Trump Directs Pharma Companies on Cutting Drug Prices Under Most-Favored-Nation Order

Author(s):

Cameron Santoro

Fact checked by:

Laura Joszt, MA

Key Takeaways

The MFN initiative seeks to align US drug prices with the lowest rates in developed nations, potentially reducing costs by 59%.
The executive order targets brand-name drugs without generic or biosimilar equivalents, expanding beyond Medicare Part B to potentially affect private insurance.
The plan challenges PBMs' role, allowing manufacturers to bypass intermediaries and sell directly to patients at competitive prices.
The initiative could impact patient access to care, as medical practices may face reimbursement challenges under the new pricing model.

President Donald Trump has sent letters to pharmaceutical companies, aiming to compel them to lower drug prices in the US to match the lowest prices offered in other developed nations, a move that could significantly reduce costs and disrupt the current system of pharmacy benefit managers.

US medicine. | Image Credit: Andreas Prott - stock.adobe.com

In a renewed effort to slash prescription drug costs, President Donald J. Trump sent direct letters to major pharmaceutical companies to compel them to lower prices in the US to match the lowest rates offered in other developed nations.¹

Most-Favored-Nation (MFN), which is a revival of a previously challenged initiative, aims to address long-standing disparities where Americans pay significantly more for the same medications, with the administration claiming it could reduce drug prices by as much as 59%.²

On May 12, Trump issued an executive order titled "Delivering Most-Favored-Nation Prescription Drug Pricing to American Patients," which revives his 2020 initiative to significantly lower drug prices.³ This order was previously halted by legal challenges and rescinded by the Biden administration.

The announcement of the new MFN policy led to a sharp drop in pharmaceutical stock prices, reflecting investor concern over the potential financial implications.⁴

“It’s not something any one company can negotiate and fix, and certainly not in 60 days,” Jeff Jonas, a portfolio manager and analyst at Gabelli Funds, noted in an email to The American Journal of Managed Care^®, highlighting the significant challenge the industry faces in complying with the new demands.

The goal of the MFN order is to reduce drug prices for Americans, aligning them more closely with what other developed nations pay.³ Notably, this new order is broader than the 2020 version, as it targets all brand-name medications that do not have a generic or biosimilar equivalent.

To achieve this, the Trump administration's plan outlines 4 key steps.¹Manufacturers are being asked to extend the MFN price to all Medicaid patients and to agree not to offer lower prices for new drugs to other developed nations. The plan also provides a way for manufacturers to bypass middlemen and sell directly to patients, as long as the price does not exceed the lowest available price in developed countries. Finally, it uses trade policy to encourage drug companies to raise their prices abroad, with the condition that these new revenues are used to directly lower prices for American consumers.

The pricing of prescription drugs in the US is currently managed by pharmacy benefit managers (PBMs), who serve as key intermediaries in the supply chain.² The 3 largest PBMs have become increasingly dominant, negotiating nearly 79% of all prescription drug claims in 2024, a significant increase from 52% in 2004. However, these PBMs have faced criticism for allegedly inflating drug costs through opaque pricing strategies and by steering patients toward their own affiliated pharmacies instead of independent ones.

In Trump's letters to leading pharmaceutical manufacturers, including AbbVie, Pfizer, and Johnson & Johnson, he issued a stern warning: if the companies fail to comply, the federal government will use "every tool in our arsenal" to end what he calls "abusive drug pricing practices.”¹

This new executive order expands beyond the original's focus on Medicare Part B, potentially affecting private insurance as well.³ This broader reach could jeopardize patient access to care, as it may force medical practices to purchase drugs at prices higher than what they are reimbursed for.

Recent data highlights disparities, showing that Americans pay over 3 times more than other developed countries and that the US population, despite being less than 5% of the world's total, accounts for roughly 75% of global pharmaceutical profits.¹ This system, according to the administration, is a result of manufacturers using high prices in the US to subsidize lower prices abroad and fund their profits, even though they already benefit from extensive US government subsidies for research and development.

“In case after case, our citizens pay massively higher prices than other nations pay for the same exact pill, from the same factory, effectively subsidizing socialism aboard [sic; abroad] with skyrocketing prices at home. So we would spend tremendous amounts of money in order to provide inexpensive drugs to another country. And when I say the price is different, you can see some examples where the price is beyond anything — four times, five times different,” Trump stated in a White House press release.

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