the past. So it’s the signal that is probably the more important consideration here.
If drug companies don’t cut back, then the next step is to implement this favorable pricing initiative. The idea here is that the feds are going to hold drug companies to the same prices that they charge other countries in the world. It’s important to note that drug companies have always practiced price discrimination; they charge very different prices for underdeveloped countries than they do for high-income countries. So this favored nation pricing approach is something of a threat to the industry, and whether it would hold up in court remains to be seen.
I expect the drug companies to push back, and they will push back along the lines of what has always been their most important claim — at least from their standpoint — which is: if you continue to squeeze us this way, you’re going to see a lot less innovation in drug development, and that’s going to have a harmful impact on patients. You saw these sorts of claims during the Inflation Reduction Act: that you’re going to see a great slowdown in drug innovation that’s going to have a devastating impact on people who are suffering from cancer, heart disease and other devastating illnesses.
Certainly, the U.S. has always been the true engine of drug innovation. Maybe the U.S. isn’t as prominent as it once was, and we’re starting to see other countries develop their pharmaceutical sectors, but we still stand as the world’s leader.
The idea is that drug companies cannot charge prices for prescription drugs any greater than what they charge low-income countries. Now, if I’m being honest, that just isn’t going to fly — there’s just no way. Drug companies make prescription drugs available to low-income countries for humanitarian reasons, so that’s just not going to happen.
Whether they are able to tie drug prices to what they might charge other moderate- to high-income countries remains to be seen. Keep in mind that some of these countries have government-run insurance programs, so there’s a single purchaser, and the drug companies have less latitude in terms of how they price certain drugs with those countries.
There’s no question: here in the U.S., we pay more than other parts of the world for prescription drugs — and the pharmaceutical companies would echo that. But we’re also responsible for so much of the drug innovation. The cost to successfully bring a drug to the market is between $1 billion and $1.5 billion on average. When you consider all the failed efforts, most drugs that undergo the three phases of Food and Drug Administration approval fail at some point and never get approved. So it’s very expensive; it’s very risky. And drug companies would argue that they need the U.S. pricing component in order to support that level of innovation.