President Trump on Monday signed an executive order asking drugmakers to voluntarily reduce the prices of key medicines in the United States.
But the order cites no obvious legal authority to mandate lower prices. The order said the administration would consider taking regulatory actions or importing drugs from other countries in the future if drugmakers do not comply.
It was something of a win for the pharmaceutical industry, which had been bracing for a policy that would be much more damaging to its interests.
On Sunday evening, Mr. Trump said in a Truth Social post that he would link U.S. drug prices to those in peer countries under a “most favored nation” pricing model, a policy he attempted unsuccessfully in his first term for a small set of drugs in Medicare. His executive order on Monday does not do that. Pharmaceutical stocks rose Monday morning on the news.
Mr. Trump’s executive order came just hours after House Republicans offered an expansive set of health care policy changes that would cut around $700 billion from Medicaid and the Obamacare marketplaces over a decade and would cause an estimated 8.6 million Americans to become uninsured. Congress declined to include any provisions to directly limit drug prices in that package.
The executive order also called on federal agencies to investigate why European countries get lower prices and to push them to pay more. The Trump administration has limited leverage to drive up prices in Europe.
“I’m not knocking the drug companies,” Mr. Trump said on Monday shortly before signing the order. “I’m really more knocking the countries than the drug companies.”
With his executive order, Mr. Trump opted not to propose measures that could have had more teeth, such as calling for his administration to work with Congress on legislation or writing regulations to change how government health programs pay for some drugs.
Many Republican lawmakers oppose regulations on drug prices, but Mr. Trump has long railed against the current system, in which pharmaceutical companies charge the United States significantly higher prices than the rest of the world.
At Monday’s event, Mr. Trump directed his ire toward European governments that have negotiated lower prices.
“We’re going to help the drug companies with the other nations,” he said.
Mr. Trump threatened to use trade policy to push European countries to pay more for prescription drugs. But drug companies are already locked into contracts with governments, and if they try to charge more for new medicines, European countries may balk at covering them at all.
In his first term, Mr. Trump tried unsuccessfully to enact a more substantive policy to reduce drug prices for Medicare, the health insurance program that covers 68 million Americans who are over 65 or have disabilities. That plan would have applied only to 50 drugs, administered at clinics and hospitals, that are paid for by Medicare. A federal court blocked it, ruling that the administration had skipped steps in the policymaking process.
Some experts said that policy could have passed legal muster if it had been pursued by the book, and others said that he would have needed Congress to pass a law.
Monday’s executive order, on its face, calls for changes to a much larger number of drugs, and for all Americans, not just patients insured by Medicare. But it lacks a clear mechanism for enacting the price reductions.
The order said that if the initial actions did not make enough progress in lowering U.S. drug prices, the Trump administration may “propose a rulemaking plan to impose most-favored-nation pricing.”
Democrats have introduced numerous bills to bring American prices more in line with those of foreign peers, and legislation passed during the Biden administration allows Medicare to negotiate directly on the price of a limited set of drugs used in the program. In general, policies that would lower drug prices are very popular among both Republican and Democratic voters.
The drug industry has also been bracing for punishing tariffs on imported medicines, which Mr. Trump has vowed to impose soon. Mr. Trump recently said he was planning an announcement about pharmaceutical tariffs this month. Tariffs would most likely drive up some drug prices in the United States and cut into drugmakers’ profits even if they can pass along some of the added costs.
Pharmaceutical investors were relieved that Mr. Trump did not propose the more substantive policy he had threatened. After dropping in premarket trading, pharmaceutical stocks rebounded when the details of Mr. Trump’s move became clear. Merck’s stock was up 5 percent on Monday morning. Pfizer’s rose by 3 percent. An index of smaller biotechnology stocks was up by 3 percent.
“Better than feared,” analysts at the Wall Street bank Jefferies wrote in a note to investors.
In statements on Monday, lobbying groups for drugmakers said the United States should not look to other countries for how much they pay for drugs.
But the main industry group, PhRMA, applauded Mr. Trump for threatening to use trade negotiations to push foreign governments “to pay their fair share for medicines.”
“U.S. patients should not foot the bill for global innovation,” said Stephen J. Ubl, PhRMA’s chief executive.
Brand-name drug prices in the United States are three times as high, on average, as those in peer nations.
That is in spite of the fact that much of the research that leads to new drugs takes place in American laboratories and hospitals.
Drugmakers generate a substantial majority of their worldwide profits from sales in the United States and typically design their business strategy around the U.S. market.
Pharmaceutical companies argue that the higher prices in the United States come with added benefits: Industry-funded analyses have found that patients in the United States get medicines faster, and with fewer insurance restrictions, than those in other countries.
In other wealthy countries, the government generally pays for prescription drugs for the entire population, negotiating substantial discounts from drugmakers. Many other nations do their own comparisons with prices in peer countries to help determine what they are willing to pay.
But in the United States, the government has very little formal involvement in setting drug prices, other than the Biden-era program for a limited number of drugs in Medicare. The Trump administration is now overseeing that program.
This month, Senator Josh Hawley, a Republican from Missouri, and Senator Peter Welch, a Democrat from Vermont, introduced a bill that would limit drug prices in the United States to an average of the prices paid by a group of peer countries.
In an interview, Mr. Welch said he agreed with Mr. Trump that Americans are overpaying for drugs and that international comparisons could help set fairer prices. But he thinks Congress needs to tackle the issue to ensure a durable policy.
“It’s really important to do this legislatively,” he said.