When Your Biggest Customer Decides Your Prices

How pharma's pricing squeeze will reshape healthcare marketing

The Trump administration’s most-favored-nation drug pricing executive order isn’t just a policy change. It’s a complete reset of the economic model that has funded pharmaceutical marketing for the past two decades. And most marketing teams are unprepared for what comes next.

Here’s the reality: when obesity drugs that cost $1,000 per month get mandated down to $350, when Medicare negotiates prices down by 50% or more, and when entire categories of medication face coordinated price pressure from government and private insurers, marketing budgets don’t stay the same. They can’t.

The agency holding company problem

Major pharma brands have historically been agencies’ most reliable clients. High budgets, long relationships, complex campaigns across multiple channels. These accounts kept entire office floors employed. They funded the innovation teams and the international expansion.

That model is under pressure. We’ve already seen it with Pfizer and Novo Nordisk’s competing obesity drug launches - where billions in revenue are at stake, but pricing negotiations with government and insurers now determine viability more than consumer demand.

When the Inflation Reduction Act gave Medicare the power to negotiate drug prices, it changed the calculation for pharma marketing. If your revenue per patient is being cut by 40-60% through government negotiation, you can’t maintain the same cost structure. Marketing is one of the biggest variable costs.

What Medicaid pricing changes mean

The expansion of Medicaid rebate requirements and the new inflation-based penalty system creates a different pressure. Pharma companies now have to pay rebates to the government if they raise prices faster than inflation. This effectively caps annual price increases.

For marketing, this means the old playbook of “launch at a high price point, spend heavily on DTC advertising to drive patient demand, then maintain pricing power through brand strength” doesn’t work anymore. The pricing power part got removed from the equation.

The direct-to-consumer calculus shifts

Traditional pharma DTC advertising relied on a specific economic model: spend $200 million on TV advertising to drive patient requests to doctors, which leads to prescriptions, which generates $2 billion in revenue at premium prices. The math worked when you could charge whatever the market would bear.

But when prices get negotiated down to international benchmarks, that ratio breaks. You might still spend $200 million on advertising, but your revenue gets cut by 50%. The ROI math suddenly doesn’t close.

We’re already seeing this play out. Several major brands have cut DTC spending not because the advertising wasn’t working, but because the revenue per prescription doesn’t justify the acquisition cost anymore.

The HCP marketing shift

If you can’t spend massive budgets on consumer advertising, you shift to healthcare provider marketing. But that’s getting squeezed too. Restrictions on pharma-funded physician education, limits on promotional spending, and increased scrutiny of industry-physician relationships all make HCP marketing more expensive and less effective.

The pharma marketing playbook for the past twenty years has been: heavy DTC to drive patient demand, generous HCP engagement to drive prescribing behavior, and premium pricing to fund it all. Two of those three legs are being removed.

What happens to the budgets

This isn’t theoretical. We’re already seeing it. Pfizer announced significant cost-cutting measures. Multiple pharma companies have reduced agency rosters. Marketing budgets are being scrutinized at a level that simply didn’t happen when pricing was less constrained.

The question isn’t whether pharma marketing budgets will shrink. The question is how much and how fast. Estimates vary, but many industry watchers expect a 20-30% reduction in pharma marketing spend over the next three years as pricing pressure fully takes effect.

For agencies and marketing vendors serving pharma clients, that’s a meaningful contraction in a previously reliable revenue stream.

The retail clinic opportunity

Interestingly, the same dynamic that’s squeezing traditional pharma marketing is creating opportunities in retail health. CVS, Walgreens, and Walmart are expanding healthcare services. Retail media networks in pharmacy settings are growing. These channels offer more efficient ways to reach patients at or near the point of care.

But the budgets for these new channels are coming from the same pot that funded traditional advertising. It’s a reallocation, not new money. And the total pot is shrinking.

