On May 12, President Trump took a big swing at cutting drug prices, issuing an executive order requiring Most Favored Nation (MFN) pricing, resetting U.S. drug prices based on the lowest price that a drug company charges overseas. The order is aimed primarily at wealthier European countries, which use national drug purchasing rules to force drug companies to charge much less there than in the U.S. Currently, as a share of GDP, total U.S. drug spending is about twice as high as in European companies.

This is Trump’s second try at establishing MFN pricing. Late in his first term, then–Health and Human Services Secretary Alex Azar issued a rule requiring Medicare to use MFN to buy certain high-priced drugs. Time expired on Trump’s term before it could go into effect. Biden repealed it, replacing it with a new law empowering Medicare to negotiate prices directly with drugmakers. Trump’s latest order ups the bidding, rejuvenating MFN and seeking to impose it in private insurance, not just Medicare.

The order’s terms gave all pharma companies 30 days to cut prices voluntarily, which none will do. After that, HHS Secretary Robert Kennedy Jr. and Medicare chief Mehmet Oz are authorized to launch an as yet unspecified rule-making process to impose lower pricing. 

What happens next is anyone’s guess. The prospects of executive rulemaking surviving a court challenge is very low, perhaps zero, but those practicalities are less important to Trump right now. Here, as on other issues, the president is staking out a maximalist position from which to work backwards as practicalities require. Pushing MFN in the private sector is an interesting gambit, positioning Trump closer to Bernie Sanders than his own party. Already Republicans like Senate Leader John Thune and Wyoming’s Senator John Barrasso have expressed concerns about government-mandated prices, replaying pharma CEOs’ argument that, in the extreme, a massive cut to U.S. companies’ revenues will kneecap new drug R&D.

Trump’s case for MFN is straightforward. In paying more for drugs, Americans unfairly subsidize drug R&D from which free-riding overseas consumers benefit, especially in other industrialized, wealthy countries. Opponents concede that U.S. prices are higher but argue that MFN rules are easily circumvented. European health authorities might agree on paper to higher prices, but will then require significant discounts or rebates which, under most countries’ confidentiality laws, could be kept hidden. Ironically, this is exactly what happens in the U.S. Drug companies publish high list prices (for reasons discussed below) only to enter into confidential agreements providing large discounts or rebates. 

Even if an MFN rule or law dictating private pricing survives court challenges, opponents argue, drugmakers could just stop selling products that have a high U.S. price in the European markets with the lowest prices, thereby excluding that price from the MFN calculation. Alternatively, drugmakers could spin off high-value drugs into offshore entities, absolving themselves from actually selling the drug in Europe while retaining an economic interest and effective control over how their intellectual property is used. 

So is this just Trumpian performance art, directionally savvy but practically impossible? No. It is of a piece with his broader strategy to reduce trade deficits, increase burden-sharing by European and Asian allies, and shore up domestic manufacturing. The MFN order has to be seen in tandem with tariff policies and a previously ordered Commerce Department investigation into the vulnerability of U.S. drug supplies from foreign countries, especially China. Evidence for this appeared in the U.S.-UK trade agreement published a week before the MFN order. One section offers lower tariffs for UK-made drugs if the British reduce barriers to U.S. pharma companies operating in Britain, and hints at an Anglo-American alliance to produce key drug ingredients. Neither China nor India, the other top supplier of critical drug chemical inputs, is named, but the intention is clear. 

Trump’s advisors figure that the U.S. has the upper hand on drug pricing. EU drug exports are the largest positive contributor to the bloc’s global trade balance. Pharma and biotech are big contributors to the UK, Danish, German, French, and Swiss economies. Still, it will be a very tall order to get the Europeans’ nationalized health systems to pay much more for drugs. They face significant budgetary constraints resulting from stagnant growth, shrinking and aging populations, and already-strained health systems. No UK prime minister, for example, will agree to pay more for U.S. drugs while having to cut National Health Service funding.

Recognizing the barriers to practical implementation, Wall Street and pharma leaders took Trump’s MFN order in stride, consoling themselves that practical effects might be years away, and that executive action to impose private market prices are unlikely to withstand judicial challenge. Nevertheless, their equanimity will quickly smash headlong into two forces that are shaking up the drug business and pricing: China’s fast-growing biotech capacity and exponential demand for anti-obesity GLP-1 drugs. 

Until recently, China had been following the same path in drug manufacturing as in mobile phones and autos. First they established a dominant position (along with India) in making low-price, low-margin generic drugs and key drug ingredients. Then, they moved up the value chain. U.S. vulnerability to drug supply interruptions became painfully clear in 2022 to 2023, as failures at a couple of Chinese and Indian factories led to a year-long shortage in a few life-saving cancer drugs. The U.S. has slowly been building manufacturing capacity, but making chemical precursors for drugs in the U.S. will remain economically unviable. The Commerce Department report on supply chain issues will refocus attention on this and China’s role.

