Health Secretary Robert F. Kennedy Jr. unveiled the first details Tuesday on how he plans to tie U.S. drug prices to an international index — an effort to fulfill President Donald Trump's so-called Most Favored Nation approach.
The Department of Health and Human Services says the policy will apply to drugs that don't have a generic or biosimilar competitor. Drugmakers can charge in the U.S. no more than the lowest price paid by patients in an OECD country with a gross domestic product per capita of at least 60% of the U.S. GDP per capita.
HHS expects this to "drastically bring down drug prices, which are often three to five times higher than prices abroad."
"For too long, Americans have been forced to pay exorbitant prices for the same drugs that are sold overseas for far less," Kennedy said in a statement. "That ends today. We expect pharmaceutical manufacturers to fulfill their commitment to lower prices for American patients, or we will take action to ensure they do."
Shares of pharmaceutical companies were relatively muted following the announcement. The SPDR S&P Pharmaceuticals exchange traded fund and the VanEck Pharmaceutical ETF rose less than 1% apiece The SPRD S&P Biotech ETF advanced 2.1% to 81.40.
Will Most Favored Nations Work?
Leerink Partners analyst David Risinger says the administration's demand is "extreme, and we do not think that the industry can deliver what is stated."
"In our view, biopharma industry executives need to further educate the Trump administration about highly problematic aspects of this pricing expectation," he said in a report. "Specifically, such extreme pricing would significantly harm a crown jewel US industry, collapse US investment spending, and undercut US innovation at a time when China is supporting booming biopharma innovation."
The administration expects to win commitments from drugmakers "in the coming weeks."
This isn't the first time Trump has attempted to lower drug prices through a Most Favored Nations approach. At the end of his first term, the administration proposed tying Medicare reimbursement rates for 50 Part B drugs to an international reference price.
But the previous proposal faced procedural setbacks in court.
Javier Palomarez, founder and chief executive of the United States Hispanic Business Council, says history is likely to repeat itself. He described it as "broader in scope" and notes it "contains various punishments for noncompliance, including price control and legal action."
"There has not been precedent for threatening price controls and targeted legal action — both of which will be fought in court," Palomarez said in an email to Investor's Business Daily. "While Trump may not need all of Congress on board, he will surely have to fight his way through the courts."
Follow Allison Gatlin on X/Twitter at @AGatlin_IBD.
