Trump signs directive on lowering drug prices even as he seeks tariffs on pharmaceuticals

By Tami Luhby and Sarah Owermohle, CNN

(CNN) — In his first major action on health care costs this term, President Donald Trump issued a multi-part executive order on Tuesday aimed at lowering drug prices and reducing costs for Medicare. The move comes as his administration seeks to impose tariffs on pharmaceutical imports that many experts have said could lead to drug shortages and price hikes.

The wide-ranging mandate is unlikely to have an immediate impact on the high cost of health care in the US. The White House acknowledged it will have to work with Congress to accomplish several of the provisions.

Notably, one of the directives seeks to make changes to a historic Biden-era initiative that allowed Medicare to negotiate drug prices for the first time.

The order also calls on Health and Human Services secretary Robert F. Kennedy Jr. to explore ways to equalize Medicare payments for drug administrations like cancer treatments, regardless of where patients receive care. Efforts to pass such legislation languished last term.

Some of the provisions resurrect several of Trump’s goals from his first administration, including allowing states to more easily import drugs from Canada and requiring federally qualified health centers, which provide primary care services to underserved communities, to pass along discounts they receive on insulin and EpiPens to their patients. (The Biden administration nixed the latter rule, citing the excessive administrative costs and burdens it would have imposed on the centers.)

While lowering drug prices was not a key promise of his most recent presidential campaign, Trump issued multiple executive orders and directives aiming to reduce costs during his first term. However, they largely did not result in making medications more affordable.

Adjusting Medicare drug price negotiations

One of the mandates seeks to “improve” the Medicare drug price negotiation program, which was created in 2022 by the Democrats’ Inflation Reduction Act.

The Biden administration, which heralded the provision as one of its major achievements, said that Medicare’s new power will lead to an estimated $6 billion in savings for the federal government and a $1.5 billion reduction in out-of-pocket costs for seniors when the lower prices for the first round of 10 drugs take effect in 2026. Biden officials announced the next round of 15 drugs – including Ozempic and Wegovy, the blockbuster but costly GLP-1 drugs often used for weight loss – just days before they left office in January.

Trump wants to do better than the 22% in savings that the Biden administration achieved in the first round, according to a fact sheet distributed by the White House.

Trump’s executive order directs Kennedy to propose and seek guidance on improving the transparency of the program, prioritizing the selection of high-cost medications and minimizing harmful impacts to drug innovation.

Kennedy is also directed to work with Congress to equalize the time periods when different types of drugs become eligible for negotiation. The imbalance, the Trump administration says, provides incentives for drug companies to invest in large molecule drugs, known as biologics, which aren’t subject to negotiation for 13 years after approval by the Food and Drug Administration. By contrast, small molecule drugs, which are generally cheaper and treat more people, become eligible after nine years.

Trump also took aim at an IRA provision that threatened to hike Part D premiums, prompting the Biden administration to provide billions of dollars in subsidies to insurers. The president is directing Kennedy to provide recommendations on how to stabilize and reduce Part D premiums.

The order also directs the FDA to streamline guidance and approvals for biosimilars, or versions of complex biologic medicine, to encourage more doctors to prescribe lower-cost competitors.

Plus, the order instructs the FDA to work with states to make it easier to import drugs from other countries. The Biden administration granted Florida permission to import certain drugs from Canada last year.

Hospital spending reforms

Under the order, HHS is instructed to work on a plan for standardizing Medicare payments for prescription medicines, so they cost the same between doctors’ offices and hospitals. The approach, a narrowed version of what policymakers have long called “site neutral” reform, could lower prices by as much as 60%, according to a White House statement.

Lawmakers have long attempted a much broader version of this plan, to equalize Medicare payments for drugs and similar services across hospitals in the US. But several Republicans from largely rural states pushed back last year, saying that lowered federal payments could devastate local hospitals that see fewer patients than others, and therefore rely on high reimbursements.

Two senators who led site-neutral legislation, Louisiana Republican Bill Cassidy and New Hampshire Democrat Maggie Hassan, issued a plan last year aimed at resolving that dilemma by reinvesting savings from the program into rural hospitals.

Site-neutral reform could offer some modest savings in Republicans’ bid to slash federal spending in next year’s budget. But using site-neutral as a cost cutter also means abandoning the plan to channel savings to rural providers.

Trump also instructed regulators to make changes in a federal program that provides drugs at a steep discount to hospitals serving low-income and uninsured patients.

The executive order also signals that larger changes could be afoot for the program. Drugmakers and Republican lawmakers argue that too many hospitals reap heavy discounts on medicines and do not transparently pass those savings on to patients. Hospital groups have said those savings are incorporated into their services for the community.

Trump also instructed Medicare to carry out a survey on these kinds of costs and discounts across various providers, according to a White House official. This is so the agency can “then contemplate rulemaking” on the program, the official told reporters during a press briefing.

The order also seeks to evaluate the role of pharmacy benefit managers, who serve as middlemen between drug manufacturers and insurers and pharmacies. Known as PBMs, these players have long been criticized for their opaque practices and accused of driving up drug prices.

Trump wants to improve the disclosure of fees that PBMs pay brokers for pushing employers to use them, according to the fact sheet. The order also calls for improving transparency into the direct and indirect compensation that PBMs receive.

Congress was on the verge of passing a slate of measures to increase transparency and change some practices in the PBM industry in December, but it was stripped from the massive bipartisan government funding package that was torpedoed by Trump, who was then president-elect, and billionaire Elon Musk.

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