President Trump’s April 15, 2025, drug pricing executive order shows his commitment to fixing longstanding distortions in how the federal government pays for prescription drugs. The order builds on initiatives from his first term and lays out a second term agenda. While questions remain, the policy direction is sound.
Addressing Excessive Part B Payments
One of the most important elements of the EO is its aim to reduce Medicare’s payments to hospitals for drugs which health professionals inject or infuse. The 340B Drug Pricing Program mandates that pharmaceutical manufacturers give qualifying hospitals steep discounts on these drugs. Essentially, hospitals earn windfall profits on the spread between what are basically much lower government-set acquisition costs and higher Medicare payment rates. President Trump wants to stop these hospitals from profiting at taxpayers’ expense and would lower the costs seniors pay.
Importantly, the order signals that the administration will address the concerns raised by the Supreme Court when it struck down HHS’s attempt in President Trump’s first term to reduce Medicare payments for drugs administered in 340B hospitals by 22.5%. Trump’s rule sought to align Medicare reimbursements with actual acquisition costs. The EO directs HHS to survey hospitals to determine the hospitals’ acquisition costs in a manner that ensures future rulemaking complies with all legal requirements to effectuate this important change.
The administration’s reform could significantly reduce wasteful spending while directly benefitting seniors. This is a positive and necessary step toward aligning payments with actual costs and eliminating unjustified windfalls.
Advancing Site-Neutral Payment Reforms
The EO directs the Secretary to ensure that Medicare payments do not encourage a shift in drug administration from less costly physician offices to more expensive hospital outpatient departments. Medicare pays much more for the same service at hospital outpatient departments than physician offices. This arbitrary pricing distortion fuels health care consolidation and drives up costs.
Site-neutral Medicare payments benefit both seniors and taxpayers. They lower Medicare expenditures, reduce out-of-pocket costs for beneficiaries, and reduce incentives for hospitals to buy up physician practices to maximize payments. The House of Representatives overwhelmingly passed a similar site-neutral payment reform in 2023.
Providing Low-Price Insulin and Injectable Epinephrine to Indigent Americans
Federally Qualified Health Centers have historically been allowed to retain the difference between the deeply discounted 340B acquisition cost of a drug and the amount paid by the government or uninsured patients. The executive order would take action to require these entities to pass through the 340B discount to low-income or uninsured patients for insulin and injectable epinephrine. If successfully executed, this reform would ensure that more of the intended beneficiaries of the 340B Program—the patients—receive this benefit.
The Pill Penalty: A Distortion That Deserves Correction
The EO calls on Congress to fix the “pill penalty” in the Inflation Reduction Act (IRA). Currently, small-molecule drugs become eligible for Medicare price negotiation after just nine years on the market, while biologics have a 13-year window. This discrepancy encourages manufacturers to prioritize the development of injectable biologics over oral pills as well as prefer injectable versions of a drug over its pill form, which is generally more convenient and less costly for patients. Progress in oral cancer therapies and drugs focused on brain disease are among the many areas that will likely be stifled because of this ill-conceived pill penalty.
The administration cannot unilaterally fix this penalty—Congress must act. But the EO is right to flag this distortion. Aligning the timelines for negotiation eligibility would remove a harmful disincentive and promote innovation that better serves patients.
Addressing the Inflation Reduction Act
In addition to directing the Secretary of Health and Human Services to work with Congress to correct the pill penalty, the EO directs the administration to mitigate two other aspects of the IRA. First, the EO directs the HHS secretary to propose guidance to “improve the transparency of the Medicare Drug Price Negotiation Program, prioritize the selection of prescription drugs with high costs to the Medicare program, and minimize any negative impacts of the maximum fair price on pharmaceutical innovation within the United States.” Second, the EO directs the administration to develop “recommendations to the President on how best to stabilize and reduce Medicare Part D premiums.” With respect to the second item, the administration should end Biden’s extralegal $5 billion annual taxpayer bailout used to offset IRA-driven premium hikes.
Drug Importation
The EO reaffirms President Trump’s support for importing prescription drugs from abroad. It charges the Food and Drug Administration (FDA) with streamlining states’ and tribes’ ability to import prescription drugs from Canada, as allowed under law since 2003 upon a certification to Congress relating to safety and savings. The FDA didn’t authorize a pathway until Trump’s first term, and no drugs have yet been imported despite Florida’s 2022 approval. Barriers remain—including the fact that the law only allows importation from Canada, a country that lacks incentives and possibly quantities of drugs from manufacturers to meaningfully supply the U.S. with lower-cost drugs.
PBM Transparency and Generic Competition
Several provisions of the EO focus on improving competition and transparency in the pharmaceutical supply chain. The order directs agencies to examine the role of pharmacy benefit managers (PBMs). It also tasks the Department of Labor with proposing regulations to increase transparency into the direct and indirect compensation PBMs receive from employer-sponsored health plans. While employers should demand transparency, improving PBM disclosures should help them better manage drug costs.
Additionally, the EO calls for efforts to accelerate competition among pharmaceutical products. It directs the Food and Drug Administration to recommend ways to speed approval of generics, biosimilars, combination products, and second-in-class brand-name drugs, and to improve the process for reclassifying certain prescription drugs as over-the-counter medications. The order also seeks to combat anti-competitive behavior by pharmaceutical manufacturers through public listening sessions and regulatory recommendations. These initiatives build on the administration’s tremendous success in its first term at increasing generic drug approvals, which helped drive an actual decline in pharmaceutical prices for American patients.
CMMI Model and Medicaid Drug Rebate Program
The EO also includes several provisions surrounding drug pricing. One provision directs the CMS Innovation Center to develop a payment model that provides better value to Medicare for high-cost drugs and biologics. This payment model would include drugs that are not subject to price negotiations and the accompanying fact sheet suggests this could include the existing model for cell and gene therapies.
Another provision directs the administration to recommend improvements to the Medicaid Drug Rebate Program. The goals are to ensure accurate rebates, innovate payment methods, connect value to drug payments, and help states manage drug spending.
What the Order Doesn’t Say: Global Pricing Disparities and Tariffs
The EO does not mention the Most Favored Nation or International Pricing Index initiatives that President Trump proposed during his first term. However, the president likely remains committed to addressing the global disparity in pharmaceutical prices and the fact that the United States subsidizes pharmaceutical research and development for the rest of the world.
This disparity should be reduced so that other countries are not freeriding on American taxpayers and patients. Doing so is a delicate policy challenge, as reforms must avoid impinging on pharmaceutical innovation and steer clear of government price-setting.
The EO also keeps quiet on whether tariffs will play a role in pharmaceutical manufacturing policy. While the president views pharmaceutical tariffs as a powerful tool to bring manufacturing to the U.S., such tariffs raise a large set of complicated policy questions and potentially unintended, negative consequences that include higher prices.
A Prudent and Principled Start
While legislative action will be necessary to realize the full vision of the order and details of implementation matter greatly, President Trump’s drug pricing EO reflects a serious and multifaceted effort to bring down drug costs while correcting structural distortions in the U.S. health care system. Reducing hospital markups, advancing site-neutral payments, restoring fairness in the 340B program, promoting cost-effective innovation, and fostering market competition are all critical steps. The administration should now focus on executing these reforms effectively, with a clear eye on eliminating waste, rewarding value, and putting patients and present and future taxpayers—not entrenched interests—first.
Brian Blase, Ph.D., is the President of Paragon Health Institute. Brian was Special Assistant to the President for Economic Policy at the White House’s National Economic Council (NEC) from 2017-2019
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