President Trump released another EO on April 15. He had promised to do something about pharmaceuticals, and this EO focused on how he intended to lower drug prices for American consumers. The EO was met with a wide range of reactions from insiders across the industry. Some expressed deep concern about its broad scope and what was described as imprecision. Others saw nothing more than a messaging platform that reinforces Trump’s continued focus on reshoring. Interestingly, the subject of where pharmaceuticals are manufactured didn’t appear in the EO.
The EO is certainly ambitious in scope. It starts with a statement of purpose which provides context for the actions the president wants Cabinet and Department leadership to take, often in concert with Congress. In each of the 11 domains of the EO, officials are directed to explore novel approaches to problems that, in many cases, have existed for years, and then to come back within defined timeframes (e.g., within 180 days) with recommendations for solutions.
Trump highlights actions taken during his first administration that were aimed at reducing the cost of prescription drugs. Of note was his renewed commitment to not “sit idly by” and watch Americans be charged higher prices for pharmaceuticals than what those in other countries paid for the same drugs. This is a theme reminiscent of the Jan. 2024 Senate hearing led by Democrat Senator Bernie Sanders. So, the stage could be set down the road for some bipartisan engagement to lower drug prices.
But unlike the Senate hearing, the purpose of the EO didn’t stop with an isolated critique of the pharmaceutical industry, one of the criticisms I’ve raised before about the focus of the Senate hearing. The EO went on to highlight the prior Trump administration’s focus on encouraging competition, emphasizing the importance of developing generic and biosimilar alternatives to branded products to increase consumer access to affordable medicines. To achieve this the EO recognized the need to address the underlying business environment in which these products would be reimbursed. Today there are misaligned incentives working against the broad adoption of biosimilar drugs.
Trump’s challenge to the “pill penalty” also speaks to misaligned incentives, this time the result of legislation in the Inflation Reduction Act that favors expensive biologics over small molecule prescription drugs. Biologics, which are often used to treat rare diseases, have an additional four years before they are subject to price controls through direct negotiation with the Centers for Medicare and Medicaid Services. The EO notes that the additional time enjoyed by biologics distorts investment away from small molecule prescription drugs which are typically targeted towards larger populations.
Beyond the manufacture of competitive products, the EO called out prior efforts by the Trump administration to reform the payment ecosystem, ensuring that government-mandated discounts would be passed through to patients, not pocketed by pharmacy benefit managers. PBMs, the “middlemen,” have been the subject of intense congressional scrutiny for their anti-competitive practices, self-dealing, and lack of transparency in how they develop formularies and negotiate drug prices with manufacturers, a subject I’ve addressed previously.
The transparency theme continued as the EO emphasized the importance of knowing the cost of prescription drugs prior to purchase, not just for patients, but for employers and physicians as well.
Importantly, the EO did not focus on the cost of drugs alone. It spoke to pharmaceuticals in the context of the broader U.S. healthcare ecosystem, and it called out perverse incentives in the delivery and payment for healthcare services. Today hospitals are incented to steer patients to hospital outpatient departments where everything costs more than in physician offices. The EO challenged this practice specifically regarding where drugs may be administered and questioned why patients would be seen in more expensive outpatient hospital departments when they could be seen in less costly physician offices for the same care. This is an issue that has resonated with insurers who have argued in favor of “site-neutral” payment, essentially saying that payment for a given service shouldn’t be dependent on where that service is provided.
Not surprisingly, insurers stand to save money when the same care is delivered in more cost-effective settings. But the American Hospital Association, representing the nation’s hospitals, has fought long and hard against site-neutral payment. Steering patients to more expensive hospital-based departments would help financially strapped healthcare delivery organizations stay in business. Clearly, if the nation introduced site-neutral payment without taking a holistic approach to solving the country’s healthcare crisis, it is likely that hospitals would be harmed.
And this is why the range of questions Trump wants to address in this EO is so important. The problems of coverage, access to innovative medicines, the availability of healthcare services, misaligned incentives, and continuously increasing cost have been discussed for decades. The government’s solutions to bending the cost curve have largely failed and, in some cases, unintentionally exacerbated underlying problems, the focus of my last book, Bringing Value to Healthcare.
Like the CEO of a large private sector company, President Trump has laid out a set of healthcare sector priorities that he wants to see addressed. He tasked his leadership to come back to him with solutions to these long-standing issues that the nation has failed to resolve. In that regard he has opened the door to novel, holistic solutions. The EO could be seen as creating a platform to support the development of a fundamentally different business model across the healthcare ecosystem. Given the complexity of healthcare and the need for systemic solutions, this represents the possibility of a thoughtful approach to addressing problems that have plagued the industry for decades. Rather than prescribing tweaks around the edges or taking a blunt instrument to fix serious issues, thoughtful, time-bound study by knowledgeable experts could be just what the patient needs.