The outcomes-based model nobody’s ready for

The future of pharma marketing looks more like outcomes-based contracting. Pay-for-performance deals where pharma companies only pay for marketing that drives measurable patient outcomes. Value-based pricing where reimbursement is tied to efficacy data.

This requires completely different measurement infrastructure. Most pharma marketing is still measured on awareness, consideration, and prescription lift. The industry isn’t set up for outcomes-based models that require integrating marketing data with clinical outcomes data.

Building that capability takes time and investment. But the pricing pressure is happening now.

International price referencing

The most-favored-nation pricing approach means US drug prices will be benchmarked to prices in other developed countries. Many of those countries have much more restrictive rules around pharmaceutical advertising.

If pricing gets harmonized internationally, will marketing regulations follow? If the US pays prices similar to Canada and Europe, will US pharma companies face European-style restrictions on DTC advertising?

That hasn’t been discussed much yet, but it’s a logical next question.

What this means for healthcare agencies

Agencies with deep pharma expertise need to diversify. That doesn’t mean abandon pharma - these are still large, sophisticated clients with complex marketing needs. But relying too heavily on pharma revenue is becoming risky.

The agencies that will succeed are the ones helping pharma clients achieve the same outcomes with smaller budgets. That means better measurement, more efficient media buying, stronger creative that works harder, and proven ROI across channels.

It also means being prepared for a world where success is measured differently. Not “how much awareness did we drive” but “what was the cost per patient initiated on therapy” and “what’s the incremental script lift versus control markets.”

The lobbying wildcard

It’s worth noting that pharma has historically been very effective at lobbying to protect pricing power. The industry has fought these changes before and will fight them again. There’s a real possibility that some of these policies get walked back or watered down.

But the political pressure for drug price controls has been building for years and is bipartisan. Even if specific policies change, the overall trend toward more price regulation seems irreversible.

Marketing strategists need to plan for that world, not hope it doesn’t arrive.

The specialty pharma advantage

Interestingly, specialty pharmaceuticals treating rare diseases might actually be somewhat insulated from these pressures. These are often the only treatment options for small patient populations, which gives them different negotiating dynamics.

Price controls are mostly focused on high-spend categories where multiple treatment options exist - diabetes drugs, cholesterol medications, obesity treatments. Truly innovative therapies for unmet needs will likely maintain more pricing flexibility.

For marketers, that means specialty pharma might remain a relatively more attractive sector even as large-market pharma faces budget pressure.

The patient assistance program shift

Many pharma companies have used patient assistance programs as a way to maintain high list prices while providing affordability to patients. These programs were part marketing tool, part access solution.

With government price negotiation, the calculus changes. If Medicare is negotiating prices directly, patient assistance programs become less relevant for that population. The programs don’t disappear, but their role in the overall commercial strategy shifts.

What smart pharma marketers are doing now

The forward-thinking ones are doing three things:

First, building better measurement infrastructure. If budgets are shrinking, you need to prove that every dollar is working. That means investing in attribution, incrementality testing, and closed-loop measurement from marketing to prescription to patient outcomes.

Second, getting more efficient. That means moving spending from expensive channels to more targeted, measurable ones. It means better creative testing. It means eliminating waste.

Third, exploring new models. Patient education that isn’t traditional advertising. Disease awareness campaigns that aren’t product-specific. Partnerships with patient advocacy groups. Digital tools and services that support adherence and outcomes.

The timeline

This isn’t a sudden change. Pricing negotiations take time. Budgets get set annually. Contracts with agencies span multiple years. The shift will be gradual.

But gradual doesn’t mean avoidable. By 2027, the pharma marketing landscape will look meaningfully different than it did in 2023. The companies and agencies preparing for that now will be positioned to succeed. The ones waiting to see what happens will be reacting from a position of weakness.

The pharmaceutical industry has faced pricing pressure before and adapted. It will adapt again. But adaptation means change, and change means some current approaches won’t survive.

For marketers in and around pharma, the question is: are you building for the industry that exists today, or the one that will exist in three years?