Meanwhile, the Chinese government has conducted a full-court press to build its own biotech industry, funding startups and academic institutes, pushing firms to use AI to accelerate drug design, and recruiting American-trained Chinese scientists to return home. China’s failure to produce an effective COVID vaccine was embarrassing, but, as in other industries, the Chinese bounced back, learning from their mistakes and doubling down on high-value cancer and gene-editing therapies.

In a Trumpian world view, China’s growing capabilities only increases the urgency to get wealthy nations to pay more for American drugs and compete with Chinese R&D. European and Asian

countries with large pharma industries see it differently, as yet another reason why MFN pricing is a fool’s errand. Why pay more for American drugs, they wonder if equally effective and cheaper ones will soon be available from China? Wouldn’t it be better to reach a deal with China to supply drugs to their market and try to minimize China’s ability to undercut their exports to the rest of the world?

The second, and potentially larger game-changer, domestically and globally, is the incredible potential for GLP-1 drugs to treat multiple chronic conditions—not only obesity, rampant in many industrialized and developing countries, but also heart, liver, and kidney disease. The drugs may even counteract addiction and forestall dementia or Parkinson’s Disease. The potential value is immense, taking one shot or pill to address multiple conditions, but realizing great outcomes requires much more than a prescription and a friendly wave from the pharmacist. Recipients need dietary and behavioral coaching for metabolic issues, along with continual nutritional monitoring, and over time, dosing adjustments.

Channeling Trump, let’s talk about America first. U.S. drug pricing is wholly incapable of valuing drugs like GLP-1s that have multi-system benefits, and require long-term use to realize cumulative benefits. Drugs are priced for short-term needs based on transaction volumes, not future results. Breakthrough drugs like GLP-1s, similar to new gene-editing treatments that have decades-long efficacy after a single treatment, require a total rethink. 

So what does this have to do with MFN?  Changing how high-value drugs are priced in the U.S. will actually do much more, much faster, than MFN-style brinkmanship to equalize how these drugs are priced in wealthier countries, in Europe and globally.

To see how, we have to take a step back and look at how U.S. drug prices are set today. This starts with a surprising truth. Despite heated rhetoric in Washington DC about drug pricing, the vast majority of prescription drugs that Americans take are cheap. That seems laughable based on experiences with insulin price spikes and drug co-pays, but it is true. Ninety percent of prescriptions are written for generic drugs, accounting for just 18 percent of total drug spending. Most of the fighting about outrageous drug prices concerns the other 10 percent of prescriptions, accounting for 82 percent of spending. This group largely includes drugs to treat advanced chronic disease (like GLP-1s), autoimmune conditions like multiple sclerosis and lupus, and cancer. 

For decades, the core bargain in U.S. drug pricing involves a tradeoff between today’s insurers and consumers and our future selves. Pharma companies get about 10–15 years when a new drug is approved to charge as much as the market will bear, subject to the drug’s incremental value versus competitors. After the patent expires, drugs can be made as generics and become much cheaper. Those 90 percent of generic drugs prescribed today were once much more expensive. We are the beneficiaries of decades-old R&D investments.  

This bargain breaks down in the face of chronic disease and a health insurance system designed to solve short-term, acute issues. Insurers like to spend as little as possible now, pouring the bulk of health dollars into treating the most advanced conditions. Incrementally ratcheting up treatments as symptoms worsen seems rational, but it is at odds with the way chronic disease works. Blunting symptoms does not equal stopping disease. As we age, metabolic conditions spread, disrupting multiple bodily systems, reinforced by unhealthy food and pollutants. What starts as obesity eventually includes cardiovascular disease and diabetes. Once a person enters multimorbidity, defined as three or more chronic conditions, the need for newer, more expensive drugs skyrockets, along with greater cancer and dementia risk.

Current approaches to drug pricing encourage incrementalism. Start with a generic drug, then ratchet up treatment intensity as the situation builds. Generic drugs have value. Statins cut the risk of a premature heart attack or stroke, which is great, but with the underlying disease progressing, many people go on to develop expensive heart, lung, or kidney failures. It is only then that doctors and insurers say, “Aha, time for the best and latest drug!” Until GLP-1s came along, there was no drug therapy that could be deployed reliably and at scale to halt and prevent disease, except weight loss surgery, which insurers actively discouraged. 

