On April 15, President Trump issued an Executive Order titled “Lowering Drug Prices By Once Again Putting Americans First” and an accompanying “Fact Sheet: President Donald J. Trump Announces Actions to Lower Prescription Drug Prices.” The President directs a wide range of drug pricing actions, including:
- Inflation Reduction Act (IRA) Programs (Section 3): announcement of intent to “eclipse” savings from the prior Medicare Drug Price “Negotiation” Program (Program) cycle, improve “transparency” in forthcoming guidance, address the “pill penalty” via legislation, and improve Part D premium stabilization.
- Medicare Payment Model (Section 4): directive to develop a Medicare model to obtain “better value” for high cost drugs, including those not selected for the IRA program.
- Medicaid Drug Payments (Section 6): instruction to develop recommendations for Medicaid drug payment reform related to rebate payment accuracy, payment methodology innovation, value-based payments, and state management of drug spending.
- Additional Drug Payment Actions (Sections 5, 7, and 11): directives to conduct a survey and propose changes aligning Medicare payment with acquisition costs, tie insulin and epinephrine costs to 340B prices, and address Medicare incentives to shift setting-of-care.
- FDA Initiatives (Sections 9 and 10): instructions to FDA to improve state drug importation pathways and generic competition.
- PBM Reform (Sections 8 and 12): directives to develop recommendations addressing “middlemen” and improving employer fiduciary transparency into PBM direct and indirect compensation.
- Antitrust (Section 13): directive for listening sessions and a report on recommendations related to “anti-competitive behavior” from drug manufacturers.
While the scope and potential impact of these directives will depend on implementation by various agencies, the Executive Order reflects ongoing focus on priorities from the prior Trump Administration as well as new priorities. The Executive Order is broad but may not be exhaustive; for example, on April 1, 2025, the Secretary of Commerce initiated a section 232 investigation into potential tariffs on pharmaceutical imports, and the Department of Commerce subsequently published a notice of request for public comments. Other initiatives could be forthcoming.
This client alert provides a “road map” to the actions contemplated under the Executive Order. Covington’s cross-practice team advises extensively on these topics and will be monitoring outcomes and next steps.
Section 1. Purpose.
The first section recites drug pricing achievements from the prior Trump Administration and states “the Biden Administration reversed, walked back, or neglected many of these initiatives, undoing the progress made for American patients.” The language refers to the Biden Administration’s “misnamed Inflation Reduction Act,” and notes the “administratively complex and expensive regime [that] thus far produced much lower savings than projected.” The section concludes: “[i]t is time to restore the progress our Nation made in my first term to deliver lower prescription drug prices by putting Americans first and making America healthy again.”
Section 2. Policy.
The second section sets forth an intent to “optimize” “Federal health care programs, intellectual property protections, and safety regulations” and “provide access to prescription drugs at lower costs to American patients and taxpayers.” Changes to Centers for Medicare & Medicaid Services (CMS) programs are addressed in several of the substantive provisions of the Executive Order.
Section 3. Improving upon the Inflation Reduction Act.
June 14, 2025 (60 Days) – Issue Guidance for Initial Price Applicability Year (IPAY) 2028 and Price Effectuation in 2026, 2027, and 2028. This section directs the Secretary of the Department of Health & Human Services (HHS) to propose guidance for the Program, referring to guidance HHS anticipated to be issued in late spring. The Executive Order instructs this guidance to “improve the transparency” of the Program, “prioritize the selection of prescription drugs with high costs to the Medicare program,” and “minimize any negative impacts of the maximum fair price on pharmaceutical innovation within the United States,” without further explanation. The Fact Sheet signals that the guidance will be revised to “improv[e] the Medicare Drug Pricing Negotiation Program in order to eclipse the 22% in savings achieved in the program’s first year.”
