President Donald Trump issued an executive order (EO) aimed at drastically reducing the cost of prescription drugs for Americans by tying their prices to those in other nations.
A February 2024 Rand report found U.S. drug prices average 2.78 times higher than those in an index of 33 other nations. The disparity is even greater for brand-name drugs, with U.S. prices 4.22 times higher.
In 2023, the United States led the world in per capita drug spending, at $1,564 per person. Germany ranked second, at $1,159, and number ten, Italy, was at $820, or just over half what Americans pay for the same products. Mexico and Costa Rica pay $294 and $162, respectively.
On a Truth Social post, the day before the May 12 EO, Trump stated the plan would reduce prescription drug and pharmaceutical prices “almost immediately, by 30% to 80%.”
Under a “most favored nations policy,” the United States would pay the same price as the nation that pays the lowest price.
Contrasting Views
Rep. Dan Meuser (R-PA) took to X to express his support for the decision.
“This action will help increase competition and lower costs across the board for essential prescription drugs,” Meuser wrote in part. “It’s exactly the kind of bold, America-First reform we need to fix our healthcare markets—and I applaud President Trump for taking action to deliver this historic change.”
Douglas Holtz-Eakin, president of the American Action Forum and former director of the Congressional Budget Office under George W. Bush, disagrees with the plan.
“I don’t know which is worse: the process or the policy,” Holtz-Eakin told Health Care News. “I don’t see how the president can run over Congress and the operation of federal programs or break open private contracts. And the idea of importing price controls at the expense of advancing medical science is horrific. It is a complete overreach.
“In the aftermath of Loper v. Bright, there is no court that can uphold it, and Congress has more sense than to legislate this,” Holtz-Eakin said, citing a 2024 U.S. Supreme Court decision limiting executive agencies’ latitude in interpreting congressional intent in federal laws.
Government Distortions
Government spending on medicines creates these problems, says Michael Cannon, director of health policy studies at The Cato Institute.
“Government should not purchase medicines for civilians, period,” said Cannon. “The U.S. Medicare and Medicaid programs illustrate why. Medicare pays significantly higher prices for medicines than other government programs. Medicaid likewise overpays for prescription drugs and has spillover effects that increase drug prices for private purchasers.”
One reason these programs pay too much is that Congress lets the pharmaceutical industry write each program’s drug-pricing rules, says Cannon.
“Government should get out of the business of purchasing or subsidizing medicines for civilians,” said Cannon. “In other words, the price that Medicare and Medicaid should be paying for drugs is $0.00. To the extent Trump’s executive order moves the prices Medicare pays for medicines closer to the ideal price of $0.00, it is a step in the right direction.”
Trump has another option, says Cannon.
“Price controls are never an answer, but Trump could unilaterally expand Executive Order 13938 [from July 2020] by directing the secretary to finalize a regulation that waives the prohibition on reimportation for all classes of drugs and devices from all Organisation for Economic Co-operation and Development member nations,” said Cannon.
Effects on Innovation
Drug price negotiation, a form of price control under the Inflation Reduction Act, has already hurt new drug development, says Holtz-Eakin.
“We have already seen the IRA dry up venture capital for small-molecule [drug] R&D,” Holtz-Eakin said. “This is even more sweeping and is a death sentence for innovation. This will not raise prices abroad in any way. It will simply dry up revenues from the United States, curtail R&D, and stifle innovation.”
Patent Reform Option
Congress can address concerns about lost revenue using constitutional systems in place to protect the return on research and development, says Cannon.
“If Congress fears that lower Medicare prices would lead to insufficient pharmaceutical research, development, and innovation, the way to correct that market failure is to adjust the patent system,” said Cannon. “Medicare is not a drug-innovation program.”
From 2010 to 2019, NIH research contributed to the development of all but two of the 356 drugs approved for use in the United States, a public investment of $187 billion, or roughly the same amount as was spent by private drug companies, an April, 2023 study found.
Whether this entitles Americans to lower-priced drugs is a complex issue, write David Hyman, M.D., J.D., and Charles Silver, J.D., scholars at Cato.
“Some publicly funded research is basic research that qualifies as a true public good wrote Hyman. “Other publicly funded research does not involve public goods, but even here the relative contribution of all parties (including the risks that each one bears) must be considered.”
Presidential ‘Wish List’ Item
The public should exercise caution in evaluating EOs, says Devon Herrick, a health economist who writes for the Goodman Institute Health Care Blog.
“An executive order is often little more than a wish list,” said Herrick. “To a significant degree, the president is telling his staff to see if they can make something happen.
“A president can do little to force drug makers to lower prices,” said Herrick. “To equalize prices domestically and abroad, federal law would have to change to allow drug reimportation. Without the ability to prevent arbitrage, drug makers would be unable to charge higher prices in one country compared to the next.”
Kevin Stone ([email protected]) writes from Arlington, Texas.
