On Monday, President Trump signed an executive order urging drug manufacturers to voluntarily reduce prices for major medications in the United States.

Nonetheless, the order lacks explicit legal authority to enforce lower prices. It states that if drug companies do not comply, the administration may explore regulatory actions from foreign nations or consider importing drugs from abroad.

This seemed like a win for the pharmaceutical sector, backing policies that could severely impact their profits.

Last week, Trump emphasized the announcement, stating it was “significant enough to make an impact.” He also mentioned in a Sunday evening post on Truth Social that they would connect U.S. drug prices to those in comparable countries under the “most favored nation” pricing model.

His executive order won’t achieve that goal. Following the news, drug stocks surged on Monday.

This order by Trump came just hours after House Republicans slashed about $700 billion from the Medicaid and Obamacare markets, proposing extensive healthcare changes that could potentially leave 8.6 million Americans without insurance. Congress declined to include measures that would impose direct limits on drug prices in its packages.

The executive order also called for federal agencies to investigate the reasons behind lower prices in European nations and to pursue additional payments. The Trump administration has limited power to influence drug prices in Europe.

“I’m not criticizing pharmaceutical companies,” Trump remarked before signing the order. “I’m primarily critiquing the country rather than the pharmaceutical firm.”

Trump opted not to suggest measures that could be more effective, such as proposing that the administration collaborate with Congress to reform how government health programs compensate for certain drugs.

“The executive order seems more like an ambitious statement than a genuine effort to initiate policy shifts,” commented Amith Salpatwali, a medical policy student at Harvard Medical School.

While numerous Republican lawmakers have resisted attempts to control drug prices, Trump has consistently challenged the existing system, pointing out that U.S. drug companies charge significantly more than their counterparts globally.

“We plan to support pharmaceutical companies in other countries,” he said at an event on Monday.

Trump also threatened to leverage trade policies to pressure European nations into paying higher prices for prescription drugs. However, pharmaceutical companies are already tied to government contracts, and attempts to raise prices for new drugs could be met with resistance from European countries. Experts warned that an increase in prices in Europe does not automatically result in lower prices in the U.S.

During his first term, Trump aimed to implement a more comprehensive policy to reduce drug prices for Medicare, a health insurance program for those over 65 or with disabilities. This plan would have impacted only 50 drugs administered in clinics and hospitals, but a federal court blocked it, determining that the administration sidestepped due process in policymaking.

If pursued correctly, it’s uncertain whether the policy could have survived legal scrutiny. Some experts opined that Trump required congressional support to enact the law.

The White House heralded the announcement as groundbreaking. Trump’s Monday executive order calls for broader reforms than were proposed during his first term, potentially affecting more drugs and all Americans instead of just some Medicare patients. However, there is no clear pathway for implementing price reductions.

“It almost seems like: we want a lower price and will see what happens,” remarked Stacey Dusetzina, a health policy professor at Vanderbilt University, who studies drug pricing. She added that in the absence of more substantive actions, “I don’t foresee drug prices decreasing anytime soon.”

The order stated that if initial measures do not yield notable progress in lowering U.S. drug prices, the Trump administration may “consider a regulatory plan to impose pricing standards based on the most favored nations.”

Democrats have introduced numerous bills aimed at aligning American drug prices with those in other countries, and laws passed during the Biden administration now allow Medicare to directly negotiate prices for a limited selection of drugs used in the program. Overall, drug pricing policies enjoy broad public support across both Republican and Democratic voters.

The pharmaceutical industry has voiced its concerns over potential tariffs on imported drugs that Trump has promised to impose immediately. These tariffs are likely to reduce drug manufacturers’ profits, even as they might increase some drug prices in the U.S. and pass on additional costs.

Investors reacted positively, recognizing that Trump did not propose more substantial policies. After earlier declines, drug stocks rebounded when details of Trump’s announcement emerged, with Merck shares rising 6% and Pfizer’s shares nearly 4%. The small biotech stock index also rose by 4%.

“Better than expected,” a Wall Street Bank analyst mentioned in a note to investors. “More bark than bite,” commented analysts at TD Cowen.

In Monday’s statement, a drugmaker lobbying group asserted that the U.S. should not look to other countries to determine drug pricing.

However, significant industry organizations, including PhRMA, commended Trump for using trade negotiations to pressure foreign governments to “pay their fair share for medicines.”

“U.S. patients should not bear the financial burden of global innovation,” stated Stephen J. UBL, PhRMA’s CEO.

Currently, U.S. brand drug prices are three times higher on average compared to similar countries.

Drug manufacturers typically design their business strategies around U.S. profits. Essentially, U.S. profits drive their revenues.

Pharmaceutical companies assert that U.S. prices accompany additional advantages. Industry-funded analyses show that U.S. patients gain faster access to medications, and experience fewer insurance limitations compared to other regions.

In many affluent countries, governments generally cover prescription drug costs for the entire population, negotiating substantial discounts with drug manufacturers. Numerous other nations employ comparative pricing to establish what they are willing to pay.

In contrast, the U.S. government has minimal direct involvement in setting drug prices, aside from the Biden-era program affecting a limited number of Medicare drugs, which is currently under the Trump administration’s oversight.

Earlier this month, Republican Senator Josh Hawley from Missouri and Democrat Peter Welch from Vermont introduced a bill aimed at capping the average prices paid based on peer country comparisons.

In an interview, Welch expressed agreement with Trump’s assertion that Americans are overpaying for drugs and believes that international comparisons could help establish fairer pricing. However, he emphasized that congressional action is necessary to create enduring policies.

“It’s essential to tackle this legislatively,” he stated.

Trump’s executive order assigns his administration a month to communicate voluntary “price targets” for select drugs to pharmaceutical companies. White House officials indicated that it is likely that a weight-loss drug known as GLP-1 (which includes popular medications like Zepbound and Wegovy) might be among those discussed.

Trump noted at a press conference on Monday that the costs for “weight-loss drugs” are substantially lower in Europe than in the U.S.

In many scenarios, Americans face costs of around $500 a month for these medications without insurance, while European pharmacies often charge a few hundred dollars less. Most patients in Europe pay out-of-pocket for drugs, as the national health systems typically do not cover them.