Pharmaceutical manufacturers are responding to the legislative provisions contained in the Inflation Reduction Act and the Trump administration’s executive orders on most-favored nation drug pricing by attempting to raise prices overseas, onshoring manufacturing facilities, recalibrating investment priorities and making changes in decisions on if and when to launch products in certain jurisdictions.

A survey conducted by Numerof & Associates of 175 executives from 67 pharmaceutical companies revealed the nature of the challenges facing them from drug pricing legislation and executive orders. The level of federal government action is unprecedented. Drug makers are strategizing ways to preserve the exclusive pricing power they’ve traditionally had the United States.

Beginning with the signing of the Inflation Reduction Act by former President Biden in 2022, the federal government began using a mix of controls (ceiling prices) and negotiations on behalf of Medicare — the insurance program for those above 65 and disabled groups — to arrive at so-called maximum fair prices for select high-cost medicines that had been on the market for a number of years and didn’t face generic or biosimilar competition. Though thus far Medicare has only implemented MFPs for ten drugs, more are on the way, including 15 in 2027 and 20 in 2028.

The early-stage pipeline appears to be shifting toward biologics where there is a longer period during which companies can avoid the possibility of being selected for price negotiation. Sometimes called the pill penalty, the nine versus 13-year grace periods seem to be driving this change in capital allocation.

The IRA also provided for a major redesign of Medicare’s outpatient pharmacy benefit, Part D. For patients with life-threatening diseases such as cancer that require expensive specialty medicines, having a $2,100 cap on out-of-pocket spending is vital. Prior to the IRA, there was no maximum. For drug makers the cap implies tradeoffs. It helps Medicare beneficiaries defray costs, which boosts uptake of medications. However, at the same time manufacturers are confronted with a mandatory discount of 20% in the catastrophic or high-cost phase of Part D. Furthermore, stand-alone prescription drug plans and Medicare Advantage insurers are tightening restrictions on medication coverage. This is because their financial liability has increased under the IRA, from 15% to 60% in the catastrophic phase.

The Trump administration has relaxed a number of IRA stipulations, such as exempting all orphan drugs that don’t have non-orphan designations from being selected for drug price negotiations. The law originally only excepted drugs with a sole orphan indication.

But for the most part, the administration has stuck to the script of the IRA legislation and is even attempting to “strengthen” it by way of “tougher” price negotiations. Additionally, the Centers for Medicare and Medicaid Services has issued a proposal to address fixed-dose combinations for the 2029 price negotiation cycle. CMS seeks to prevent a tactic called product hopping that can be deployed by pharmaceutical firms as a way to delay certain drugs from being selected for negotiation. Currently, drug makers can combine an existing pharmaceutical with an additional ingredient that enables it to be administered differently. For instance, hyaluronidase can be used to facilitate subcutaneous injection under the skin rather than infused intravenously. The newly formulated product is treated separately when determining eligibility for negotiation, which can restart the clock and postpone negotiations. CMS doesn’t want there to be a restart of the clock for such new formulations.

Moreover, the administration is trying to reinforce the IRA’s inflation rebate provision. As presently constituted, drug makers must pay a rebate to the federal government if they raise prices at a higher level than the inflation index. Proposed models, GLOBE and GUARD, in Medicare Part B (physician-administered drugs) and Part D, respectively, would mandate a rebate equal to the difference between the U.S. price and an international index. This is one of several permutations of the administration’s so-called most-favored nation policies , which aim to align U.S. prices with what’s paid in other comparably wealthy countries.

Caveats are in order as the GLOBE and GUARD models have largely been defanged . The 26 companies that have signed voluntary agreements with the Trump administration to reduce prices and onshore some of their manufacturing in exchange for tariff relief don’t have to participate in GLOBE and GUARD.

Nonetheless, even with projected savings at least 71% less than initially envisioned, GLOBE and GUARD will likely go ahead as will the GENEROUS demonstration project in Medicaid .

Since President Trump issued an executive order in May of last year to have the federal government develop MFN price targets for prescription drugs and communicate them to pharmaceutical manufacturers, the administration started designing these pilot projects in the public sector run by the Center for Medicare and Medicaid Innovation.

The CMMI initiatives deploy international benchmarks to lower drug prices in Medicaid and Medicare. Through the GENEROUS model, for instance, the federal government will negotiate pharmaceutical prices on behalf of state Medicaid programs based on what other countries pay . Medicaid is the main public program providing health insurance coverage for low-resourced individuals. The above-mentioned agreements between the administration and drug manufacturers serve as pillars of the GENEROUS model. The agreements are set to expire less than three years from now. So even though GENEROUS is projected to run for four years, it’s unclear whether the voluntary deals will renew once a new presidential administration assumes office.

Top official at the Department of Health and Human Services, Chris Klomp, has previously said that the proposed models, including GENEROUS, aren’t intended to necessarily lower U.S. prices. In March, Klomp spoke at a STAT conference and maintained that manufacturers could “price wherever they want.” In other words, the purpose isn’t a price cap. Rather it’s to raise prices in international markets.

However, it remains to be seen how feasible this goal is, as severe budget constraints throughout Europe continue to keep a lid on prices or even decrease them further in key countries such as Germany. If anything, there’s been a downward trend in recent years as price controls coupled with rigorous use of health technology assessment have led to lower prices in many jurisdictions.

And so, the question becomes whether firms will respond by withdrawing products from certain international markets or delaying launches of their newly approved drugs in these jurisdictions to avoid disadvantaging them from a pricing perspective. Some drug companies are apparently delaying the marketing of new medicines in Europe to avoid triggering international price comparisons .

The United Kingdom may be an exception to the rule. The U.K. is the only European country thus far that has agreed to a sovereign, country-wide trade deal with the U.S. to raise its drug prices in exchange for a 0% tariff rate . But this agreement faces major challenges in execution, including insufficient budgets to accommodate the higher prices implied by a 25% increase in the cost-effectiveness threshold. This represents a cut‑off that decision‑makers like the National institute for Health and Care Excellence use to decide whether a medical treatment, technology or service is worth funding.

NICE estimates the 25% higher threshold will allow 3–5 more medicines or indications to be recommended for National Health Service reimbursement each year.

Very recently, it’s come to light from emerging evidence that the U.S.-U.K. drug pricing agreement may be opening up access. NICE recently recommended Enhertu (trastuzumab deruxtecan) for adults with HER2-low advanced or metastatic breast cancer whose disease has progressed following treatment. The agency had previously rejected the medicine for this indication two years ago because it was not considered cost-effective under the old threshold.