Obamacare repeal eliminates taxes, but pricing threat remains

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What should have been a positive day for biopharma with formal plans to eliminate a US tax on prescription drugs was again negated by President Donald Trump’s continuing promises to take action on pricing.

Legislation scheduled for action today in House of Representatives committees looks benign to beneficial for drugmakers in the short term, with the $4bn tax on branded drugs and a 2.3% excise tax on medical devices to be repealed after 2017. But Mr Trump’s tweet indicating continued work on using competition to lower prices served as a drag on the sector, and unknowns about whether and how many Americans could lose coverage remain a longer-term risk in the bid to repeal the Affordable Care Act.

The S&P pharmaceutical and Nasdaq biotechnology indices both fell yesterday, by 1% and 2% respectively, although both have recovered in early trading today.

Unraveling the agreement

The tax on branded prescription drugs was enacted as part of an agreement between big pharma and former President Barack Obama in developing the Affordable Care Act. The pact has been credited with blocking a bid to allow the federal government to directly negotiate drug prices for the Medicare programme for the elderly and disabled. The tax is set to collect $4bn in 2017.

Thus it seemed fitting that within hours of the proposed legislation’s release, Mr Trump, who has flirted with the idea of Medicare drug negotiation, was again tweeting about a “new system” to bring price competition to the drug industry.

With more unknown than known about what the White House has in mind, this continues to be a worry for the sector and investors – in spite of assurances that drug negotiation or bidding are no longer in play (Speedy US drug reviews would make payers the new gatekeepers, February 1, 2017).

A seemingly lesser worry for many, despite its implications, is how the new legislation will change coverage under the Affordable Care Act, dubbed Obamacare. That the legislation is moving swiftly without cost and coverage estimates from the Congressional Budget Office ought to intensify these worries, since fewer people with coverage means fewer people able to afford drugs.

Coverage guarantees?

The House initiative is contained in two separate bills, one focusing on tax and spending elements of the programme in the Ways and Means Committee and the other in the House Energy and Commerce Committee on public and private insurance coverage.

Significantly, the latter bill will freeze expansions of the Medicaid programme for low-income people starting in 2020 and set per-enrolee spending limits – in essence, legislators are expecting Medicaid rolls to shrink as enrolees obtain private coverage, although there is no guarantee of this.

Taken together, the two bills also end the “individual mandate” that imposes an annual financial penalty on those who opt out of coverage, but provide an incentive to stay in coverage by setting a 30% surcharge on people who re-enroll after a gap of coverage of more than 63 days.

In a practical sense this would allow healthy people to drop out and gamble on re-enrolling only when they expect to incur healthcare costs, shifting more of the costs of total medical coverage onto the insured population. This could lead to higher premiums that cause even more to drop out of health insurance.

As a sign that frontline clinicians are aware of the legislation's implications for health insurance, the biggest physician group, the American Medical Association, and the biggest hospital group, the American Hospital Association, have come out in opposition. The Pharmaceutical Research and Manufacturers of America and the Biotechnology Innovation Association have not made public statements.

Estimates of the costs and coverage implications will surely emerge before legislators have a final vote on the package. In addition to taxes and pricing, how many people have health insurance should be a concern in biopharma’s executive suites – a shrinking customer base cannot be a healthy sign for the sector.

To contact the writer of this story email Jonathan Gardner in Virginia at jonathang-us@epvantage.com or follow @ByJonGardner on Twitter

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