The Executive Order also provides that forthcoming guidance should address “manufacturer effectuation of maximum fair price under such program in 2026, 2027, and 2028.” This directive indicates that forthcoming guidance will address price effectuation across negotiation cycles, in alignment with HHS’s approach in prior guidance. It is unclear whether forthcoming guidance will include new policies for previously selected drugs. For manufacturers with drugs selected for IPAY 2026, effectuation plans are due to HHS on September 1, 2025.
October 12, 2025 (180 days) – Provide Recommendations for Part D Premium Stabilization. This section also directs the Assistant to the President for Domestic Policy, in coordination with the HHS Secretary, the Director of the Office of Management and Budget, and the Assistant to the President for Economic Policy, to provide recommendations regarding “how best to stabilize and reduce Medicare Part D premiums.”
The IRA included a premium stabilization provision that caps the annual increase in the Part D base beneficiary premium (BBP) at 6%, starting in 2024. On July 29, 2024, CMS announced another stabilization measure to minimize disruption in the market for standalone prescription drug plans (PDPs): the Voluntary Part D Premium Stabilization Demonstration. Republican members of the U.S. House of Representatives had expressed concerns about CMS’s legal authority to implement this demonstration, as well as the costs it would generate.
No timeline – Address the “Pill Penalty.” This section instructs HHS to work with Congress to modify the IRA to “align the treatment of small molecule prescription drugs with that of biological products.” The Executive Order does not specify how HHS should achieve this goal, but notes this “pill penalty” fix should be “coupled with other reforms to prevent any increase in overall costs to Medicare and its beneficiaries.”
Section 4. Reducing the Prices of High-Cost Drugs for Seniors.
April 15, 2026 (1 year) – This section instructs HHS to “take appropriate steps” to “develop and implement a rulemaking plan and select for testing” a Center for Medicare and Medicaid Innovation (CMMI) model to “obtain better value for high-cost prescription drugs and biological products covered by Medicare.” Federal law grants the HHS Secretary broad latitude to develop CMMI models in situations where there are deficits in care leading to poor clinical outcomes or potentially avoidable expenditures, including by waiving certain Medicare and Medicaid program requirements.
As summarized in our client alert, the prior Trump Administration had implemented the “Most Favored Nation (MFN)” model, which would have tied the reimbursement price for certain high-cost Medicare Part B drugs to an average price paid by several foreign countries. The MFN model was enjoined by courts and ultimately rescinded by the Biden Administration. Notably, the Executive Order instructs HHS to pursue “a rulemaking plan” for this model, an instruction which may be intended to address procedural defects from the MFN model.
Section 5. Appropriately Accounting for Acquisition Costs of Drugs in Medicare.
October 12, 2025 (180 days) – The Executive Order directs HHS to publish a plan for and conduct a survey of hospitals on the actual costs they incur when acquiring specified covered outpatient drugs (SCODs). Unlike drugs administered in physician offices—which are reimbursed at a fixed statutory rate (ASP+6%)—for SCODs, CMS has greater flexibility to set reimbursement rates based on actual acquisition cost data obtained through surveys. The Executive Order directs HHS to propose appropriate adjustments to align Medicare payments for such drugs with the cost of acquisition.
The prior Trump Administration had attempted to adjust the payment rate for 340B drugs using this authority. However, the U.S. Supreme Court held this effort unlawful because HHS failed to conduct a survey of hospitals’ acquisition costs prior to implementing the rates, as required by the relevant statute. The Executive Order suggests an intent to renew this effort.
Section 6. Promoting Innovation, Value, and Enhanced Oversight in Medicaid Drug Payment.
October 12, 2025 (180 days) – The Executive Order directs the OMB Director, Assistant to the President for Domestic Policy, and Assistant to the President for Economic Policy, in coordination with HHS, to provide recommendations on the following Medicaid drug payment areas: (1) ensuring that drug manufacturers pay accurate MDRP rebates; (2) promoting innovation in Medicaid drug payment methodologies; (3) linking payments for drugs to the value obtained; and (4) supporting states in managing drug spending. Notably, prior legislation under the Trump Administration and subsequent CMS rulemaking (as discussed in this client alert) involved changes to improve accuracy of MDRP rebates related to misclassification of covered outpatient drugs, among other operational changes. Similarly, Trump Administration rulemaking had aimed to facilitate value-based purchasing by establishing multiple reporting pathways for best price under the MDRP (as explored in this client alert).
