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President Donald Trump unveiled a new drug pricing order that claims it will reduce costs for Americans by requiring other countries to pay more for medications.

The executive order, dubbed the “Most Favored Nation” rule, would aim to bring down drug prices by 60% to 90% by tying U.S. costs to the lowest prices paid in other countries, the president argued.

Trump referred to the process as “equalization” — or essentially making the U.S. pay lower amounts for medications while other countries pay more in order to not hurt pharma companies’ overall profits.

“Whoever is paying the lowest price, that’s the price we’re going to get,” Trump said at a news conference Monday.

The move is a sign that Trump is seeking to make do on former campaign promises to lower the cost of drugs — but industry experts are skeptical he’ll actually be able to implement the policy.

What does the ‘Most Favored Nation’ rule entail?

Calls for drug pricing reform across both sides of the political aisle have typically centered on reigning in Big Pharma’s profits or the practices of middlemen known as pharmacy benefit managers (PBMs).

Past congressional hearings have called on pharma and PBM CEOs to reduce the cost of their products and services, respectively. And the only significant drug pricing reform in recent years — the Inflation Reduction Act’s Medicare negotiation program — allows the federal government to negotiate lower prices directly with the pharma companies.

In a move that splits with those past efforts, Trump’s new executive order puts the blame of high drug costs squarely on the shoulders of other countries. Unlike the U.S., most countries have national policies in place that set lower prices of drugs, to which the industry must adhere. Without such federal healthcare policies, U.S. drug prices are up to eight times higher than in other countries.

“For years, pharmaceutical and drug companies have said that R&D costs are what they are… and they had to be borne by America alone,” Trump said. “This means American patients were subsidizing socialist healthcare systems in Germany, in all parts of the EU… [Those countries are] going to have to pay more for healthcare, and we’re going to have to pay less. That’s all it is.”

He pointed out that even though the U.S. is home to only 4% of the world population, pharma companies make two-thirds of their profits in America. 

Likely to assuage pushback from industry, Trump emphasized that the plan wouldn’t harm pharma companies’ bottom lines.

“I don’t believe they should be affected that much because it’s just a redistribution of wealth,” he said. “It could be the same topline, but it’ll be distributed differently. The rest of the world’s going to have to pay a little bit more, America’s going to pay a lot less. Basically what we’re doing is equalizing… we’re all going to pay the same.”

Under the new order, the Office of the U.S. Trade Representative and the Department of Commerce are tasked with addressing “unreasonable and discriminatory policies” in other countries that lead to higher prices in the U.S.

The order also tasked HHS Secretary Robert F. Kennedy, Jr. with creating a new policy that would facilitate pharma companies bypassing PBMs and selling their drugs directly to U.S. consumers at the “Most Favored Nation price.”

It also stated that Kennedy, working alongside CMS administrator Dr. Mehmet Oz, would have to communicate Most Favored Nation prices to pharma companies within 30 days.

Initial reactions from industry experts

Trump has been vocal about his support for drug pricing reform since his first presidential run in 2016, and for some industry experts, the executive order is more symbolic than it is effective.

Terry Haines, founder of healthcare consultancy Pangaea Policy, wrote in a note that the order is a White House political message for Trump supporters to “forget Biden and Democrats” and rally them around the idea that Trump is following through on campaign promises.

“This is happening to cement in the Trump/Republican column Trump voters — hardcore and swing alike — who have been calling for drug price relief for years and not getting any, despite being told by Biden and Democrats that they took action,” Haines wrote.

It’s also unlikely that the Trump administration will be able to enforce foreign countries paying higher prices for drugs. Without higher drug prices in Europe, for example, pharma companies will not be incentivized to lower prices in the U.S., investors noted.

Immediate reactions from the pharma industry reflected sentiment that the plan will not come to fruition, largely due to expected legal challenges. Pharma company stocks actually rose Monday after the news.

For context, Trump had previously attempted to push through Most Favored Nation drug pricing reform in his previous term, but that effort was halted in the courts.

“Trump has a long history in his first term of talking bigger on drug pricing than what his policies would actually do,” Chris Meekins, an analyst with Raymond James, said in a note to clients. “The more grandiose Trump’s proposed executive actions, the less likely they are to be implemented as successful court challenges will be much more likely.”

Stephen Ubl, president and CEO of pharma lobbying group PhRMA, said in a statement that he supported Trump’s proposal for other countries to “pay their fair share” for medications.

“The Administration is right to use trade negotiations to force foreign governments to pay their fair share for medicines,” Ubl argued. “U.S. patients should not foot the bill for global innovation.”

Still, he cautioned against “importing foreign prices” from other countries, and instead called on policymakers to target PBMs.

In a statement to STAT, Eli Lilly also said it agreed with Trump’s “policy objective” that R&D costs should be shouldered more fairly among foreign countries. But the company echoed PhRMA’s sentiment that ultimately, drug pricing reform should take more action against PBMs.

Medicare negotiations roll out third round guidelines

Amid the pomp and circumstance around the new executive order, CMS also quietly rolled out draft guidance this week mapping out the third round of Medicare price negotiations.

CMS announced that it will consider 15 more drugs under Part D as well as Part B for the third round, which is expected to begin in 2026. The first round of negotiations concluded in August 2024, and the second round of negotiations for an additional 15 drugs is currently underway. 

Interestingly, it’s through the Medicare negotiation program that some analysts believe Trump’s executive order may see some teeth.

“We see a clearer pathway for the administration to implement [the most favored nation policy] at a smaller scale through Medicare IRA price negotiations, where the impact would be limited to a small number of drugs,” JPMorgan analysts wrote, according to CNBC.

Some of the drugs included in the current round of negotiations include Novo Nordisk’s GLP-1 medications Ozempic and Wegovy, as well as GSK’s asthma drug Trelegy Ellipta.