Trump Issues Executive Order to Lower Prescription Drug Prices
April 22, 2025
On April 15, 2025, President Trump signed an executive order titled “Lowering Drug Prices by Once Again Putting Americans First.” As outlined in the accompanying fact sheet, the new executive order expands upon numerous initiatives introduced during the first Trump administration and calls for improved disclosure of PBM compensation to group health plans. It follows a February executive order focused on healthcare transparency requirements, which we covered in our March 4, 2025, article.
Overview
As background, an executive order generally does not have the same force as legislation and does not instantaneously change compliance requirements or otherwise have immediate effect. Instead, an executive order directs federal administrative agencies to take conforming actions during the coming months, such as by the issuance of new rules, regulations, or reports.
Generally, the new order directs the DOL and HHS, in conjunction with other federal parties, to take certain steps within 90 to 180 days to reduce prescription drug prices and increase transparency and competition in prescription drug markets. Numerous provisions of the order are directed at lowering drug costs under federal programs, such as Medicare and Medicaid, and would not directly affect group health plans. Other provisions are more general (e.g., combatting anti-competitive behavior by drug manufacturers, accelerating approval of alternatives for high-cost drugs, and increasing drug imports) and may eventually impact group health plan pricing. However, as explained further below, several provisions are specific to group health plans and thus particularly relevant to employer plan sponsors.
Applicability to Group Health Plans
Significantly, Section 12 of the order calls for improving transparency into PBM fee disclosures. Specifically, the DOL is required to propose regulations within 180 days (i.e., by October 12, 2025) pursuant to ERISA § 408(b)(2) to provide greater clarity for employer health plan fiduciaries regarding the direct and indirect compensation received by PBMs.
Additionally, Section 8 of the order calls for reevaluating the role of drug middlemen, which include PBMs who act as intermediaries between drug manufacturers, employers or insurers, and pharmacies. The fact sheet outlines that such a reevaluation will involve not only the development of a more transparent and efficient prescription drug value chain but also the improved disclosure of fees paid by PBMs to steer employers to use their services. Accordingly, improvement of existing fee disclosures provided to group health plan fiduciaries appears to be an important objective of the order.
Service Provider Compensation Disclosure Requirements
Pursuant to the CAA 2021, service providers that expect to receive $1,000 or more in connection with brokerage or consulting services to an ERISA group health plan (whether fully insured or self-insured) are already required to provide a written compensation disclosure to the responsible plan fiduciary (typically, the plan sponsor) before entering a contract with the plan. The disclosure must describe the services they will provide, the direct and/or indirect compensation they will receive, and whether the services are fiduciary in nature. The disclosure is designed to assist the ERISA plan fiduciary in determining if the service provider’s compensation is reasonable and identifying potential conflicts of interest, and must be received and reviewed by the fiduciary to avoid engaging in a prohibited transaction involving the plan and plan assets.
Similar § 408(b)(2) disclosures for retirement plans took effect back in 2012, and the DOL, IRS, and HHS released detailed regulations regarding the disclosure requirements, with a particular focus on the complicated indirect compensation arrangements existing in the retirement industry. By contrast, no formal rules or regulations were issued specific to group health plan compensation disclosures, despite the complexity of certain payment arrangements, including with respect to PBM services. Concerns have grown regarding the opaqueness of PBM compensation, which can include not only administrative fees, but also drug manufacturer rebates and pharmacy spread (where a plan is charged more for a drug than the pharmacy reimbursement price), and whether plan sponsors can effectively evaluate whether PBM compensation is reasonable. Apparently, the executive order seeks to tackle these concerns; however, it’s unclear if the new regulations will focus solely on PBM compensation or also address other types of brokerage and consulting compensation currently covered by the §408(b)(2) disclosures.
Employer Takeaway
The fiduciary obligation of plan sponsors to monitor plan pricing and service provider compensation has come to the forefront in recent years, in part due to transparency laws and related litigation. Although the impact of this new executive order may not be immediate, employers should prepare for rulemaking activity and increased regulatory attention focused on prescription drug markets and pricing, and particularly, the role and compensation of PBMs.
Employers should ensure they receive and review §408(b)(2) compensation disclosures from covered group health plan service providers, including with respect to PBM brokerage and consulting services, carefully evaluate the content to determine if the compensation is reasonable, and document the process. As necessary, employers should engage independent experts and/or counsel before entering plan service provider contracts or arrangements to ensure they fully understand the terms.
We will monitor developments regarding this executive order closely and report updates in future editions of Compliance Corner.
Executive Order
Fact Sheet