The Fact Sheet indicates Medicaid reforms may “build[] off programs to help states get much better deals,” such as with the Cell and Gene Therapy (CGT) Access Model. The CGT Model involves CMS negotiations with manufacturers for key terms, including outcomes-based rebates, which then may be adopted by states in supplemental rebate agreements with manufacturers. The CGT Model focuses initially on gene therapies for the treatment of sickle cell disease. Although a Biden Administration proposal, the Trump Administration did not rescind the CGT Model when withdrawing other Biden Administration models.
Section 7. Access to Affordable Life-Saving Medications.
July 14, 2025 (90 days) – The Executive Order instructs HHS to ensure that certain grants to health centers are “conditioned upon” establishing practices to make insulin and injectable epinephrine (i.e., EpiPens) available “at or below” the products’ 340B ceiling price plus a “minimal administration fee.”
This proposal closely mirrors the prior Trump Administration’s “Executive Order on Access to Affordable Life-saving Medications,” which similarly aimed to expand access to insulin and injectable epinephrine. Following the prior Executive Order, HHS issued rulemaking requiring that certain federally qualified health centers “provide an assurance that [they have] established practices to provide insulin and injectable epinephrine at or below” the 340B ceiling price, but the Biden Administration rescinded the rule before it took effect.
Section 8. Reevaluating the Role of Middlemen.
July 14, 2025 (90 days) – The Executive Order directs the Assistant to the President for Domestic Policy, in coordination with HHS, the OMB Director, and the Assistant to the President for Economic Policy, to develop recommendations related to “middlemen” and “how best to promote a more competitive, efficient, transparent, and resilient pharmaceutical value chain that delivers lower drug prices for Americans.”
While the Executive Order does not signal specific outcomes for these recommendations, it echoes “middlemen” language from the first Trump Administration’s “Executive Order on Lowering Prices for Patients by Eliminating Kickbacks to Middlemen,” which directed HHS rulemaking to require rebates in Medicare Part D to be passed on to patients rather than retained by PBMs. Rulemaking following this prior Executive Order was subject to legal challenge and ultimately delayed by Congress, but the Administration has signaled support for other PBM reforms, including congressional efforts related to spread pricing, transparency and use of PBM-affiliated pharmacies (learn more about the evolving landscape of the PBM industry here).
Section 9. Accelerating Competition for High-Cost Prescription Drugs.
October 12, 2025 (180 days) – The Executive Order directs HHS, through the FDA Commissioner, to issue recommendations aimed at increasing the availability of certain types of drugs. These recommendations should “accelerate approval of generics, biosimilars, combination products, and second-in-class brand name medications.” According to the Fact Sheet, these recommendations are intended to “increase[] the availability of generics and biosimilars,” but the language in the Executive Order goes beyond generics and biosimilars by including “combination products” and “second-in-class brand name medications,” many of which are not approved under abbreviated new drug applications (ANDA) or through 351(k) biologics license applications (BLAs).
The Executive Order also calls for recommendations related to the Rx-to-OTC switch process to “improve the process through which prescription drugs can be reclassified as over-the-counter medications, including recommendations to optimally identify prescription drugs that can be safely provided to patients over the counter.” On December 26, 2024, FDA issued a final rule to allow a wider range of drugs to be marketed as over-the-counter (OTC) by establishing requirements for approval of OTC drugs with an additional condition for nonprescription use (ACNU). This rule would allow OTC products where the labeling alone cannot communicate the information needed for consumers to self-select or use the drug without physician supervision (for example, an ANCU could include a questionnaire completed through a mobile app). The ACNU final rule was set to take effect on January 27, 2025, but FDA delayed the effective date to March 21, 2025, in accordance with the “Regulatory Freeze Pending Review” Executive Order, and then to May 27, 2025, citing “[a]dditional time needed for review.” The Executive Order does not address whether FDA should allow the ACNU Final Rule to take effect or be reissued with modifications.
