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President Donald Trump took significant steps on health care costs this term by issuing a comprehensive executive order on Tuesday intended to lower drug prices and decrease Medicare expenses. This initiative arrives as his administration plans to implement tariffs on pharmaceutical imports, a move that experts warn may cause drug shortages and price increases.
The extensive mandate is unlikely to yield immediate relief from the soaring health care costs in the United States. The White House has acknowledged the necessity of collaboration with Congress to realize many of the order’s provisions.
Among the notable directives, one aims to modify a historic initiative from the Biden administration that allowed Medicare to negotiate drug prices for the first time.
Furthermore, the order tasks Health and Human Services Secretary Robert F. Kennedy Jr. with investigating methods to standardize Medicare reimbursements for drug administration, such as for cancer treatments, irrespective of the care settings. Past attempts to legislate such changes saw little progress last term.
Some provisions breathe life into several of Trump’s aspirations from his initial term, including making it easier for states to import drugs from Canada and ensuring that federally qualified health centers pass on discounts received on insulin and EpiPens to patients. (The Biden administration had rolled back the latter rule, citing substantial administrative costs and burdens it would place on these centers.)
Although reducing drug costs was not a primary promise in his recent presidential campaign, Trump previously issued various executive orders and directives targeting cost reduction during his first term. Nonetheless, these efforts did not meaningfully lower medication prices.
One objective focuses on enhancing the Medicare drug price negotiation program, established in 2022 by the Inflation Reduction Act championed by the Democrats.
The Biden administration touted this provision as a substantial achievement, projecting that Medicare’s new authority will yield approximately $6 billion in savings for the federal government and reduce out-of-pocket expenses for seniors by $1.5 billion when the lowered prices for the initial batch of 10 drugs come into effect in 2026. Biden officials had announced the subsequent set of 15 drugs—including Ozempic and Wegovy, popular but expensive GLP-1 medications commonly used for weight management—just days before leaving office in January.
Trump aims to surpass the 22% savings achieved by the Biden administration during the first negotiation phase, as outlined in a fact sheet released by the White House.
The executive order instructs Kennedy to propose and solicit insights on enhancing the transparency of the program, prioritizing the selection of high-cost drugs while minimizing negative effects on drug innovation.
Kennedy has also been tasked with collaborating with Congress to align the eligibility timelines for different drug types to ensure fair negotiation opportunities. Currently, Trump’s administration argues that the disparity incentivizes drug companies to focus on biologics, which can be negotiated only 13 years following FDA approval, while small molecule drugs become eligible after just nine years.
Additionally, Trump targets a provision in the IRA that risks raising premiums for Part D, prompting the Biden administration to offer substantial subsidies to insurers. The executive order directs Kennedy to propose recommendations aimed at stabilizing and reducing Part D premiums.
The order also mandates the FDA to streamline the approval process for biosimilars, which are versions of complex biologic medications, thereby encouraging more physicians to prescribe lower-cost alternatives.
Moreover, the order requires the FDA to cooperate with states to facilitate the importation of drugs from abroad. The Biden administration had previously permitted Florida to import certain drugs from Canada last year.
Under the new directive, HHS is expected to devise a strategy for standardizing Medicare payments for prescription medications, ensuring uniform costs across doctors’ offices and hospitals. This approach, representing a more refined version of the long-sought “site neutral” reform, could potentially cut prices by as much as 60%, according to statements from the White House.
Legislators have long tried to implement a much broader version of this framework to equalize Medicare payments for drugs and similar services across hospitals nationwide. However, several Republicans from predominantly rural states opposed this idea last year, asserting that reduced federal reimbursements could endanger local hospitals that have fewer patients and thus depend more heavily on higher payment rates.
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Senators Bill Cassidy (R-LA) and Maggie Hassan (D-NH), who spearheaded site-neutral legislation, proposed a plan last year aiming to reinvest savings from the program back into rural hospitals.
Implementing site-neutral reforms could yield minor savings, aligning with Republicans’ objective to cut federal expenditures in the upcoming budget. However, utilizing site-neutral strategies as a budget-cutting measure could undermine the initiative designed to benefit rural healthcare providers.
Additionally, Trump has directed regulators to amend a federal program that supplies medications at significant discounts to hospitals catering to low-income and uninsured patients.
The executive order also indicates that substantial revisions might be in store for this program. Pharmaceutical manufacturers and Republican legislators argue that an excessive number of hospitals benefit from steep medication discounts without transparently extending such savings to patients. Hospital associations maintain that these discounts are factored into the services they offer to their communities.
Furthermore, Trump has instructed Medicare to conduct a survey on costs and discounts from various providers, enabling the agency to “consider rulemaking” regarding the program, as reported by a White House representative during a press briefing.
The order also aims to examine the function of pharmacy benefit managers, the intermediaries between drug manufacturers and insurers as well as pharmacies. Known as PBMs, these entities have faced scrutiny for their opaque dealings and have been accused of inflating drug prices.
Trump seeks to enhance the transparency concerning fees PBMs pay brokers for promoting their services to employers, as per the fact sheet. The nationwide effort also includes enhancing visibility into the direct and indirect compensation PBMs receive.
In December, Congress was on the brink of enacting a series of measures aimed at increasing transparency and regulating practices within the PBM sector. However, these were excluded from a large bipartisan government funding bill that faced opposition from Trump, then president-elect, and billionaire investor Elon Musk.
