Magazine Article | December 1, 2016

Washington Outlook For 2017: Trump Takes The Helm

Source: Life Science Leader

By John McManus, president and founder, The McManus Group

Donald Trump’s upset victory over Hillary Clinton upends Washington and the health agenda for the 115th Congress. Conventional wisdom held that a Clinton administration and a Democrat-led Senate would be focused on stabilizing Obamacare’s healthcare exchanges and exploiting the growing public concern with pharmaceutical pricing with a raft of detrimental proposals and policies.

But the stunning Trump victory and the Republican hold in the Senate, giving the GOP full control over the executive and legislative branches (and delivering a major opportunity to reshape the judicial for the next generation), provides some breathing space for a pharmaceutical industry that increasingly felt under siege. The industry was bracing for an intensified wave of congressional investigations, efforts to price control elements of Medicare Part D, and Senators Bernie Sanders (I-VT) and Elizabeth Warren (D-MA) driving the FDA to be the utilization police via the must-pass Prescription Drug User Fee Act (PDUFA) reauthorization. Those immediate threats appear to have subsided when the “blue wall” of rust-belt states fell into the Trump column on election night.

The market reacted accordingly: biotech and large pharma stocks were up nearly 20 percent on the week. (Execs might have taken a more keen interest in Mr. Trump had they anticipated this reaction!)

Yet we now enter a healthcare policy environment lacking certainty. Candidate Trump’s key health focus was to “repeal and replace” Obamacare. He provided little detail on what the replacement policy would look like. The campaign’s website page on healthcare consisted of a skeletal outline of familiar Republican ideas:

  • Allow insurers to sell coverage across state lines
  • Provide tax deductibility of individually purchased insurance
  • Improve and enhance health savings accounts
  • Block grant Medicaid to the states.

But where would this leave the millions of people who had obtained coverage under the Affordable Care Act through Medicaid expansion and subsidized exchange plans? These exchanges are already in dire straits: dozens of plans have exited the market, and those remaining are substantially hiking premiums and deductibles. Moreover, reinsurance and risk corridor subsidies expire at the end of the year — the health insurance exchange will collapse without propping up.

Waking up to the complexity of our health marketplace and difficulty in repealing the ACA and wanting his focus and capital spent on tax policy or infrastructure programs, Trump is already walking back on some of his campaign pledges related to the ACA. Letting Congress deal with the issue might be wise relief, letting him serve as Trumpeter in Chief.

Fortunately, House Speaker Paul Ryan (likely to remain in his role) has already dispatched his caucus to develop a blueprint of positions on critical issues, including repealing and replacing Obamacare. Ryan’s “A Better Way” white paper outlines a comprehensive approach to replacing Obamacare as well as reforming Medicare.

Ryan’s plan would replace the means-tested subsidies of the ACA with a flat, refundable tax credit available to all who do not have employer-sponsored coverage. It would repeal the benefit mandates of the ACA and leave the regulation of insurance to the states. It would replace the 40% excise tax on “Cadillac health plans” with a cap on the exclusion from health insurance for employer-sponsored healthcare. While key details are yet to be specified (e.g., the value of the tax credit and cap on the exclusion), it is a serious plan that could provide a real alternative to the failing exchanges.

Ryan’s plan also leaves in place the $700 billion+ in Medicare and Medicaid cuts from the ACA (including the 50 percent hike on the prescription drug Medicaid rebate) and the enhancements to Medicare Part D — notably the 50 percent-required manufacturer discount in the “donut hole” as well as improved benefit plan coverage. But the plan repeals all Obamacare taxes, including the annual pharmaceutical fee that totals more than $5 billion annually.

Congress is expected to tackle the repeal and replacement of Obamacare through a parliamentary procedure known as budget reconciliation. While most legislation requires the support of 60 senators and therefore bipartisan cooperation to enact law, budget reconciliation permits Congress to pass legislation on a simple majority vote. However, the legislation must be limited to items that have a material fiscal impact (i.e., repealing subsidies, Medicaid expansion, and taxes are germane, changing insurance mandates and advisory commissions are not). The 52-vote Republican majority makes this a feasible route, but empowers a single GOP senator (ahem … Ted Cruz) to wield enormous influence on the scope and details of such legislation.

After the election, Speaker Ryan signaled his intent to also advance conservative Medicare reforms outlined in “A Better Way,” including raising the Medicare eligibility age to match Social Security and transforming Medicare to a competitive delivery system known as “Premium Support.” That may be more than a President Trump is willing to swallow as his campaign said nary a word about entitlement reform.

But Republicans remain a party of small government and gravitate to policies that contain costs. That makes the recommendations from the June 2016 Medicare Payment Advisory Committee (MedPAC) of particular concern. It was the first time in the 10-year history of the program that the advisory council to Congress has examined the program and offered recommendations.

When viewed in their totality, they appear to be a PBM (pharmacy benefit manager) wish list for more control over who gets what, when, and how:

  • Permit Part D plans to raise copays of brand-name drugs for low-income subsidy beneficiaries.
  • Require physicians to provide more robust clinical evidence to appeal a formulary decision.
  • Exclude the manufacturer 50 percent discount from applying toward the catastrophic threshold, thereby more than doubling the time the patient remains in the coverage gap.
  • Eliminate two protected classes (antidepressants and immunosupressants).
  • Empower plans to use more tools to manage specialty drugs.

While the Congressional Budget Office projects a flattening of prescription drug spending in Medicare through 2018 as a result of numerous patent expirations, costs are expected to more than double by 2026. However, Part D is projected to remain relatively constant as a share of Medicare spending — increasing from 14 percent of Medicare in 2016 to 15 percent in 2026. But there remains a dedicated alliance of PBM, health plan, and pseudoconsumer advocates fanning the flames on drug pricing and demanding legislative relief.

A paramount concern to the pharmaceutical industry will be the must-pass PDUFA reauthorization, which substantially funds the FDA with industry fees. The industry and FDA already reached an agreement on the measure. But that must now be enacted by Congress. While PDUFA was feared to carry potentially problematic riders in Democrat White House and Senate, it now may be an opportunity for more industry-friendly items.

But then again let’s note that the general populist angst over pharmaceutical pricing may spur Congress, newly focused on the working-class issues coalition that elected them, to attach pricing and transparency amendments to the bill. A recent poll from the Kaiser Family Foundation found that 74 percent of Americans, including 68 percent of Republicans, feel that a top priority for government should be making sure medicines for chronic conditions such as Hepatitis C, mental illness, and cancer are affordable for those who need them.

Since President-Elect Trump is fundamentally unmoored by partisan ideology and has tapped into populist sentiment, it is not difficult to imagine his administration advocating such measures.

Republican control of Congress and the White House does not remove the spotlight from pharmaceutical costs and its impact on the budget and patients’ ability to access their medicines. Rather, it calls for renewed engagement to educate policy makers on the cost-value proposition of pharmaceutical innovation and how it can constrain overall costs in the long-term.