Section 10. Increasing Prescription Drug Importation to Lower Prices.
July 14, 2025 (90 days) – The Executive Order requires HHS, through the FDA Commissioner, to “take steps to streamline and improve the Importation Program” under section 804 of the Federal Food, Drug, and Cosmetic Act (FDCA). This directive builds upon the first Trump Administration’s actions on drug importation, including a prior Executive Order titled “Increasing Drug Importation to Lower Prices for American Patients” (which is explained in this client alert), an HHS Secretary certification to Congress on section 804 implementation safety and cost reduction, and rulemaking allowing importation of certain drugs from Canada under Section 804 Importation Programs (SIPs). Pursuant to FDA’s rulemaking, States and Indian Tribes may submit SIP proposals to FDA for review and authorization. To date, Florida, New Mexico, and Colorado have submitted SIP proposals to FDA, but only Florida has received FDA approval. In more than a year since that SIP approval, however, Florida has not yet received FDA approval of a pre-import request to begin importing drugs. In addition, Canadian officials have strongly opposed such programs, promising to prevent drug exports that threaten Canada’s drug supply.
Section 11. Reducing Costly Care for Seniors.
October 12, 2025 (180 days) – This section of the Executive Order directs HHS to evaluate and pursue rulemaking “to ensure that payment within the Medicare program is not encouraging a shift in drug administration volume away from less costly physician office settings to more expensive hospital outpatient departments.” The Fact Sheet indicates the Administration will be focused on “[s]tandardizing Medicare payments for prescription drugs, such as cancer treatments, regardless of where the patient receives care.” This directive likely intends to pursue site-neutral payment for Part B drugs, which would mean payment would be the same regardless of whether the drug is administered in the outpatient hospital setting or physician office setting. The Trump Administration previously recommended site neutrality, and Congress is considering site-neutral Medicare reimbursements to support healthcare spending cuts in the budget reconciliation process.
Section 12. Improving Transparency into Pharmacy Benefit Manager Fee Disclosure.
October 12, 2025 (180 days) – The Executive Order directs the Labor Department to propose regulations pursuant to section 408(b)(2)(B) of the Employee Retirement Income Security Act of 1974 (ERISA) to “improve employer health plan fiduciary transparency into the direct and indirect compensation received by pharmacy benefit managers.” Section 408(b)(2) of ERISA permits employee benefit plans to enter into arrangements with services providers, as long as those arrangements are “reasonable,” meaning, inter alia, they meet disclosure obligations with respect to direct and indirect compensation for services such as brokerage and consulting services. Previously, the Labor Department indicated that it did not expect to issue regulations under this requirement, but the Executive Order requires the Labor Department to issue such regulations addressing PBM compensation.
Section 13. Combating Anti-Competitive Behavior by Prescription Drug Manufacturers.
October 12, 2025 (180 days) – The final section of the Executive Order directs HHS to hold a public listening session with the Federal Trade Commission, the Department of Justice, and the Department of Commerce and to issue a report containing “recommendations to reduce anti-competitive behavior from pharmaceutical manufacturers.” The FTC has primary responsibility for enforcing the antitrust laws in the pharmaceutical industry for both mergers and conduct. The FTC recently sued large PBMs for allegedly artificially inflating the price of insulin, in part through rebate agreements with pharmaceutical manufacturers. We discussed the Interim Staff Report published by the FTC raising competition concerns in the PBM industry in this client alert.
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The Executive Order concludes with general provisions consistent with other presidential actions. Timing for each directive varies, ranging from 60 days, 90 days, 180 days, to 1 year from issuance. We will be monitoring activities related to these directives.
If you have any questions concerning the material discussed in this client alert, please contact members of our Health Care or Food, Drug, and Device practices.
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