Last updated on April 19, 2025
On April 15, 2025, President Trump signed an executive order designed to reduce prescription drug prices in the United States. This order proposes several policy changes, including addressing the so-called “pill penalty,” which has been a point of contention within the pharmaceutical industry. The executive order’s potential impacts span the biopharma industry, drug innovation, and the prices paid by U.S. citizens, particularly those on Medicare.
Understanding the Executive Order’s Provisions
The executive order directs the Department of Health and Human Services (HHS) to collaborate with Congress to amend Medicare’s drug pricing policy. A significant focus is on delaying the eligibility of small molecule drugs (primarily pills) for Medicare price negotiations from nine to thirteen years, aligning them with biologics. This change is designed to address concerns that earlier negotiations for small molecule drugs could slow down innovation in the development of small molecule drugs.
Small molecule drugs are typically chemically synthesized and relatively small in molecular weight while biologics are large, complex molecules produced by biological processes, often using living cells. Examples of small molecule drugs include Aspirin (Bayer), Atorvastatin (Lipitor), Ibuprofen (Advil, Motrin), Metformin (Glucophage), and Omeprazole (Prilosec.) Examples of biologics include Humira (Adalimumab), Herceptin (Trastuzumab), Remicade (Infliximab), Insulin (Humulin, Novolin), and Keytruda (Pembrolizumab)
Impact on the Biopharma Industry
The proposed delay in price negotiations for small molecule drugs is seen as a possible win for pharmaceutical companies. By extending the period before price negotiations can occur, companies may have increased revenue opportunities, potentially leading to more investment in research and development. However, critics argue that this could delay cost savings for consumers and the Medicare program.
Effects on Drug Innovation
Those in favor of the executive order argue that aligning the small molecule and biologics negotiation timelines could encourage innovation by providing a longer period of market exclusivity. This could enable the development of more new medications. On the other hand, some experts argue that extending exclusivity could reduce the urgency to innovate and could lead to higher drug prices for a longer duration.
Consequences for U.S. Citizens and Medicare Beneficiaries
For Medicare beneficiaries, the executive order’s changes could have mixed effects. While the intention is to lower drug prices, delaying negotiations for small molecule drugs might postpone potential savings for seniors and other Medicare recipients. Additionally, the order includes directives to standardize patient payment rates across care locations and to streamline the approval process for generic and biosimilar drugs, which could enhance affordability and access in the long term.
The “Pill Penalty” and Its Implications
The “pill penalty” refers to the discrepancy in negotiation timelines between small molecule drugs and biologics under the Inflation Reduction Act. By addressing this issue, the executive order aims to create a more balanced approach to drug pricing negotiations. However, the potential delay in negotiations for small molecule drugs raises concerns about prolonged high costs for commonly used medications.
In Short:
President Trump’s executive order introduces significant changes to the U.S. drug pricing landscape. While it seeks to foster innovation and reduce costs, the actual impact on drug prices, the biopharma industry, and Medicare beneficiaries will depend on the implementation of these policies and the responses from various stakeholders.
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