The ’most favored nation’ policy aims to have drugmakers respond to incentives and equalize drug prices between the United States and other countries.
President Donald Trump aims to lower prescription drug costs for all Americans with the aid of two carrots and a stick.
The positive and negative inducements are intended to get pharmaceutical manufacturers to equalize prices among developed nations, which would mean dramatically lowering prices offered to U.S. consumers while raising prices in other nations, particularly in developed ones.
The president’s Most Favored Nation Prescription Drug Pricing executive order, issued on May 12, asks, then tells, drugmakers to offer their lowest price on a slate of drugs in the United States.
Here’s the rationale for the plan, how it’s supposed to work, and why Trump thinks Big Pharma will go along.
High US Prices
Prescription drug prices are higher in the United States than anywhere else in the world, more than twice as much on average, according to a 2024 report from the Department of Health and Human Services.
For the most expensive medications, the disparity is even greater.
That is both unfair to U.S. consumers and a hardship on patients, according to the administration.
Some countries—especially in Europe, where many countries have single-payer health care systems—leverage their buying power to gain unfairly low prices from drug manufacturers, Trump said in announcing his plan.
That causes drugmakers to seek higher profits in the United States, artificially inflating prices.
Americans generate three-quarters of pharmaceutical profits, according to a White House statement.
“As the largest purchaser of pharmaceuticals, Americans should get the best deal,” Trump said.
Dr. Martin Makary, commissioner of the Food and Drug Administration, commented on the patient impact at a White House press conference on May 12.
“We didn’t take an oath to heal patients and then watch their life get ruined financially,” Makary said.
He added that some are reduced to asking family members and support networks to pay for needed medications that are up to 15 times higher than in other countries.
Merith Basey, executive director of Patients for Affordable Drugs, thinks the political moment is right for further action on drug prices.
“With this administration, there is an opportunity to build on the existing progress we’ve seen and continue to fight to lower drug prices so that Americans no longer pay more than other high-income countries,” Basey told The Epoch Times.
Hundreds of patient testimonials on the Patients for Affordable Drugs website recount the difficulty of affording some prescription medications.
Even with insurance, out-of-pocket costs exceeding $10,000 a year were not uncommon.
Incentives
The administration’s plan offers two incentives for pharmaceutical companies to offer their best price in the United States.
The first is Trump’s promise to help them negotiate with other countries, who sometimes leverage their single-payer status to dictate pricing to the companies.
“They set a price and they said, ‘Here’s what we’re going to pay, and anything else, charge America,’” Trump said.
The executive order aims to use America’s trade negotiations with other countries to incentivize their compliance with the plan.
“We’re going to tell those countries, like those represented by the European Union, [if they don’t pay more for prescription drugs], then they don’t have to sell cars into the United States anymore,” Trump said.
The executive order directs the secretary of commerce and the United States trade representative to ensure that other countries are not using unreasonable or discriminatory practices to lower drug prices in their own countries, thereby forcing the United States to pay higher prices.
The second incentive for drug makers is a plan to create direct-to-consumer purchasing programs that allow manufacturers to sell prescription drugs directly to consumers, cutting out the middlemen who often add cost to the supply chain.
Among those middlemen are companies known as pharmacy benefit managers, which negotiate the prices insurers pay for medications, determine the amount consumers pay, and process insurance drug claims.
These companies often retain for themselves the drug discounts offered to manufacturers, leaving consumers to pay higher prices.
These two provisions of the plan also drew a positive response from representatives of the pharmaceutical industry.
“The administration is right to use trade negotiations to force foreign governments to pay their fair share for medicines. U.S. patients should not foot the bill for global innovation,” Stephen Ubl, president and CEO of the Pharmaceutical Research and Manufacturers of America, a trade group, said in a statement responding to Trump’s order.
“The United States is the only country in the world that lets [pharmacy benefit managers], insurers, and hospitals take 50 percent of every dollar spent on medicines.”
Requirements
The president expressed optimism that pharmaceutical companies would voluntarily comply with the most-favored-nation price plan.
If not, the Department of Health and Human Services will initiate rule-making to compel drugmakers to offer their lowest price in the United States.
Rule-making is the process for creating federal regulations, which, once adopted, have the force of law.
The order also threatens “all action available” to government agencies, without further specifying what those would be, to address “global freeloading and price discrimination against American patients.”
Criticism
Ubl, while agreeing that help is needed to break the unfair pricing models overseas, criticized the most-favored-nation pricing idea as harmful to American patients and a hindrance to creating new medications.
“Importing foreign prices from socialist countries would be a bad deal for American patients and workers,” Ubl wrote.
“It would mean less treatments and cures and would jeopardize the hundreds of billions our member companies are planning to invest in America—threatening jobs, hurting our economy, and making us more reliant on China for innovative medicines.”
Some economists have said the idea simply won’t work.
“The U.S. government might try to compel drug companies to disclose their rebates, but that would run afoul of foreign laws requiring confidentiality,” Darius Lakdawalla and Dana Goldman wrote for the USC Schaeffer Institute for Public Policy and Government Service, a research group focused on health issues.
Jeremy Nighohossian, a senior fellow at the Competitive Enterprise Institute, a libertarian think tank, told The Epoch Times the most-favored-nation idea would create more problems than it solves.
“The three countries that tend to have the lowest prices, which the new policy will seek to emulate, are beset with problems providing drugs domestically,” Nighohossian said on May 9.
“Further, [the policy] will effectively import the value judgments of bureaucrats in foreign countries who are subject to their government’s methods and evaluations and driven by the individual circumstances of that country, not ours.”
Trump dismissed such concerns, saying the plan would bring an end to price fixing by some foreign nations and that the equalization of pricing would leave drug companies with about the same profits as before.
The specific drugs included in the plan were not listed in the order.
A White House official told reporters on May 12 that the administration will focus on leveling prices for drugs having the highest disparity of pricing between the United States and other countries.
Administration officials will announce the most-favored-nation pricing targets to the pharmaceutical industry within 30 days.