White House issues Executive Order directing efforts to lower drug prices

In addition to the Executive Order, the White House posted a Fact Sheet addressing the actions to lower drug prices on its website. Details of the EO and Fact Sheet are below. We expect that many of the activities growing out of the EO will create opportunities for stakeholders to supply feedback to the Trump administration.

• Drug Price Negotiation Program.
  • Abolishing the “Pill Penalty”: The EO directs the Secretary of Health and Human Services (HHS) to work with Congress to create parity between the treatment of small molecule and large molecule (i.e., biological) products under the Negotiation Program. Small molecules are eligible to be selected for “negotiation” seven years after approval, whereas large molecules are not eligible for selection until eleven years after approval. The EO looks to “align” those timelines.
  • Negotiation Program Guidance: The EO directs the Secretary of HHS to propose guidance, within 60 days of the date of the EO, with an opportunity for comment, on
    1. The implementation of the Medicare Drug Price Negotiation Program for initial price applicability year (IPAY) 2028, and
    2. The effectuation of the negotiated maximum fair price (MFP) for IPAYs 2026, 2027, and 2028, to include improvements to transparency and proposals to address the negative impacts of the MFP on innovation. Note that IPAY 2026 starts in less than eight months, suggesting that any updated guidance would need to be issued in the very near term. The Biden administration had previously issued guidance on the MFP effectuation for IPAYs 2026 and 2027.
• Medicare Part D. The EO directs the Office of Management and Budget (OMB) to make recommendations on stabilizing and reducing Part D premiums, which the EO notes have been inflated as a result of the Medicare Part D redesign under the IRA, thereby reducing choices for Medicare Part D beneficiaries.
• Center for Medicare and Medicaid Innovation (CMMI) Model. The EO directs the Secretary of HHS to develop a payment model through the CMMI to test methods of obtaining more value for high-cost drugs and biological products under Medicare. As summarized in our alert here, the first Trump administration had implemented a Most Favored Nation payment model that tied reimbursement for roughly 50 Medicare Part B drugs or biological products to the lowest per capita Gross Domestic Product adjusted price of certain non-US members of the Organization for Economic Co-Operation and Development. Two federal courts temporarily blocked implementation of this model: first, the United States District Court for the District of Maryland issued a temporary restraining order in Association of Community Cancer Centers v. Azar, and, second, the United States District Court for the Northern District of California issued a preliminary injunction in California Life Sciences Association v. CMS. The model was later rescinded by the Biden administration.
• Survey of Medicare Acquisition Costs. Within 180 days of the EO, the Secretary of HHS is to conduct a survey of hospital outpatient department acquisition costs for covered outpatient drugs, and publish it in the Federal Register, for purposes of determining whether Medicare payment should be adjusted. In the Fact Sheet, the administration notes that these costs “can be 35% lower than what the government currently pays” (most likely a reference to drug costs at 340B covered entity hospitals) and that it seeks to “[s]tandardiz[e] Medicare payments for prescription drugs, such as cancer treatments, regardless of where the patient receives care, which can lower prices by as much as 60%.” Any payment cuts would need to be implemented consistent with existing budget neutrality requirements. The first Trump administration had reduced Medicare payment for 340B covered outpatient drugs at hospital outpatient departments from ASP plus 6 percent to ASP less 22.5 percent but the payment cuts were invalidated by the Supreme Court in American Hospital Association v. Becerra, on the grounds that HHS may not vary hospital reimbursement rates for 340B hospitals without first conducting a survey of hospital acquisition costs and the agency had not conducted said survey; HHS later issued a final rule to remedy prior adjusted payments to hospitals. The EO appears to be directing HHS to conduct the survey that the Supreme Court decision found to be required.
• Medicaid Drug Payment and Rebates.
  • Within 180 days of the date of the EO, the OMB Director, working with the Secretary of HHS, is to make recommendations to the President about accurate payment of Medicaid drug rebates, promoting innovation in Medicaid payment, and providing support to states to manage drug spending. The recommendations should also include ways to “link payment for drugs to the value obtained,” suggesting an interest in value-based payment mechanisms. Our alert on the multiple best prices reporting option, which is an example of an existing Medicaid value-based payment mechanism, is available here.
