In a May 12 executive order, President Trump announced a “most favored nation” policy that intends to lower prescription drug prices.
Among other things, the order directed the Secretary of Health and Human Services to “communicate most-favored-nation price targets to pharmaceutical manufacturers to bring prices . . . in line with comparably developed nations.” The Trump administration wants to peg U.S. drug prices to the lowest price available in our peer nations.
Other countries have lower prices on drugs because their governments forcibly cap them. Most favored nation amounts to the importation of socialist foreign price controls. As a matter of principle, the U.S. government should not have the power to dictate the prices of goods and services in a free society.
Further, pharmaceutical price controls have significant long-term costs that far exceed any short-term benefits for patients today. Price controls dampen investment and thereby deprive people now and in the future of the benefits of medical innovation.
At present, the United States leads the world in pharmaceutical development. Two in three new drugs are developed here.
At present, the United States leads the world in pharmaceutical development. Two in three new drugs are developed here.
Price controls could knock us from our perch. That’s because they reduce the potential return on investment in drug research. Such work is already risky. It takes between ten and fifteen years and roughly $2.6 billion to bring a drug from the lab to the patient’s bedside. Roughly nine in ten drug candidates fail.
If price controls threaten the returns of the few drugs that succeed, then investors will deploy their capital elsewhere.
We’re already seeing as much in the United States. Consider the consequences of the Inflation Reduction Act, which President Biden signed into law in 2022. It levies price controls on a steadily increasing number of drugs through Medicare, starting with 10 drugs dispensed through Medicare Part D effective January 1, 2026.
In response, pharmaceutical research has been drying up. Since the passage of the IRA, drug companies have discontinued at least 51 research programs and 26 drugs. One study projects that the IRA’s price controls will result in the development of 139 fewer drugs by 2035.
Most favored nation would further devastate drug research. If applied to Medicare, it would lead to 869,000 fewer jobs over a decade, according to a June report from research firm Vital Transformation. The cumulative earnings lost thanks to the destruction of those jobs would be $2.8 trillion. Tax revenue would decline by $700 billion.
Most favored nation would further devastate drug research.
People might even find themselves paying more for drugs. A recent study from the Pioneer Institute found that MFN could distort the prescription drug market in ways that raise seniors’ out-of-pocket costs.
That conclusion rings true, given the impact of the IRA’s price controls thus far. A study published last year found that most enrollees in Medicare’s Part D prescription drug benefit who take price-controlled medications will see their out-of-pocket costs increasefrom 2025 to 2026.
There are far less destructive ways to make prescription drugs more affordable.
For starters, policymakers can address the manipulation of the pharmaceutical market perpetrated by pharmacy benefit managers, the middlemen that negotiate with drug manufacturers on behalf of insurers. In exchange for giving drugs preferential placement on a health plan’s formulary, or list of covered drugs, PBMs command massive rebates and fees from pharmaceutical companies.
Those rebates are typically calculated as a percentage of a drug’s list price. So, the higher the list price, the bigger the payday for a PBM. As a result, PBMs have a financial incentive to favor pricier drugs on health plans’ formularies.
PBMs’ rebates and fees sometimes exceed a drug’s price in other countries. A 30-day supply of Eliquis generates $250 in kickbacks for PBMs. The same drug costs $72 in the United Kingdom – and $33 in Australia.
It’s no wonder that PBMs scrape off 42 cents from every dollar consumers spend on brand-name medicines in the commercial market.
Requiring PBMs to pass along the savings they negotiate to patients at the pharmacy counter would do wonders to make prescriptions more affordable. Similarly, “delinking” PBMs’ compensation from drug prices would remove their incentive to favor the most expensive drugs.
Foreign freeloading is also a problem. Americans bankroll the majority of drug development because we pay higher prices. Other countries want access to our market, the world’s largest. Our leaders should insist that they shoulder a greater share of the global research bill as a condition of trading with us.
The Trump administration’s focus on lowering drug prices is understandable. But price controls are the wrong prescription.
Sally C. Pipes is President, CEO, and Thomas W. Smith Fellow in Health Care Policy at the Pacific Research Institute. Her latest book is The World’s Medicine Chest: How America Achieved Pharmaceutical Supremacy — and How to Keep It (Encounter 2025). Follow her on X @sallypipes.