Opinion: Understanding What Trump’s MFN Executive Order Can and Can’t Do

The Most Favored Nation (MFN) Executive Order signed by President Donald Trump on May 12, 2025, is politically intuitive but practically complex, aiming to lower U.S. drug prices by tying them to the lowest levels paid abroad. On paper, it looks like a simple fix. In practice, it runs counter to how nearly every part of the U.S. healthcare system operates—from regulatory authority to payer infrastructure to long-term investment incentives.

To evaluate its real-world implications, international management consulting firm Arthur D. Little, where I am a partner, conducted a five-part assessment of MFN, exploring what it could mean for stakeholders across the healthcare value chain—from policymakers to patients. Here are some of the biggest hurdles it faces in actually lowering drug prices in the U.S.

The MFN policy remains legally vulnerable and politically fragile. President Trump signed a nearly identical executive order in 2020, which was blocked by the courts for exceeding statutory authority and bypassing required procedures. Those legal concerns remain unresolved. MFN-style pricing may also conflict with existing Medicare and Medicaid statutes, including the non-interference clause and best price requirements. The non-interference clause prohibits the federal government from directly negotiating prices with manufacturers under Medicare, while the best price requirement mandates that Medicaid receive the lowest price available to any commercial payer—two constraints that limit federal leverage over pricing.

Without enabling legislation, MFN remains vulnerable to legal challenge, repeal or administrative inaction.

Even if legal, MFN pricing is not operationally viable within current systems. The policy establishes a rigid pricing formula based on international benchmarks. Implementing it would require building new capabilities to track foreign prices, audit compliance and apply those benchmarks across Medicare, Medicaid and commercial systems. None of those capabilities currently exist.

In parallel, MFN would disrupt how payers negotiate rebates, set formularies and structure benefit designs. Market actors, including manufacturers and pharmacy benefit managers (PBMs), are likely to resist, delay or litigate.

The MFN order proposes linking U.S. drug prices to international benchmarks—a move the administration claims could reduce Medicare drug spending by 30 to 80 percent. While commercial markets are not explicitly included, manufacturers may still choose to align pricing across channels to mitigate regulatory risk, avoid triggering best price penalties or prevent price disparities that could create downstream negotiating challenges. Supporters of the policy often frame this approach not just as a domestic cost-saving measure, but as a way to ensure that other countries contribute their fair share to the cost of pharmaceutical innovation—rather than benefiting from prices subsidized by the U.S. market.

These commercial pricing shifts create financial risk by triggering unintended rebate obligations and margin compression. If manufacturers lower prices offered to commercial payers—whether to preempt pressure from Medicare or to maintain pricing coherence—they could inadvertently trigger Medicaid best price resets, increasing required rebates. This is due to the structure of Medicaid’s best price rule, which requires manufacturers to offer Medicaid the lowest price available to any commercial payer. A single low price offered to a commercial payer can cascade into higher rebate obligations nationwide. This indirect effect amplifies the financial impact of MFN, putting further pressure on margins and pricing strategies, particularly for drugs in price-sensitive or lower-return segments.

The MFN Executive Order may reduce list prices for certain high-cost drugs, but those savings will not be felt equally by all patients. Only those with percentage-based coinsurance would see a direct reduction in out-of-pocket costs. Patients with fixed-dollar copays would likely see no change. And because insurers often rely on manufacturer rebates—tied to higher list prices—to help offset premiums, lower prices could reduce rebate revenue and lead to higher premiums instead.

These shifts could also affect how drugs are placed on insurance formularies. If prices drop below specialty tier thresholds, some therapies may be moved to different tiers, altering what patients pay. At the same time, plans that depend heavily on rebates may need to reconfigure tier structures or remove certain drugs altogether to maintain financial balance.

Though framed around affordability, the real-world benefit for most patients is likely to be modest and uneven.

The implications of MFN pricing extend beyond the U.S. market. However, foreign governments are unlikely to raise drug prices without external pressure. Manufacturers may attempt to shield U.S. benchmarks by delaying entry in lower-priced countries, but this effect is temporary and confined to new launches. As a result, MFN’s impact on global pricing would likely be limited in both scope and duration.

Domestically, MFN could reshape how pharmaceutical companies allocate capital. The U.S. will remain a critical market, but reduced margins may prompt firms to reprioritize investment—focusing on high-return indications, deferring riskier development programsor slowing certain launches. Over time, this could reduce the number of new therapies reaching patients, particularly in therapeutic areas with uncertain commercial returns.

Given these barriers, it is highly unclear what the MFN order’s ultimate impact will be. Key early indicators we’re keeping an eye on include:

• The 30-day price communication window: The executive order instructs the Department of Health & Human Services (HHS)—working with the Centers for Medicare & Medicaid Services (CMS) and the White House Domestic Policy Council—to communicate MFN price targets to pharmaceutical manufacturers within 30 days. How these entities conduct that outreach will set the tone for what follows.
• Early legal activity and potential injunctions: As in 2020, legal challenges are expected. Watch for lawsuits seeking preliminary injunctions and how quickly courts move. A legal pause could delay or deflate implementation before it begins.
• CMS or HHS follow-on guidance: Formal rulemaking or sub-regulatory guidance will be required to operationalize MFN. The scope, enforcement mechanisms and implementation timeline will clarify whether the policy has practical momentum.
• Foreign government reactions: Some foreign governments may oppose the MFN framework—not only on sovereignty grounds, but also to assert their authority over domestic pricing policy and signal that they will not raise prices simply to accommodate U.S. benchmarks. Such statements could undercut the assumption that international price levels are flexible or negotiable.
• Congressional maneuvering and political bandwidth: With attention focused on the administration’s tax and spending package—widely referred to as the “One Big, Beautiful Bill”—there is little room in the Congressional schedule for new drug pricing legislation before the summer recess. Legislative focus will soon shift to FY26 appropriations, making it unlikely that any MFN-enabling bill will advance this year.
• Spillover into other pricing policies: The MFN order could signal broader themes. Stakeholders should watch for movement in Inflation Reduction Act price negotiation implementation and PBM transparency debates.
• Investor sentiment and market signals: The NASDAQ Biotechnology Index has remained largely flat since the executive order, a sign that investors do not view MFN as financially material in its current form. A shift in valuations—especially among launch-stage biotech firms—would signal that the market is beginning to reassess that risk.
  

The MFN Executive Order reflects a familiar political impulse—to align U.S. drug prices with lower prices paid elsewhere—but its implementation is subject to the structural realities and complications of the American healthcare system. That implementation will determine whether MFN evolves into a durable, operational framework.