  • According to the Fact Sheet, the Trump administration will also seek to “build off programs to help states get much better deals on expensive sickle-cell medications in Medicaid than the statutorily required 23.1% discount,” referencing the minimum Medicaid Drug Rebate Program rebate for most innovator products and the Cell and Gene Therapy Access Model. However, sickle-cell medications are not explicitly addressed in the EO.
• Access to Affordable Insulin and Other Medications. Within 90 days of the EO, the Secretary of HHS is to take action to ensure that grants to health centers are conditioned on the requirement that the centers make insulin and injectable epinephrine available to certain low-income patients at or below the price paid by that health center. These health centers typically qualify as covered entities for purposes of the 340B program and thus are eligible to purchase drugs at the 340B ceiling price; therefore, the EO would effectively seek to ensure that those discounts are being passed through to patients. The previous Trump administration had issued a similar EO on access to insulin and injectable epinephrine that established the same goal.
• Regulations to Shift Sites of Drug Administration to Physician Offices. Within 180 days of the date of the EO, the Secretary of HHS is to evaluate and propose regulations that would seek to shift drug administration away from hospital outpatient departments to “less costly physician office settings.” This directive may be intended to examine whether site neutral payment policies, which would ensure that payment for a drug administration is the same regardless of whether the drug is administered in the physician’s office or outpatient hospital setting, would be an effective way to reduce overall costs of care.
• Pharmacy Benefit Managers (PBMs).The EO directs two steps specific to PBMs, both centered on greater transparency:
  • It directs the Assistant to the President for Domestic Policy, working with OMB and the Secretary of HHS, to, within 90 days of the date of the EO, make recommendations to the President on “how best to promote a more competitive, efficient, transparent, and resilient pharmaceutical value chain that delivers lower drug prices for Americans,” described in the EO as a reevaluation of the “role of middlemen.”
  • It directs the Secretary of Labor to propose regulations, within 180 days of the EO, “to improve employer health plan fiduciary transparency into the direct and indirect compensation received by pharmacy benefit managers,” otherwise described as “improving transparency into pharmacy benefit manager fee disclosure.”
• FDA Report. Within 180 days of the EO, the Food and Drug Administration is directed to issue a report with recommendations to accelerate approval of generics, biosimilars, and related products, as well as to improve the process for reclassification of prescription drugs as over-the-counter products. These efforts appear to reflect the same principles underlying the previous Trump administration’s Drug Competition Action Plan, which sought to increase generic/biosimilar competition, as well as continued changes to the over-the-counter pathway (see the Over-the-Counter Monograph Safety, Innovation, and Reform Act, which became law during the previous Trump administration).
• Drug Importation. Within 90 days of the EO, the Secretary shall “take steps to streamline and improve” state drug importation under the Federal, Food, Drug, and Cosmetic Act without sacrificing safety and quality. The previous Trump administration had implemented policies intended to allow for importation of prescription drugs from Canada, and address whether such drugs would qualify as covered outpatient drugs for purposes of the Medicaid Drug Rebate Program, which are addressed in our alerts here and here.
• Report on Recommendations to Reduce Anticompetitive Behavior from Pharmaceutical Manufacturers. Within 180 days of the EO the Department of Justice, Department of Commerce, and Federal Trade Commission are to issue a joint report with recommendations on how to reduce anti-competitive behavior by pharmaceutical manufacturers.

We will continue monitoring for proposed rules, reports, and recommendations that seek to implement the provisions of the EO in the coming months. As always, it is important that you carefully review the proposed legislation to identify all issues relevant to your organization. If you have any questions about what these recent developments may mean in practice, please contact any of the authors of this update or the Hogan Lovells lawyer with whom you regularly work.

Authored by Alice Valder Curran, Beth Halpern, Brian Carey, Komal Nigam, Samantha Marshall, Erik Schulwolf, and Kathleen Peterson.