Trump seeks to end ‘Pill Penalty’ in push to lower drug costs

USA – President Donald Trump has issued a new executive order aimed at lowering prescription drug prices in the United States, calling on Congress to eliminate a key provision in the Inflation Reduction Act (IRA) known as the “pill penalty.”

The “pill penalty” policy, introduced in 2022 under the IRA, has long been a concern for pharmaceutical companies.

It allows biologic drugs to stay on the market for 11 years before Medicare can negotiate their prices — but only gives small-molecule drugs seven years.

This difference has raised concerns that the system discourages investment in cheaper, small-molecule treatments.

In his executive order signed Tuesday, Trump asked Health and Human Services Secretary Robert F. Kennedy Jr. to work with lawmakers to fix what he called a “distortion” in the law.

“The current system puts small-molecule drugs at a disadvantage,” the order states, “and it undermines investment in lower-cost treatment options.”

While Trump cannot change the IRA himself, his move puts pressure on Congress to act. Many in the pharmaceutical industry see this step as a win, especially after lobbying for equal treatment of drug types since the IRA was enacted.

The executive order also touches on other cost-cutting strategies, including faster approvals for generics and biosimilars, more transparency in the pharmacy benefit manager (PBM) system, and increased importation of medicines.

Kennedy, along with FDA Commissioner Marty Makary, has been directed to deliver a report in the next 180 days.

The report will recommend legislative solutions to speed up drug approvals — especially for generic versions, biosimilars, combination treatments, and “second-in-class” brand-name drugs. It will also explore how to reclassify more prescription drugs as over-the-counter options.

In another notable move, Trump is continuing efforts to reform the PBM industry, which began under the Biden administration.

PBMs serve as middlemen between drugmakers, insurers, and pharmacies. Trump’s order asks Labor Secretary Lori Chavez-DeRemer to create rules that will make PBM payment structures more transparent to employers.

These efforts follow a lawsuit filed by the Federal Trade Commission (FTC) last year against the country’s largest PBMs — Caremark (CVS Health), Express Scripts (Cigna), and OptumRx (UnitedHealth).

The FTC accused them of inflating insulin prices and driving up drug costs. Though that case was temporarily paused due to internal staffing issues, FTC Chair Andrew Ferguson has promised it will resume.

Trump’s executive order also revives a previous policy from his first term, urging states to import lower-cost prescription drugs from abroad.

Still, it remains unclear how this will be affected by potential tariffs on pharmaceutical products, which U.S. Commerce Secretary Howard Lutnick said could be introduced “in the next month or two.”