Trump seeks 'favored-nation' order on drug prices—but what would that even look like?

Despite tough talk, President Donald Trump has watched U.S. drug prices climb since he took office. Now, Trump says he favors an executive order to address the problem—but his approach has some experts bewildered.

In a wide-ranging face-to-face with reporters Friday, Trump said the White House was considering an order creating a "favored-nation" clause for drugs sold to the U.S. government, which would essentially secure the lowest possible prices on the market—or so he says.

While it’s not yet clear what the scope of the proposal would be—or how it differs from the administration’s international price index pilot program—Trump said the measure would level the playing field for government payers.

"For years and years, other nations paid less for drugs than we do—sometimes by 60% or 70%," Trump said. "Why should other nations—like Canada—but why should other nations pay much less than us? They’ve taken advantage of this system for a long time: pharma."  

On the heels of Trump’s comments, Nasdaq’s Biotechnology Index tumbled from a high of $3,480.81 on Friday morning to $3,435.35 at market close—a 1.13% decrease. The index is down roughly 6.6% from the same time last year.

So far, experts don't think such an order would have much effect. And typically, "favored nation" status is something the U.S. bestows on trading partners—other countries—rather than companies. According to the World Trade Organization, a most-favored-nation clause "denotes the equal treatment of all countries" when it comes to trade. 

Trump’s "favored nation" pledge on drug pricing comes as his administration touts what it has called the first year in more than half a century that net drug prices decreased from the previous 12 months. But list price hikes have continued mostly unabated in the first few months of 2019, casting doubt on Trump’s claims as he ramps up his re-election campaign for 2020.

Last year was the first in 51 years where prescription drug prices actually went down, but things have been, and are being, put in place that will drive them down substantially. If Dems would work with us in a bipartisan fashion, we would get big results very fast!

— Donald J. Trump (@realDonaldTrump) July 7, 2019

Trump’s relationship to pharma has been strained as his administration has searched—so far unsuccessfully—to curb the tide of drug price hikes and introduce generic and biosimilar competition into a market with notoriously high barriers to entry.

Last fall, Trump rolled out a five-year plan to force lower prices for Medicare Part B drugs, those administered by doctors and hospitals, as part of an international drug price index that would compare the U.S. to 16 developed nations. The plan met disapproval from not only the pharma industry but also physicians and hospital groups that claimed it could drive up vendor fees and increase the regulatory burden while limiting reimbursements.

At the time, Trump used the term "favored-nation clauses" to describe that plan, according to the New York Times, creating further confusion over whether Trump’s newest proposal is significantly different from what the administration previously proposed.

The index isn’t the first time Trump has gone after pharma in recent months. In May, the Department of Health and Human Services (HHS) said it would enforce a White House rule requiring drugmakers to disclose list prices in TV drug ads.

The policy was a favorite among patient advocate groups, but drugmakers including Merck, Eli Lilly and Amgen moved to knock down the new rule with a joint lawsuit citing First Amendment infringement. The HHS policy was set to go into effect on Tuesday.