Pharmaceutical executives have been warned that the incoming Trump Administration is seriously considering implementing international reference pricing for medications, a move that would dramatically reduce U.S. drug prices by tying them to the significantly lower costs paid in other developed nations, according to industry sources.
Two pharmaceutical company sources, speaking on condition of anonymity, revealed that government health officials have directly communicated this policy direction is under active exploration. The sources expect the initiative would be implemented through the Centers for Medicare and Medicaid Services (CMS).
"This is the biggest existential threat to the industry and U.S. biosciences innovation," one source told Reuters, describing the potential policy as a mid-level priority for the incoming administration as it seeks to fulfill campaign promises on lowering healthcare costs.
The Pricing Gap Challenge
The United States consistently pays the highest prices for prescription medications globally, with costs often reaching nearly three times those in comparable developed nations. President-elect Trump has repeatedly stated his intention to close this gap, though specific implementation details have remained unclear until now.
During his first term, Trump proposed a similar international reference pricing program that was projected to save American taxpayers more than $85 billion over seven years. However, that initiative was ultimately blocked through court challenges. U.S. annual spending on prescription drugs exceeds $400 billion.
The pharmaceutical industry trade group PhRMA has already begun lobbying Congress on this issue, according to government records, signaling the sector's serious concerns about the potential policy.
Implementation Through Medicare
Sources indicate the administration may implement the policy through a pilot program within the Centers for Medicare and Medicaid Services' innovation center (CMMI). These pilots typically can extend for years and may apply to either Medicare, Medicaid, or both programs.
While Trump has not publicly discussed reference pricing since taking office, the conservative think tank America First Policy Institute recently circulated a paper suggesting the policy could be incorporated within Medicare's drug price negotiations.
The Biden Administration's Inflation Reduction Act already allows the government to negotiate prices for the costliest drugs. However, Reuters previously reported that the prices for the first 10 prescription drugs negotiated were still on average more than double, and in some cases five times, what drugmakers had agreed to in four other high-income countries.
Significant Implementation Challenges
Health economists and policy experts note that implementing such a policy would face substantial challenges. Anna Kaltenboeck, a health economist at Verdant Research, pointed out that CMS would struggle with the manpower requirements needed to execute such a complex program.
"The Centers for Medicare & Medicaid Services only has so many staff and implementing such a policy may require a fair amount of manpower that CMS is going to struggle to muster," Kaltenboeck said.
This challenge is compounded by the Trump administration's plans to reduce government health agency staffing, including approximately 300 positions at the Medicare agency out of 10,000 total targeted by Health Secretary Robert F. Kennedy Jr. An additional 10,000 employees have already departed after accepting buyout and early retirement options, according to HHS.
Practical Hurdles and Industry Response
Beyond staffing constraints, the policy faces other practical obstacles. Rena Conti, an associate professor at Boston University, noted there are thousands of approved drugs in the U.S., some of which are not covered by or have not been launched in potential reference nations.
A 2022 JAMA study highlighted this disparity, finding that while 92% of nearly 600 new medicines were available in the U.S., only 80% were available in Germany, one potential reference country.
Additionally, many countries don't publish their actual drug costs. While the administration could estimate prices based on publicly available data, this approach wouldn't account for confidential discounts negotiated between governments and pharmaceutical companies.
Industry experts also warn that pharmaceutical companies might respond strategically by renegotiating contracts with reference countries to increase prices, thereby raising the benchmark for U.S. prices while generating higher revenue abroad.
The White House, the U.S. Department of Health and Human Services, and PhRMA did not respond to requests for comment on the potential policy.
