Trump Signs 'Most Favored Nation' Order Slashing Drug Prices, Pharma Fumes
3min read President Donald Trump signed a sweeping executive order on Monday reviving a controversial "Most Favored Nation" policy aimed at slashing prescription drug prices in the United States. The directive instructs federal agencies to tie the prices Americans pay for medications, including those covered under Medicare and Medicaid, to the lowest prices paid by other countries. The move represents the administration's boldest step yet in its ongoing campaign to cut drug costs, but it also raises legal, political, and economic questions that could upend the pharmaceutical industry.
The executive order mandates the Department of Health and Human Services (HHS), led by Secretary Robert F. Kennedy Jr., to develop policy proposals within 30 days that will apply the Most Favored Nation (MFN) pricing framework to a broad swath of prescription drugs. If drugmakers do not voluntarily lower prices within 180 days, the administration will proceed to implement formal rules that impose international reference pricing. While the executive order is effective immediately, the actual implementation of MFN pricing hinges on regulatory rulemaking, likely to face significant legal scrutiny.
At its core, the MFN policy aims to correct what Trump described as an inequity in global pharmaceutical economics: American patients paying two to ten times more for drugs than consumers in other developed nations. The White House emphasized that the U.S. has for years effectively subsidized drug research for the rest of the world. Trump characterized the order as ending the era of American "suckers" footing the bill for pharmaceutical innovation abroad.
But the pharmaceutical industry is not taking this lightly. The Pharmaceutical Research and Manufacturers of America (PhRMA), the industry’s largest trade group, condemned the move as government price-setting by another name. CEO Stephen Ubl warned that importing foreign price controls could chill investment in innovation, jeopardizing hundreds of billions of dollars in R&D spending and increasing U.S. reliance on overseas manufacturing. Wall Street analysts also raised concerns that the executive order may not withstand legal challenges, similar to a 2020 version of the policy that was blocked in federal court.
Still, the immediate market reaction was mixed. Shares of major drugmakers like Merck, Pfizer, and Amgen rose modestly on Monday, signaling that investors may not believe the policy will be implemented in full or are already pricing in limited impact. However, the longer-term implications for the industry could be profound. If implemented aggressively, the MFN rule would significantly curtail drugmakers' ability to set prices freely in the U.S. market, particularly for high-cost specialty drugs and newer treatments such as GLP-1s used for diabetes and weight loss.
The policy could have sweeping effects on federal health programs. Medicare Part B and Part D, which together cover hundreds of billions of dollars in drug spending annually, would likely see the biggest immediate cost reductions. Medicaid, which provides healthcare for low-income Americans, may also be included in the MFN framework, although the executive order leaves this ambiguous. If extended to Medicaid, the financial impact on the pharmaceutical sector could surpass $1 trillion over the next decade, according to internal estimates from drug industry analysts.
For patients, the outcome is less clear. On one hand, tying U.S. prices to international benchmarks could lower out-of-pocket costs and premiums for many Americans. On the other, critics argue that this could lead drugmakers to restrict supply or exit certain markets altogether, reducing access to life-saving medications. Experts also note that manufacturers may respond by raising prices abroad to prevent triggering low U.S. benchmarks, complicating the global pricing ecosystem.
The legality of the order remains an open question. Trump’s prior attempt at implementing MFN pricing in 2020 was blocked on procedural grounds, and while the Inflation Reduction Act of 2022 has since granted Medicare limited negotiating power, this new policy goes further. Legal experts suggest the administration may need to navigate a maze of administrative law challenges before any pricing reforms take effect.
The executive order also directs the U.S. Trade Representative and the Commerce Department to confront what it calls discriminatory foreign pricing practices. These measures aim to pressure foreign governments into lifting caps on drug prices negotiated with manufacturers, which the White House claims has distorted the global pharmaceutical market to the detriment of U.S. consumers.
With the 8:30 a.m. press conference on Tuesday expected to offer further details, all eyes will be on whether the administration outlines specific drugs, timelines, or regulatory steps. Industry observers are also awaiting clarity on whether the administration will move to impose tariffs on pharmaceutical imports—a parallel strategy that could conflict with efforts to lower domestic prices.
In summary, while the executive order revives a populist campaign promise to lower drug prices, its real-world impact remains uncertain. The road from executive decree to regulatory enforcement is fraught with legal challenges, industry resistance, and complex economic trade-offs. For now, the MFN policy has reentered the national debate—and with it, the possibility of the most significant overhaul of U.S. drug pricing in a generation.
