The Administration issued Executive Order (“EO”) 14293: Regulatory Relief to Promote Domestic Production of Critical Medicines on May 5, 2025 (whitehouse.gov/presidential-actions/2025/05/regulatory-relief-to-promote-domestic-production-of-critical-medicines). The EO seeks to ease obstacles for drug manufacturers to establish or expand domestic production facilities. For example, it streamlines Food and Drug Administration (“FDA”), Environmental Protection Agency, and Army Corps of Engineers reviews and inspections associated with building or expanding manufacturing facilities. These accelerated processes are intended to reduce a manufacturer’s cost to build or expand a facility with the intended result being lower prices for domestically produced drugs.

The EO also calls for enhanced FDA inspections of foreign manufacturing facilities. The inspections will be funded through increased fees imposed on foreign drug manufacturers. The likely result will be an increase in foreign drug production costs, which would lead to increased prices of foreign-produced drugs. Further, adding to the price of foreign drugs are the Administration’s proposed tariffs. If imposed, the tariffs could start at 15 percent and ratchet up to 150 percent and 250 percent over time.

The goal of increasing the prices of foreign-produced drugs is to enable domestically produced drugs to compete. Only time will tell whether the EO’s efforts will be enough to level the playing field. However, there are at least two obstacles that could prevent the Administration from reaching its goal.

The first potential obstacle results from another order issued just a week later—EO 14297: Delivering Most-Favored-Nation Prescription Drug Pricing to American Patients (whitehouse.gov/presidential-actions/2025/05/delivering-most-favored-nation-prescription-drug-pricing-to-american-patients). Under this EO, among other actions, the Secretary of the Department of Health and Human Services is to establish most-favored-nation (“MFN”) pricing targets for prescription drugs. The MFN pricing targets will be based on the prices paid by comparably developed countries. While MFN pricing targets should apply equally to foreign and domestic drugs, nothing in the EO contemplates that it will cost manufacturers more to produce drugs domestically. Even with the benefits discussed above afforded manufacturers under EO 14293, manufacturers producing drugs in the United States will face higher costs for such components as acquiring/procuring active pharmaceutical ingredients, direct labor, and capital investments. Without recognition of and factoring in higher domestic production costs in MFN pricing targets, domestic manufacturers’ prices may not cover production costs. No board of directors will approve building or expanding a production facility in the United States if the company will lose money on the sale of drugs domestically manufactured.

Second, to build or expand a manufacturing facility in the United States, there must be a market for domestically produced drugs. Foreign markets are a non-starter since they will have access to lower priced drugs manufactured outside the United States. The U.S. market consists of direct purchases by U.S. government agencies (primarily, the Departments of Veterans Affairs (“DVA”) and Defense (“DoD”)) and commercial purchasers, which includes private insurers and indirect U.S. government purchases under Medicare and Medicaid.

Although not as easy as it sounds, federal agencies could be given authority to make multi-year purchase commitments for domestically produced drugs. However, this alone is not enough to incent a manufacturer to build or expand a U.S. facility because DVA and DoD are a small part of the market when compared to the commercial market.

Private insurance, Medicare, and Medicaid buy the majority of drugs in the United States. Requiring Medicare and Medicaid providers to buy domestically produced drugs is not workable. These programs are already complex and cumbersome. Unless the prices of domestically produced drugs are equal to or less than foreign-produced drugs, private insurers likely will buy lower-priced foreign drugs. Thus, pharmacies would need to maintain two separate inventories—one of domestically produced drugs for Medicare and Medicaid patients and a second, separate inventory of foreign-produced drugs for private insured patients. Surely, the government would require pharmacies to keep detailed records to demonstrate Medicare and Medicaid patients were dispensed domestic drugs. And this is just one example of added complexity.

The Administration has been silent on the market for domestically produced drugs. But market viability is a major consideration for drug manufacturers when deciding whether to open or expand a production facility in the United States. Simply lowering the costs to build or expand a U.S.-based production facility is insufficient without an adequate market for the domestically produced drugs. To achieve its goal of increasing the domestic production of drugs, the Administration needs to implement procurement regulations requiring DVA and DoD to purchase domestically manufactured drugs and, more importantly, create incentives for commercial customers to do the same.

A potential incentive for commercial customers to buy domestically produced drugs has been raised in connection with ensuring supply chain transparency and avoiding drug shortages. This incentive would involve Medicare and Medicaid offering quarterly lump-sum payments to providers if they dispense a specific percentage of domestically produced drugs.

Bottom line, there are multiple considerations that need to be addressed to increase the likelihood the Administration’s efforts to encourage manufacturers to establish or increase domestic production of drugs will be successful. In particular, to be successful, the Administration needs to focus on creating a robust market, which includes government and private purchasers, for domestically produced drugs.