President Donald Trump signed an executive order Monday instructing drug companies to reduce prices of prescription drugs or face consequences from the federal government.
But the effort amounts to price control since it’s not limited to just government programs — and similar policy initiatives in other sectors have prompted shortages, according to Michael Cannon, director of health policy studies at the Washington-based libertarian-leaning Cato Institute think tank.
‘We have seen government price controls in housing,’ Cannon told Fox News Digital Monday. ‘We call it rent control, and it creates shortages. We have seen it when it comes to food. We call them price caps there too, and it produces shortages.’
‘We see price caps after natural disasters,’ he continued. ‘We call them anti-gouging laws, and they produce shortages. And so that’s what we can expect price controls to produce when it comes to pharmaceuticals as well — that’s if you have a binding price ceiling, you’re going to get a shortage, and I think it’s totally a wrong-headed thing.’
Price control occurs when the government steps in to impose limits on how much one can charge for various goods or services in the free market.
While price controls may lower costs for some consumers, they have largely been ineffective in American history. For example, former President Richard Nixon implemented price controls in the 1970s in an attempt to fix wages and other prices — which backfired and resulted in the gas crisis and other shortages across the country.
For example, there was a series of initiatives that states unveiled in response to the COVID-19 pandemic in 2020 to address price-gouging, although they were difficult to enforce. In Michigan, Gov. Gretchen Whitmer signed an executive order in March 2020 that barred individuals or businesses from selling any products in the state ‘at a price that is more than 20 percent higher than what the business or individual offered or charged,’ according to a 2020 news release.
Trump announced Monday that the executive order directs the Department of Health and Human Services to establish price targets for pharmaceutical manufacturers. But Cannon noted that the order isn’t just for prices for the government — it also applies to the free market and private sector.
Failure to comply will prompt the Justice Department and the Federal Trade Commission to ‘undertake enforcement action against any anti-competitive practices,’ along with other consequences. Additionally, Trump introduced plans to launch ‘most favored nations drug pricing.’
‘The principle is simple — whatever the lowest price paid for a drug in other developed countries, that is the price that Americans will pay,’ Trump said at the White House Monday. ‘Some prescription drug and pharmaceutical prices will be reduced almost immediately by 50 to 80 to 90%.’
‘We’re going to equalize,’ Trump said. ‘We’re all going to pay the same. We’re going to pay what Europe pays.’
The White House pushed back against comments that the move equated price control.
‘If Americans had a truly free and fair market, they would not be paying several times more for the same exact prescription drugs as Europeans do,’ White House spokesperson Kush Desai said in a Tuesday statement to Fox News Digital. ‘President Trump’s historic executive order is fixing the anti-competitive behavior that’s forcing everyday Americans to subsidize the health care of other developed nations.’
Drug prices have dramatically climbed in recent years. From January 2022 and January 2023, prescription drug prices increased more than 15%, reaching an average of $590 per drug product, according to the Department of Health and Human Services. Of the 4,200 prescription drugs included on that list, 46% of the price increases exceeded the rate of inflation.
The Pharmaceutical Research and Manufacturers of America trade group argued the executive order would harm American patients.
‘Importing foreign prices from socialist countries would be a bad deal for American patients and workers,’ Stephen J. Ubl, the president and CEO of PhRMA, said in a Monday statement. ‘It would mean less treatments and cures and would jeopardize the hundreds of billions our member companies are planning to invest in America.’
In April, Trump signed another executive order that aimed to tackle Medicare drug prices. Specifically, that order required HHS to standardize Medicare payments for prescription drugs, including those used for cancer patients, regardless of where a patient receives treatment.
Patients could face a drop in prices by as much as 60%, according to a White House fact sheet.
The order also called to match the Medicare payment for certain prescription drugs to the price that hospitals pay for those drugs, up to 35% lower than what the government pays to acquire those medications, per the White House.
The Associated Press contributed to this report.