Most stakeholders in the US healthcare marketplace would prefer to see the Affordable Care Act survive ongoing efforts at repeal and replacement. After all, any government action that disenfranchises 20 million-plus potential new customers can’t be a boon for business. But the pharmaceutical sector – which represents about 10-15% of the US medical dollar – stands out as a significant exception on this matter. In fact, it’s safe to say most C-suite drug executives would hardly shed a tear upon news of Obamacare’s swift demise.
The reason being those 20 million new customers arrived with lots of hooks, most notably deep ACA-mandated discounts that take a huge bite out of profitability. To cite just one example, patients with financial need get an 85% discount on the popular asthma drug Advair, and that’s by no means an outlier markdown. Factor in the ACA’s corporate tax hikes getting ousted and repeal probably means a wash for the pharma sector, if not a net gain.
What has drugmakers far more worried is all the political turmoil surrounding repeal and replace efforts, which have essentially devolved into a face-saving and name-calling match that probably won’t end well. Evidence suggests that whatever wreckage comes spewing out of the tail end of this fiasco could easily metamorphasise into federal price controls on branded drugs, which could create a global market downturn. Here is that evidence.
Sound, fury and nothing
The word out of Washington DC is repeal and replace is pretty much all political theatre at this point. Which is not to dismiss it entirely. Certainly political theatre has its place in the democratic process, as the world clearly saw during our last election cycle. And, to be sure, the mere attempt to deprive millions of voters of medical insurance could have significant career consequences for the politicians involved. Even so, the idea of repeal and replace as an actual attempt to implement tangible reforms in the US healthcare system no longer holds much sway among Uncle Sam’s power elite. At best, Republicans might squeeze a tax cut out of the bill currently languishing in the Senate, but even that is unlikely, experts say.
“Whatever the Senate comes up with will be a much watered-down version of the House bill, if it gets passed at all,” said Joe Antos, an economist who studies healthcare for the American Enterprise Institute, a conservative think tank. He believes House Republicans who voted for it knew the bill would never become law, adding the oft repeated truism that the Senate is “where bills go to die”.
This leaves us with two possible scenarios: either Senate republicans fail to pass a repeal and replace bill altogether; or they pass a watered-down version of the House bill that pushes a lot of difficult decisions on to state governments. Both possibilities could set the stage for federal price controls, according to Karla Stricker Anderson, a pharmaceutical and life science partner at PricewaterhouseCoopers based in Washington, DC.
“One of the things I think industry is worried about is if Congress and the President can’t get a health bill passed, do they turn to drug pricing because that would be an easier political victory,” she said.
On the other hand, if a law is passed, and states find that new responsibilities create budget shortfalls, they may turn to egregious pricing legislation to make up the difference, Anderson added.
President Trump himself has frequently called for lower drug prices. “Once healthcare reform is done and Obamacare has been repealed, it will be time to get to work on medicine, bringing down the cost of medicine by having a fair and competitive bidding process,” he told a crowd in March.
Draconian codes
This article’s thesis would hold a lot less water if efforts to implement pricing restrictions and transparency laws were not already very much well underway at the state level. It’s nothing short of a full-on legislative swarm. Half the states in the union (25) have pending price transparency laws, and at least 30 are crafting various forms of price-capping laws. Many of these pending laws look like one in Maryland, which would require companies to disclose R&D, marketing and cumulative manufacturing costs, along with product sales revenue on a yearly basis.
“The whole industry is a bit rattled about what are pretty onerous and, in some cases, somewhat draconian proposals about giving visibility to regulators and about how pricing is decided on,” noted Anderson.
It bears mention here that state transparency laws are tantamount to national or even international ones, since whatever information becomes visible will most likely be accessible to anyone in the world who can click a mouse. Also, in the US, national law often begins life as state law, for example our recent federal Open Payments Law, also known as the ‘Sunshine Act’, which requires healthcare professionals to divulge all financial transactions, began at the state level.
Pricing and transparency laws enjoy way more support among the general population than repeal and replace, which is primarily a partisan fight. Not only has our public long held a low opinion of how pharmaceutical companies price drugs, but now other sectors of the healthcare industry are starting to chime in as well. Earlier this year, a group of physicians at the American Medical Association State Legislative Strategy Conference made a forceful public plea for more price transparency. Additionally, drug companies’ very own investor groups filed shareholder resolutions with 13 manufacturers, seeking to force boards to reveal more information regarding price hikes and to provide ‘the rationale and criteria used for these price increases’. In March, the Securities and Exchange Commission (SEC) only narrowly blocked this move.
You’re welcome
Twenty or thirty years ago, none of this would have amounted to much more than a national question to be dealt with by our state and federal governments. But in today’s interconnected, globalised economy, such issues may have an impact on the rest of the world. In a very real way, the cost of drugs in US – the only developed nation without some form of cost control – can affect the global marketplace. In some cases, a large, multinational pharmaceutical company can only afford to comply with drug regulations in, for example, Germany, because it can charge pretty much whatever it likes for the same medication in the US.
Several studies have shown that the United States spends considerably more per capita on prescription drugs than other developed countries, prompting ire among some of our consumer advocates. “We can no longer sustain a system where 300 million Americans subsidise drug development for the rest of the world,” said Steve Miller, chief medical officer for Express Scripts. As the largest pharmacy benefit manager in the US, Express Scripts is at the forefront of negotiating bulk-purchasing contracts for health insurance plans.
Drug companies see it differently of course, at least in public statements. But this dynamic finds confirmation among stock and financial analysts like Anderson. “If in fact there were to be more price controls in the US, it would change the way companies think about whether they would want to get into other markets,” she said. “My hypothesis would be it would impact the rest of the world in that companies would be more selective about what countries they would chose to do business in, just from a pure affordability standpoint.”
Meanwhile, the global industry waits with bated breath upon a recently elected, mercurial US federal government that whipsaws from one extreme to the other, sometimes within the hour. Such volatility never serves as an environment healthy for commerce or innovation, according to Michael F Cannon, director of health policy at the CATO Institute, another conservative think tank. But he does not see repeal and replace as the culprit. “I think this goes all the way back to pushing Obamacare through Congress on a partisan vote. If we’re playing the blame game, I say we go back and put it there.”