As a result, the lion’s share of rising drug spending since 2000 has been driven by increasing multimorbidity. Americans now enter multimorbidity younger, spending more of their lives taking more expensive drugs. Since 2000, the share of Americans entering Medicare with multimorbidity has jumped 66 percent, from about one-in-four to just under one-in-two. It was no surprise that once Medicare began negotiating prices directly with drugmakers, the first 10 drugs targeted included seven for advanced chronic disease, two for autoimmune conditions, and one for a progressive blood cancer. 

This brings us to the two strangest aspects of current drugs. The first is that no one knows what drug companies actually get paid. Whenever a politician starts talking about drug prices, what they mean is the list price set by the drugmaker, which is far from the actual net price that they are paid. List prices are generally 25 percent to 50 percent above the net price, sometimes more. 

Why is this? One well-meaning distortion is that Medicaid is required by law to get a 23.1 percent discount on most branded drugs’ list prices. That means drug companies automatically mark up list prices by an equivalent amount. Then drug makers enter into convoluted negotiations with insurers to set the net price. This horse-trading is generally not done drug by drug. Instead, drug makers may accept a lower price on a highly-prescribed drug to get others that they make bumped up ahead of their competitors. Whatever they lose on the first drug they recoup on the others. 

In sum, no one really knows the net price for all drugs after rebates across insurers. If nothing else, empowering Medicare to negotiate drug pricing means we now know the net price that the largest single drug buyer pays, but we are still in the dark about the price paid by everyone else. That has to change. 

Drug companies should be required to disclose the net price for each drug they sell, including in the disclosure transparency into how much net prices vary across insurers. Interestingly, Trump proposed doing this in his first term for all Medicare drug purchases, only to back down because under the upside down world of health care, using lower, net prices would have actually increased Medicare drug premiums, which would have provoked a political firestorm. Conveniently since then, Congress (and Biden) has released some of the pressure by capping total Medicare drug premiums and out-of-pocket costs. Any premium increases that might result would be more than offset by curbing the profitability of health care entities that profit on the difference between list and net prices.  

The second problem is that drug prices are a single number that is paid in full when a prescription is filled, or a shot is given. This made sense 40 years ago when most drugs treated one or two symptoms and were taken as daily pills. As we have seen, drugs like GLP-1s are different. While they have to be taken consistently, most of their benefits accumulate over time. Most of the value for a person with obesity or diabetes does not happen on the day they weigh 20 percent less or achieve a healthy blood sugar levels, it happens over time to the extent they can maintain better health, forestalling multimorbidity and that exponential curve at the end as long as possible. Likewise, a lot of drugs can be taken much less frequently. Some, including for Hepatitis-C, some cancers, and gene therapies may be given just once, resulting in years or a lifetime of protection. Paying by the shot is crazy, as is paying a single price for drugs like GLP-1s when their real value accrues over time. 

So we must abandon prescription-based pricing for GLP-1s, replacing it with an outcomes-based pricing that pays drug companies some when a drug is given but more over time, with future amounts tied to recipients’ health outcomes. This increases access by allowing much lower upfront prices, critical to achieve equity and reduce future health liability as quickly as possible. With more access, drug companies will recoup some of that lost revenue, with a lower price but higher volume. Thereafter, the original creator of a drug can earn payments associated with recipients’ improved health, even after the drug has gone generic. 

Critically, outcomes-based pricing will force drugmakers to care—a lot—about how well their products’ recipients are doing. Are they getting consistent clinical care, dosing advice, and effective dietary and behavioral counseling? GLP-1 makers may say this is a concern for them, but frontline clinical reality has little effect on their long-term profitability. For them, it is a race to amass prescription volume before patents expire or they can introduce a newer version, effectively rolling patent protections forward.

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Disclosure of net prices and outcomes-based pricing for GLP-1s could transform the debate over price equity and free-riding on American R&D. The U.S. will have leverage to force European countries to disclose net prices in their own markets, providing clarity about real price differences. With this data, the U.S. could require drug companies to pay a portion of U.S. revenues into a national R&D fund with amounts paid tied to net price differentials. Either local drugmakers will pressure national authorities to raise local prices, thereby reducing free-riding, or R&D funding contributions will help underwrite cutting-edge science in the U.S. 

Likewise, outcomes-based pricing will force foreign GLP-1 manufacturers to lower upfront prices to hold or gain U.S. market share. It will also limit Chinese (or other) cancer and gene editing drugmakers’ ability to use high U.S. prices, under current approaches, to undercut American products in other export markets. All drug manufacturers will have to realize the value of their drugs over time to the extent that they demonstrate lasting efficacy. 

In sum, it’s possible to lower U.S. prices while forcing other wealthy nations to equalize pricing and to improve how all breakthrough drugs are priced—just not with MFN pricing. It’s the right goal, but the wrong way.