President Donald Trump signed an executive order on Monday establishing a 30-day deadline for pharmaceutical manufacturers to lower prescription drug prices in the United States or face new limitations on what the government will pay. According to WCVB, the order directs Health and Human Services Secretary Robert F. Kennedy Jr. to negotiate new price tags for medications, with a fallback mechanism that would tie US prices to the lower rates paid by other countries if manufacturers fail to reach a deal.

The executive order represents Trump's revival of his controversial "most favored nation" approach to drug pricing that he first attempted during his previous term. "We're going to equalize," Trump stated during Monday's press conference. "We're all going to pay the same. We're going to pay what Europe pays." The federal government maintains significant leverage through Medicare, which covers nearly 70 million older Americans, and Medicaid, which serves approximately 80 million poor and disabled people across the country.

INDUSTRY OPPOSITION AND MARKET RESPONSE

The pharmaceutical industry has mounted immediate opposition to the plan. Prior to the signing, Reuters reported that Stephen Ubl, CEO of PhRMA, the industry's main trade group, released a statement calling the proposal a "bad deal for American patients." Industry representatives argue that slashing profits could hamper research and development of new medications.

Despite early concerns, market response has been mixed. According to CNBC, pharmaceutical stocks initially dropped in premarket trading but later recovered, with Merck adding more than 4% while Pfizer and Amgen climbed more than 2% following the announcement. European drugmakers including Novo Nordisk, AstraZeneca, and Roche experienced more significant impacts, as reported by Bloomberg.

The latest executive order expands beyond Trump's previous attempt, which was focused only on Medicare Part B drugs administered in doctors' offices. The current approach could potentially affect a much broader range of medications. White House officials indicated they would target drugs with the "largest disparities and largest expenditures," potentially including popular weight loss and diabetes treatments.

IMPLEMENTATION CHALLENGES AND PREVIOUS ATTEMPTS

This is not Trump's first attempt at implementing such pricing controls. During his previous administration, a similar "most favored nation" policy was finalized in late 2020 but ultimately blocked by federal courts after pharmaceutical companies filed legal challenges. As CNN Politics points out, the initiative will likely face similar legal opposition this time.

The new order takes specific aim at foreign countries that have more power to negotiate drug prices with pharmaceutical companies. "Starting today, the United States will no longer subsidize the health care of foreign countries, which is what we were doing," Trump declared. The plan will unfold in stages, with Kennedy leading negotiations with drug manufacturers over the next 30 days.

If adequate progress toward price reduction targets is not achieved within that timeframe, the administration will impose the most favored nation pricing mechanism through formal rulemaking. The order also directs the Food and Drug Administration to expand drug imports from developed nations beyond Canada and instructs the Department of Justice and Federal Trade Commission to aggressively enforce actions against anti-competitive practices.

BROADER IMPLICATIONS FOR HEALTHCARE AND ECONOMY

The executive order arrives at a time when prescription drug spending continues to grow significantly in the United States. According to research published on PubMed, overall pharmaceutical expenditures grew 13.6% in 2023 compared to 2022, reaching a total of $722.5 billion, with projections showing continued increases of 10-12% for 2024.

Critics of price controls, including the Information Technology and Innovation Foundation, warn of potential negative consequences. Their analysis suggests that reducing pharmaceutical revenues could diminish investments in research and development, potentially limiting future access to novel treatments for diseases such as cancer, Alzheimer's, and diabetes.

For traditional financial institutions and investors, the executive order creates both challenges and opportunities. Health insurance companies may benefit from lower drug costs, while pharmaceutical manufacturers could face margin pressures. The most significant impact may fall on innovation-focused biotech firms that rely on high US prices to fund development of next-generation therapies.

The ultimate effectiveness of the executive order remains uncertain, particularly since previous attempts faced substantial legal hurdles. The administration already has another tool at its disposal—the Medicare drug price negotiation program established under the Inflation Reduction Act, which gives Medicare the authority to negotiate prices for certain high-cost medications.

RELATED READING ON MORROW REPORT

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