Lowering Drug Costs: What Employers Need to Know from the Latest Executive Order

On April 15, 2025, President Trump issued an executive order (EO) targeted at lowering prescription drug prices for health plan participants and beneficiaries. The EO covered various issues, such as enhancing price transparency, reforming pharmacy benefit managers (PBMs), and boosting competition to lower prescription drug costs.

PBM Reform and Compensation Disclosure

The EO directs the Department of Health and Human Services (HHS) to work with the Office of Management and Budget (OMB) and other agencies to evaluate the role of "middlemen" like PBMs in the prescription drug delivery and pricing framework. Within 90 days, these agencies must provide recommendations to create a more competitive, efficient, transparent, and resilient pharmaceutical value chain that delivers lower drug prices for Americans.

This order also instructs the Department of Labor (DOL) to propose regulations under ERISA within 180 days to enhance transparency regarding compensation paid to PBMs servicing employer health plans. This seems to build on earlier amendments to ERISA, under the Consolidated Appropriations Act, 2021 which require service providers to disclose information about the direct and indirect compensation they expect to receive to plan fiduciaries.

A fact sheet accompanying the order indicates that it aims to enhance the transparency of fees paid by PBMs to brokers for directing employers to utilize their services.

Additional Price Transparency Requirements

The EO emphasizes the administration's ongoing efforts to reduce prescription drug costs by enhancing price transparency. During Trump’s first administration, significant regulations were issued to enhance healthcare transparency, including the implementation of ACA's Transparency in Coverage (TiC) rules.

Under TiC, health plans are required to disclose detailed pricing information to participants, beneficiaries, and enrollees. This includes the actual prices that health plans or their pharmacy benefit managers (PBMs) pay for prescription drugs.

More recently, the second Trump administration issued Executive Order 14221 on February 25, 2025, calling for additional healthcare price transparency requirements and enforcement for health plans, insurers, and hospitals.

Medicare Part D Negotiation Program

The EO builds on the Inflation Reduction Act (IRA) which made several changes to the standard Medicare Part D drug benefit. The IRA mandates that the Centers for Medicare & Medicaid Services (CMS) identify host-cost prescription drugs and negotiate their prices, effective January 1, 2026.

Additionally, the IRA includes caps on out-of-pocket prescription drug costs and cost-sharing for insulin for Part D beneficiaries. The EO instructs HHS to issue guidance within 60 days to improve transparency in the Medicare Prescription Drug Negotiation Program. This guidance will prioritize the selection of high-cost prescription drugs for the Medicare program and aim to minimize any negative impacts of the maximum fair price on pharmaceutical innovation within the United States.

The EO includes many directives to lower prescription drug prices. Efforts to regulate PBMS, like making drug costs more transparent and setting fair reimbursement rates, have been gaining support at both federal and state levels. In December 2024, federal legislation almost passed that would have required PBMs to be much more transparent and provide detailed reports on the money they receive for covered prescription drugs.

Additionally, several states, including Arkansas, Florida, Tennessee, and Texas, have enacted laws regulating PBMS, prompting litigation as to whether these laws are preempted by ERISA. Employers who sponsor group health plans should be aware of these proposals, including the call for required fee disclosures concerning PBM payments under ERISA.

As federal policies evolve, rely on our team of compliance leaders to help you stay on top of key actions, pending legislation, and regulatory changes that may impact your organization. Visit OneDigital's resource page for real-time updates: Federal Policy Updates for Employers: What to Watch in 2025.