How International Price Indexing Works Under the Trump International Drug Price Order

In 2025, President Donald Trump issued a sweeping executive order aimed at curbing the high cost of prescription drugs in the United States. A central component of this initiative was the reintroduction and expansion of international price indexing, a policy mechanism designed to align the price Americans pay for prescription drugs with the rates paid in other developed nations. This article explores how the Trump international drug price order uses price indexing, what it means for Medicare, and how it could transform the pharmaceutical landscape long-term.

What Is International Price Indexing?

International price indexing (IPI) is a policy approach that ties domestic drug prices to the prices paid in foreign countries. The goal is to ensure that U.S. consumers particularly those covered by Medicare, are not overpaying for medications compared to patients in countries like Germany, Japan, and the United Kingdom.

According to the Centers for Medicare & Medicaid Services, the IPI model benchmarks U.S. prices against an average of what other nations pay for the same drugs, often resulting in significantly lower cost estimates. In the context of Trump’s 2025 policy, this model would apply primarily to Medicare Part B and Part D drugs, which are some of the most expensive categories.

Trump’s 2025 Executive Order: A Bold Move

In April 2025, the White House released a fact sheet outlining the executive order’s intent to slash prescription drug prices by as much as 59% for select high-cost medications. The Trump administration argued that American consumers were unfairly subsidizing lower drug prices abroad and pledged to realign U.S. drug costs with international standards.

This effort builds on Trump’s earlier 2020 executive order on drug importation and affordability, expanding its scope and enforcement power. In both cases, the Trump White House emphasized the need to bypass congressional gridlock and act unilaterally to lower healthcare costs.

Why U.S. Drug Prices Are So High

The U.S. pays more for prescription drugs than any other country. A key reason is the lack of a centralized negotiation body. While other countries negotiate directly with manufacturers to set national prices, the U.S. has historically relied on private negotiations and market dynamics.

The Congressional Research Service highlights that this decentralized system leads to wide variations in pricing, limited transparency, and little leverage for government payers like Medicare. The absence of benchmarking against international norms creates upward pressure on pricing.

Additionally, the U.S. Consumer Price Index (CPI), which tracks inflation trends, shows healthcare and pharmaceutical prices have risen more sharply than overall inflation over the past century (BLS.gov).

How the Price Indexing Works Under Trump’s Order

Under the Trump international drug price order, Medicare would calculate the maximum allowable reimbursement rate for select drugs using an average of prices paid by a reference set of foreign nations. The list includes countries with developed healthcare systems and established pricing transparency.

The Trump administration’s framework defines a price ceiling for each drug, beyond which Medicare cannot reimburse providers or pharmacies. The intent is to force pharmaceutical companies to either lower their U.S. list prices or risk losing access to the Medicare market.

This move echoes the IPI demonstration model previously considered by CMS, but the 2025 order adds legal teeth and broader applicability.

Economic and Global Trade Implications

Critics argue that benchmarking drug prices to international standards could disincentivize pharmaceutical innovation. Companies may reduce R&D budgets if revenue drops significantly in the U.S. market, which accounts for the largest share of global profits.

However, others contend the industry can absorb these changes. A Brookings Institution report shows that while the U.S. leads in pharmaceutical output, it trails in cost efficiency compared to European and Asian countries. Aligning U.S. pricing may pressure companies to innovate operationally rather than just raise prices.

Internationally, the policy may create friction with trade partners if U.S. price controls distort global pricing benchmarks or strain supply chains.

Impact on Medicare and Patients

For Medicare beneficiaries, the potential benefits are significant:

Lower out-of-pocket costs for expensive medications

Greater consistency in drug pricing nationwide

Possible expansion of access due to affordability improvements

However, the policy may also trigger unintended consequences:

Some manufacturers may withdraw drugs from the Medicare market

Legal challenges from pharma companies could delay or dilute implementation

Nonetheless, if implemented fully, the price indexing approach could shift tens of billions of dollars in annual Medicare spending, freeing up resources for other services.

Legal Challenges and Future Outlook

As with previous drug pricing reforms, Trump’s 2025 order is expected to face heavy legal resistance. Pharmaceutical companies may argue that international price indexing constitutes price fixing or violates constitutional protections related to commerce.

The Congressional Research Service has noted that executive action in healthcare pricing, while legal under certain regulatory interpretations, remains a gray area that invites judicial scrutiny.

The order’s survival may depend on court rulings, the 2026 midterm election results, and the ability of HHS and CMS to operationalize the reforms amid industry opposition.

A Defining Policy Shift

The Trump international drug price order marks a radical turn in the federal government’s approach to controlling healthcare costs. By importing pricing standards from abroad, the Trump administration is betting on global alignment as a path to affordability.

Whether this leads to sustained savings or disruptive side effects remains to be seen, but one thing is clear: international price indexing is no longer a fringe proposal. It’s now a front-and-center tool in the evolving politics of prescription drug reform.

References:

CMS. International Pricing Index Model

White House. Fact Sheet: President Donald J. Trump Announces Actions to Lower Prescription Drug Prices

Congressional Research Service. Prescription Drug Pricing and Policy

Bureau of Labor Statistics. One Hundred Years of Price Change: The Consumer Price Index and the American Inflation Experience

Congress.gov. CRS Report Archive

Trump White House Archives. Executive Order on Drug Importation to Lower Prices for American Patients

Brookings Institution. Global Manufacturing Scorecard: How the U.S. Compares to 18 Other Nations