In May 2025, the US government enacted a sweeping executive order aimed at cutting prescription drug prices by up to 90 percent,¹ aligning them with prices in other developed nations via a Most-Favored Nation (MFN) drug pricing model. The policy represents one of the most significant structural reforms in US healthcare in decades, targeting intermediaries such as Pharmacy Benefit Managers (PBM), curbing rebate-driven opacity and promoting transparent, direct-to-consumer pricing models.

This move arrives amid mounting pressure on the healthcare ecosystem. The prescription drug spending in the US has more than doubled – from USD 208 Billion in 2005 to over USD 463 Billion in 2024,² driven by high-cost specialty drugs, pricing opacity and a fragmented value chain. Drug prices in the US are estimated to be two to three times higher than in countries such as Germany, Canada and the UK.³ Simultaneously, Selling, General and Administrative (SG&A) costs across healthcare have outpaced inflation, straining provider margins and payer reserves.

The MFN pricing policy seeks to course-correct, but its disruption is swift and far-reaching. From payers and PBMs to health systems, pharmaceutical manufacturers and consumer health companies, the mandate challenges legacy models and exposes inefficiencies. And all this occurs as the healthcare industry simultaneously adapts to value-based care, digitization and rising consumer expectations.

This article explores the implications of the MFN pricing model and outlines how future-ready healthcare organizations can respond by driving operational agility, digitizing aggressively and re-thinking value delivery.

Setting the Context: A Sector Already in Transition

The 2025 US drug pricing reforms come at a time when the healthcare industry is already transforming, shaped by evolving policies, technological disruption and heightened consumer expectations. Key concurrent trends include:

• Value-based Care in 2025: Emphasis on outcome-based reimbursement, patient-centric metrics and cost-efficiency

• Digital Health Adoption: Surge in Artificial Intelligence (AI)-powered diagnostics, virtual care platforms and Electronic Health Record (EHR) interoperability

• Consumer Empowerment: Transparent pricing, personalized care and data-enabled decision-making

These broader trends magnify the urgency of responding strategically to the pricing policy.

Stakeholder Impact: Sector-wide Disruption

1. Health Plans (Payers)

In 2010, drug costs comprised 12 percent of total US healthcare spend. In 2024, that figure exceeded 17 percent.⁴ The MFN model seeks to arrest this trend but at the cost of business-as-usual for payers.

The MFN-driven price reduction policy is set to significantly alter how health plans structure and manage reimbursements. With reduced room to negotiate pricing with pharmaceutical manufacturers, payers will need to re-think their formulary strategies and reimbursement frameworks to ensure both cost-efficiency and therapeutic efficacy. Short-term financial strain is likely as plans re-calibrate to new price benchmarks, prompting the need for more predictive, data-enabled cost modeling and dynamic benefit design. Agility in responding to pricing updates will be critical, as will the ability to maintain service continuity while adapting to these sweeping changes.

PBMs

PBMs are among the most directly impacted by the executive order, with their traditional rebate-based revenue models now under pressure. As regulatory scrutiny intensifies and transparency becomes non-negotiable, PBMs will need to pivot toward more accountable, digitally transparent operations.

Rather than calling for the elimination of PBMs, industry stakeholders such as AHIP have emphasized the need for structural reform. AHIP’s 2024 position⁵ highlights the importance of transparency and contracting flexibility in enabling PBMs to continue delivering value to employers and consumers.

This includes embracing real-time analytics platforms, automated rebate tracking and next-gen contract management tools to sustain relevance in an increasingly direct-to-consumer pricing ecosystem. The industry may witness increased consolidation as PBMs seek scale and innovation to offset the loss of traditional margins and re-define their value in the new pharmaceutical value chain.

Hospitals and Health Systems

Health systems will need to respond swiftly to shifts in pharmaceutical procurement and pricing strategies. Departments managing drug acquisition, reimbursement and patient billing will face immediate challenges in aligning budgets and supply chain agreements with the new mandates. Beyond operational re-calibration, there will be implications for patient access, especially for high-cost therapies that may be re-priced or re-classified.

During the 2008 financial crisis, hospitals delayed IT investments and cut back on low-margin services, with recovery spanning multiple fiscal cycles. In contrast, the landscape in 2025 offers the opportunity to significantly compress that response window. Institutions that integrate real-time financial analytics, optimize Revenue Cycle Management (RCM) processes and enhance clinical decision support will be better equipped to manage this disruption without compromising care delivery.

Pharma Companies

Pharma manufacturers are at the epicenter of the reform, facing direct pressure to cut prices while safeguarding their innovation pipelines. As US revenues decline, there will be a cascading effect on global pricing strategies and R&D investment priorities. Companies will need to re-engineer their commercialization models using data-driven pricing intelligence, invest in AI to reduce development timelines and strengthen direct engagement with providers and patients. Those that adapt to value-based paradigms and unlock efficiencies across the product lifecycle will be better positioned to remain competitive in this new environment.

Consumer Health Companies

While not the primary target of the policy, consumer health firms stand to benefit from shifting consumer behavior. With rising awareness around affordability, demand for cost-effective, Over-the-Counter (OTC) alternatives is expected to increase. The US OTC market is projected to reach approximately USD 43 Billion (in value) in 2025, with a compound annual growth rate of 3.65 percent forecast between 2025 and 2029.⁶ This presents opportunities for companies to expand product portfolios, leverage omni-channel sales strategies and apply behavioral analytics to drive personalized engagement. At the same time, growth will invite greater regulatory scrutiny, necessitating strong quality control, transparent labeling and investment in digital trust-building mechanisms. The winners will be those who scale responsibly while staying attuned to evolving consumer expectations.

Strategic Response: Re-thinking the Operating Model

Healthcare organizations should approach the price reform not merely as a compliance hurdle, but as a strategic inflection point. Those that act early to modernize operations, digitize core processes and diversify revenue streams will be best positioned to lead in a price-sensitive, globalized healthcare market.

Enabling Smarter Healthcare with Technology-led Partnerships

As the healthcare ecosystem adjusts to unprecedented disruption, transformation partners with deep domain excellence and AI-driven capabilities can play a critical role in enabling agility, compliance and innovation. Here’s how healthcare segments can benefit from such partnerships:

Conclusion: Leading Through Disruption

The 2025 drug price reforms have re-defined the healthcare cost structure, ushering in a new era that demands agility, innovation and customer-centricity. Those that co-create future-ready models – by harmonizing intelligent platforms, human ingenuity and data ecosystems – will not only withstand this regulatory shock but also emerge as leaders in a re-shaped healthcare economy.

Facing the 2025 pricing drug price shock? Discover how we’re enabling healthcare organizations to lead through reform – smarter, faster and future-ready. Explore our capabilities | Connect with our experts

References

1. Trump Signs Sweeping Executive Order to Cut US Drug Prices by Up to 90% | Fierce Pharma

2. Prescription Drug Expenditure in the United States from 1960 to 2024 |Statista

3. Why Americans Pay So Much More for Prescription Drugs | CNBC

4. Health Care Costs and Affordability | KFF

5. PBMs: Impact on Employer-Provided Coverage Contract & Benefit Design | AHIP

6. OTC Pharmaceuticals – United States | Statista