Trump signs order to slash US drug prices using global benchmarking, lacks clarity on generic drugs

Trump executive order

U.S. President Donald Trump on Monday signed a sweeping executive order aimed at aligning U.S. prescription drug prices with those paid by other developed nations, reviving the controversial “Most-Favored-Nation” (MFN) pricing model that was first proposed during his first term.

The order directs the U.S. Trade Representative and the Secretary of Commerce to crack down on foreign pricing practices that Trump claims unfairly inflate domestic drug costs. It also empowers the Secretary of Health and Human Services (HHS) to establish a mechanism allowing Americans to purchase drugs directly from manufacturers at MFN prices—bypassing intermediaries.

“In case after case, our citizens pay massively higher prices than other nations pay for the same exact pill, from the same factory,” Trump said. “Effectively, we are subsidizing socialism abroad with skyrocketing prices at home.”

The executive order states that if manufacturers do not voluntarily comply, HHS is instructed to propose rules mandating MFN pricing and take “aggressive measures” to reduce costs. A new mechanism will allow patients to buy drugs directly from manufacturers at globally benchmarked prices. The order includes both Medicare and Medicaid, broadening its reach beyond previous efforts.
Trump said while signing the executive order that the MFN policy  would slash American prescription drug prices by up to 80% by pegging them to the lowest prices paid globally.
Trump expressed confidence that he will get the support of Democrats for his policy in Congress.

Lacks clarity on generics

Although the executive order is primarily aimed at branded and patented drugs, it however takes blanket approach. The prescription drugs also includes generics and biosimilars.

The lack of clarity on whether generics are exempt may lead to market volatility and cautious contracting.  If MFN pricing becomes a blanket policy, some generics—especially complex generics or biosimilars—could face pricing pressure because they are priced much lower in Europe and Canada.

India, which supplies nearly 40% of U.S. generics, exported $8.73 billion worth of drugs to the U.S. in 2024. Any disruption in pricing could further eat into the profit margins of the Indian drugmakers who have steep erosion of prices over the years.
Most of them operate on thin U.S. margins (5–15%), may find even small price cuts financially challenging.

Generics already account for 90% of prescriptions but only 13% of total drug spending in the U.S.
They are typically priced far lower than branded drugs and often already reflect competitive global pricing. Trump’s order explicitly targets “unfair pricing disparities,” which are most pronounced in the branded segment. The order says that Americans pay for brand-name drugs are more than three times the price of other Organization for Economic Co-operation and Development (OECD) nations pay, even after accounting for discounts manufacturers provide in the U.S.

US spends around 18% of its GDP on healthcare, of which prescription drugs account for 9.2%.

Branded drugs constitute the vast majority of the government's multi-billion dollar prescription drug expenditures through programs like Medicare and Medicaid.

Total US net spending on drugs was nearly half a trillion dollars in 2024, with government programs covering a large share around 60%. Spending is driven by high prices for branded products and increasing use of new, expensive specialty therapies.