pills-colorful492864587This is the third article in our series on the effect of a “slow repeal” of the ACA. This week’s discussion focuses on the potential impact of a slow repeal of the ACA on the pharmaceutical industry (Pharma).

Unlike many of the players detailed in our prior articles on the slow repeal of the ACA, Pharma has not made a lot of noise regarding a repeal of the ACA. In fact, Pharma and biotech stocks soared—generally 3 percent to 10 percent—on November 8, 2016, largely because the industry had been preparing for a Clinton victory. A recent quote attributed to one Pharma industry official—“I actually think the Republican Party is a far less certain bet for the pharmaceutical industry”—reflects some of the unease surrounding the change in administration, and the likely repeal of the ACA.

The ACA is Favorable to Pharma

The ACA did not substantially reform or overhaul Pharma. During the complex multiparty negotiations leading to the enactment of the ACA, Pharmaceutical Research and Manufacturers of America (PhRMA) president, CEO and top lobbyist Billy Tauzin moved swiftly and strategically to protect Pharma’s interests. Like other aspects of the global compromises that led to the passage of the ACA, there was an important Pharma component. Pharma agreed not to oppose the ACA and, in turn, the ACA did not contain major provisions negatively affecting Pharma. In fact, providing health coverage to 20 million uninsured Americans increased access to prescription drugs and provided a substantial benefit to Pharma.

Any Repeal of the ACA that Threatens to Reduce the Number of Americans with Health Insurance is Tricky for Pharma

The biggest potential threat for Pharma under a slow repeal of the ACA is the currently unknown alternative: what will be covered and what will be the scope of their prescription drug benefit. A slow repeal of the ACA that results in large numbers of individuals losing access to healthcare presents the same challenge for Pharma as it does for hospitals and physicians.

What this will look like under the slow repeal of the ACA will likely turn on what Americans will be able to “buy” with a new form of health insurance that many say will be purchased with refundable and advanceable tax credits. Like the nuanced negotiations leading to the enactment of the ACA, Pharma will likely move to protect its “customer base” and the scope of coverage for both branded and generic prescription drugs.

A Slow Repeal Could Remove or Alter Taxes and Fees Paid by Pharma

The Branded Prescription Drug Fee appears to be a target of a slow repeal of the ACA, but Medicare Part D discounts do not.

The Branded Prescription Drug Fee in the ACA—which many have attributed as a cause of rising drug prices—is an excise tax included in the ACA to help fund the federal government’s expanded role in health care. This tax targets Pharma companies that sell branded prescription drugs. These companies pay a “tax” on their proportionate share of the branded prescription drug market. The fee was projected to provide $27 billion in revenue over 10 years. At least two of the reform proposals that have gained some traction—the Patient CARE Act (Sen. Orrin Hutch, Sen. Richard Burr, Rep. Fred Upton) and the Universal Tax Credit Plan (Avik Roy) — expressly call for a repeal of the tax. It is likely that a slow repeal of the ACA could include the removal of this excise tax on Pharma.

The “Medicare donut hole” is slowly closing and should be fully eliminated in 2020. Under the ACA, Pharma has been offsetting the cost of closing the donut hole through discounts to seniors with Medicare Part D. It is not likely that a slow repeal of the ACA will reverse the closure of the donut hole; doing so would leave seniors having to pay for hundreds of dollars in drug costs before the full closure of the donut hole—a political and public relations nightmare.

A Slow Repeal Could Remove or Alter Taxes and Fees Paid by Pharma Drug Price Controls and Importing Drugs from Other Countries

Although not part of the slow repeal of the ACA, drug price controls were a big topic on the campaign trail and will likely be a major concern for Pharma under the new administration. A recent Kaiser Family Foundation poll found that 63 percent of Americans want the government to take action to lower drug prices. In a January 2016 campaign stop, candidate Trump deviated from a traditional Republican position by saying that Medicare should directly negotiate the prices it pays for prescription drugs.

At his first press conference on January 12, 2017, President-Elect Trump said that Pharma “has been getting away with murder,” and President-Elect Trump again promised new bidding procedures, adding that “we’re the largest buyer of drugs in the world, yet we don’t bid it properly.” However, this proposal—similar to an attempt by the Obama administration in 2014—has the potential for massive political backlash, especially with seniors. Trump has also endorsed importing drugs from other countries as a way to reduce drug prices, while simultaneously decrying the relocation of legacy American pharmaceutical firms to foreign countries.

Individually, or combined, these moves could potentially lower drug prices in the U.S. and have a major impact on Pharma.

Under the ACA, Pharma benefitted from an increased pool of individuals with healthcare coverage for prescription drugs. While the Branded Prescription Drug Fee appears as though it will likely be repealed under the slow repeal of the ACA, the biggest question for Pharma revolves around the loss of coverage for individuals currently covered under the ACA, and the prospect for new bidding procedures by the world’s largest purchaser of prescription drugs.

Given the uncertainty and the potential number of changes that could occur for Pharma under the slow repeal of the ACA, our advice for Pharma is: Stay the Course – Assess What You Have – Wait and See – Be Alert – And Don’t Be Silent.

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