In May, President Donald Trump signed an executive order to combat high drug prices by establishing a most-favored nation policy. The president is correct to seek to lower drug prices, as the U.S. has the world’s highest drug prices compared to other developed countries.
Trump’s executive order is simple: It ties drug prices paid by Medicaid and Medicare to the lowest price paid by other developed nations like the U.K, Canada, or Germany. If patients in other developed countries pay lower prices for drugs, then Americans should pay those lower prices as well.
Trump has built his reputation on his skill as a negotiator, and his MFN policy is his latest attempt to get lower drug prices for Americans by strong-arming pharmaceutical companies to lower drug prices.
Americans strongly support proposals to lower prescription drug costs and tying U.S. drug prices to lower prices in other countries has an appeal on fairness grounds. The U.S. accounts for 64 to 78% of pharmaceutical profits, which is the main source of funding used to bring new drugs to market. However, other countries pay just 24% of the list price that American patients and taxpayers were charged for the same drugs, according to a RAND Corporation study. Critics describe this imbalance as “global freeloading” which allows other countries to benefit from life saving drugs without paying an equitable share of the cost to develop the same drugs.
While European countries do contribute to pharmaceutical research and development, it is far less than the U.S. Because most European countries impose strict price controls on pharmaceuticals, manufacturers generate lower revenue per patient, leaving less funds to bring future drugs to market.
In Europe, they rely on cost-benefit analysis that weighs prices against the perceived benefit. The Federal Drug Administration, by contrast, approves drugs on whether they are safe and effective, which allows manufacturers in the U.S. to set prices based on free market principles. European authorities often restrict or simply deny patients access if a medicine does not meet the cost-effectiveness thresholds.
Trump can mitigate the risks associated with European pricing and achieve his goal of lowering drug prices for Americans by working with Congress to enact two major policy changes — reforming the 340B program.
The 340B program was created in 1992 to give safety net hospitals the ability to buy outpatient drugs at a steep discount. In theory, the savings are supposed to be passed along to low-income and uninsured patients, but there’s no federal law requiring hospitals to use revenues on low-income patients or to disclose how much money they make from the sale of the discounted drugs.
In 2022, hospitals reported an estimated $44.1 billion in revenue from 340B while only spending $18.5 billion on charity care for low-income and uninsured patients. One hospital in Virginia is able to buy a cancer drug for $3,444 and then charge Blue Cross Blue Shield $25,425 for the same drug—seven times what the hospital originally bought it for. Requiring hospitals to use 340B revenue on low-income and uninsured patients would ensure patients are connected with financial assistance to combat rising healthcare costs Americans are facing.
Hospitals have started gaming 340B by purchasing contract pharmacies and outpatient clinics in wealthier areas where insurance pays full market price and making those clinics extensions of the 340B hospital, thus eligible for the 340B program. In 2009, hospitals enjoyed $4 billion in discounted purchases of drugs and that has exploded to over $66 billion in 2023.
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Fixing the 340B program is just one of many ways Trump could lower the high cost of drugs. Since these strategies require statutory change, they have the added benefit of being more durable than executive orders that can be easily reversed by future administrations.
Through his executive order, President Trump is showing that he has the resolve to take aggressive action to help Americans to get the care they need at the lowest price possible. He should also ensure that these benefits are safeguarded for future generations.
Nicholas Armstrong is a policy analyst at the Texas Public Policy Foundation where he studies healthcare and family policy. He is also a Young Voices contributor. Follow him on X @NickStrong901
