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Sometimes it’s good to know that the laws of political gravity still operate. Donald Trump is rendering legal residents to foreign prisons and tanking the global economy with unproductive tariffs, as well as canceling entire agencies that safeguard and benefit the public. But he still has to act like he cares deeply about lowering drug prices for Americans.
This was the subject of an executive order released Tuesday, proposing several steps to reduce patient costs. Unlike other EOs that simply violate federal statutes or the Constitution, there’s actually quite a lot presidents can do legally on drug prices. The government is one of the largest pharmaceuticals researchers, the grantor of patents to prescription drug companies, and the largest drug purchaser through health systems like Medicare and Medicaid. This provides lots of authority and leverage to push prices down, bolstered by the Inflation Reduction Act’s provision to allow negotiations of drug prices in Medicare.
But instead of all that, the main action that Trump proposed this week is ripped from drug industry talking points. Despite vowing to lower drug prices, the administration concedes explicitly that this particular proposal will actually raise them.
The issue is known as the “pill penalty,” at least if you’re an industry lobbyist. The IRA’s drug pricing program includes delay periods that give pharmaceutical companies more time to set prices and avoid Medicare negotiation. The delay periods from market launch to the time that negotiated prices would take effect are nine years for so-called “small-molecule” drugs, which often come in the form of tablets or capsules, and 13 years for biologics, which are typically more complex.
Drug companies claim this is unfair, because the extra four years of price-setting exclusivity makes biologics more attractive. Therefore, they say, research spending drifts toward the more lucrative part of the sector, harming innovation for small-molecule drugs that treat chronic conditions for more patients.
This is a typical industry argument: that reducing its profits will have unintended consequences. And in his executive order, Trump repeats it wholesale, right down to the gimmicky phrase that the industry came up with. “Known as the ‘pill penalty,’ this discrepancy threatens to distort innovation by pushing investment towards expensive biological products,” the order states.
The expanded exclusivity period for biologics was a last-minute addition to the IRA, pushed by Democratic allies of the biotech industry. If you think the discrepancy is a problem, there are many ways to deal with it: eliminating the delay periods entirely, for example, or reducing the biologic delay to equalize the time frame. The Biden administration, in several budgets, proposed to reduce the delay period to five years for both biologics and small-molecule drugs.
“This represents pharma taking another bite at the apple.”
But the solution in the Trump executive order is precisely the opposite: to expand the delay period for small-molecule drugs, therefore giving those medications more immunity from Medicare negotiations. “This represents pharma taking another bite at the apple,” said Steven Knievel, an advocate for Public Citizen’s Access to Medicines program. Under such a “reform,” more than half of the small-molecule drugs already in the Medicare price negotiation process would no longer be eligible, and lower prices would have to wait.
Specifically, the order directs Health and Human Services Secretary Robert F. Kennedy Jr. to “work with the Congress” to “align the treatment of small molecule prescription drugs with that of biological products.” The existing Republican bills on this all accomplish this by increasing the delay period for small-molecule drugs, and one could easily be tucked into the big reconciliation bill Congress is working on.
You know that’s what Trump’s after, because there’s a little addition that says this change should be “coupled with other reforms to prevent any increase in overall costs to Medicare and its beneficiaries,” and reconciliation bills have to appear to be revenue-neutral. The only reason you would need to say that is if the extension of the delay period would increase the cost of prescription drugs for Medicare and beneficiaries. Which of course it would, if you have to wait four more years to negotiate prices on these drugs.
According to a press release from Sen. Ron Wyden (D-OR), this change would increase costs for Medicare by $10 billion. Judged against eliminating the delay period in full, the costs are much higher. Remember, this is supposed to be an executive order about lowering drug prices.
The delay period has been a major wish for the pharma industry; sources indicate that lobbyist bonuses have been tied to securing this provision. Top company CEOs dined with Trump and RFK at Mar-a-Lago in January, and have met with Trump multiple times since the inauguration. Pharma has spent more than any other sector on lobbying over the past two decades, according to Open Secrets.
To offset the cost of enabling more price-gouging, the pharmaceutical industry may be willing to accept a change that would prevent them from deducting the cost of direct-to-consumer advertising from their taxes, sources tell the Prospect. RFK and others have been pressuring drug companies on their consumer ads anyway. But eliminating the deductibility offsets the cost only to the government; it does nothing for consumers, who would still have to pay higher prices because of the industry’s special deal.
Much of the rest of the executive order involves measures Trump enacted or tried to enact in his first term, with some notable omissions. There are nods to increasing transparency on Medicare price negotiations, testing new payment models for high-cost drugs, equalizing Medicare drug payments across different provider locations, and stabilizing Medicare Part D premiums, but nothing specific. There’s a call for improving importation of prescription drugs from overseas, a first-term Trump program that Biden kept in place; few states have taken the government up on it.
Section 7 of the order seeks to force 340B programs for low-income patients to provide insulin or epinephrine at cost, another first-term rehash. As the Ryan White Clinics pointed out during the first term, this misunderstands how the 340B programs operate; already, no patient can be denied care over an inability to pay, with all discounts adjusted for that purpose. There are ways to further benefit patients by turning 340B into a direct discount program, but that’s not what Trump is calling for.
Among the missing pieces of the order is any real crackdown on pharmacy benefit managers, the middlemen that increase drug prices. During his first term, Trump eliminated the safe harbor that legalized kickbacks between PBMs and drug companies, a compensation model that contributes to rising drug prices. The White House mentions the safe harbor elimination in its executive order fact sheet, but does not seek to replicate that practice, which was repealed by Congress. Instead, the order asks for recommendations on PBMs within 90 days and regulations on rebate disclosure, a modest substitute.
A bipartisan PBM reform that was agreed to last year, before it was dumped from a year-end spending bill, has been blocked in committee. States as conservative as Arkansas are doing something about PBMs by preventing vertical combination, but Trump and the Republican-led Congress have shown little interest.
Another missing reform is so-called “most favored nation” status. In the first term, Trump proposed an international reference price regime to end the difference between what Americans pay for prescription drugs and their price in other industrialized nations. There was a demonstration project on this in 2020, but it did not go forward. During the campaign, Trump promised in a video to “end global freeloading” on prescriptions. But that video was later taken down, and “most favored nation” is not part of this executive order.
Finally, the DOGE efforts to scale back government capacity clash with the executive order. Trump asks for the Food and Drug Administration to accelerate approval of generics and biosimilars to increase competition, but cuts to almost 20 percent of the FDA workforce, including support staff for reviews and approvals, will make it nearly impossible to accelerate anything.
Trump has also vowed to impose tariffs on pharmaceuticals imported from overseas sometime soon, and while drug companies are expected to absorb most of those costs, that certainly won’t help lower drug prices, and will likely make pharma firms with the ear of the president resistant to other price-reduction strategies.
In one sense, a flagrantly Orwellian drug price executive order whose chief proposal raises drug prices is oddly refreshing. In a time of outrageous assaults on democracy and the rule of law, basic handouts to favored industries have been conspicuously absent. It’s good to see the kind of Republican glad-handing we all know and love. As Knievel put it, “This is old-fashioned carrying of corporate water.”
