The November 2020 elections for President, Senate, and House are finally behind us. Democrats now control the White House and Congress, but the latter by the slimmest of margins with no clear mandate regarding the direction of future public policy. President Biden did not create any political coattails, nor did the expected “blue wave” occur as predicted. House Democrats lost seats as they saw a repudiation by the electorate of messages seen as moving too far left. House Speaker Pelosi has the smallest majority in 18 years.1 Speaker Pelosi’s own caucus criticized her leadership and failure to protect Democrats against charges of the party lurching toward socialism. The Senate is now controlled by Democrats based on a 50-50 tie after the Georgia runoff elections, with VP Harris holding the tie-breaking vote. However, moderate Senate Democrats like Joe Manchin (WV) and Kyrsten Sinema (AZ), hold potential swing votes that may prevent Democratic policies seen as too radical. Also, the appointment of a new Secretary of Health & Human Services (HHS) will be critical and wield a lot of influence on the direction of future policies affecting drug prices since the FDA Commissioner reports to the HHS Secretary. Biden’s Secretary of HHS nominee, Xavier Becerra, who recently won Senate Confirmation by a 50-49 vote, is seen by Republican critics as someone with no healthcare background and a political partisan who may be more prone to support Progressive Democrat policies against pharma, like the “Pelosi Bill,” which is despised by PhRMA.
The question this blog asks, what will a Biden administration mean for drug prices? President Trump was no fan of the pharma industry and instituted drug pricing policies that were an anathema to traditional Republicans and pharma industry views. Moreover, reigning in the high cost of prescription drugs is one of the few public priority items noted by the electorate that garners bipartisan political support. So, is the pharma industry headed toward a bumpier road ahead, or more of the same as started by former President Trump?
A Biden administration will attempt renewed policy efforts to control the cost of prescription drugs that could affect pharmaceutical company profitability.2 These policy efforts will likely come in the form of imposing direct price controls (which have already been implemented by the Trump administration) and proposing the federal government be allowed to negotiate directly on discounts for medicines under Medicare, which cannot be done under current law.2 A Republican-controlled Senate would have likely maintained current law.
However, Democrats are now in the position to impose more significant changes in drug pricing legislative policies given their control of the Presidency and Congress, which would be more affecting and longer-lasting to the industry than those imposed through executive actions. Executive orders can generally be easily undone by the next President, whereas passed legislative Congressional actions signed by the President are harder to undo.
The following list represents predictions on what could likely be facing the industry:
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Implement the broader use of an International Pricing Index (IPI) for the reimbursement across all Medicare drugs. This approach would go beyond President Trump’s use of the IPI for Medicare Part B drugs. The administration did just this by extending the approach to Medicare Part D drugs through executive action in mid-September 2020. However, the administration’s recent proposal to create a Most Favored Nation (MFN) referencing pricing approach for some Part B drugs by using the lowest price offered across all the Organization of Economic Cooperation and Development (OECD) countries is especially troubling for the industry.
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Introduce direct Medicare negotiation of drug prices for public and private reimbursement. Direct federal government negotiation of Medicare drug prices would have spillover consequences for the private commercial payer market.
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Institute Medicare rebates on drug price increases that are greater than the rate of inflation. Such rebates would reduce and limit drug net prices.
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Enact a patient out-of-pocket cap for Medicare Part D drugs, requiring manufacturers to pay a percentage of catastrophic costs.
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Require manufacture price transparency reporting to validate drug prices by disclosing how much they spend on R&D, manufacturing, marketing, etc.
The Wall Street Journal (WSJ) outlined potential Affordable Care Act (ACA) and Medicare policy changes under a Biden presidency.3 While not directly affecting the pharma industry, policy changes could have spillover effects that could have managed market impacts on drug access, plan control, and affordability. According to the WSJ assessment, a Biden presidency would strengthen the ACA after Trump administration policies weakened it and expand federal subsidies.3 Eligibility requirements for Medicare would be expanded, with a public option plan for people to buy into the program, including those with employer-provided health coverage.3 Biden would like to see entry into Medicare lowered to 60 from 65, affecting some people to shift from Medicaid to Medicare, and reduce the number of people who are covered under employer-provided health coverage.3 Increasing enrollment into Medicare would drive up spending. Senate Republicans along with moderate Democrats Manchin and Sinema may be unwilling to add to the deficit. The federal government has seen unprecedented deficit-incurred fiscal stimulus, such as, the enactment of earlier corporate and personal income tax cuts during the Trump administration, the $3 trillion budget gap for the fiscal year ending in 2020 to combat the early economic effects from the pandemic, the recently passed new $1.9 trillion stimulus relief package, and an estimated $4 trillion infrastructure package that will soon be considered by Congress. Budget deficits have also been exacerbated by lingering recessionary effects on lowering tax revenues, though tax revenues will dramatically increase as the economy rebounds and the distribution of vaccines increase. Greater enrollment in Medicare, coupled with the law change to allow for direct government negotiation of discounts for medicines, would make drug net prices lower and thus could reduce the profitability of pharma companies exposed to this business. Possible offsetting effects to reductions in profitability are the shift of business to Medicare from Medicaid (plans that provide greater margins to companies) and increasing the coverage for people who currently do not have health insurance. Higher enrollment means greater access to prescriptions, thus a higher volume of business, which then must be weighed against policies to reduce net drug prices. The final effect on pharma company profitability depends on a weighted price-volume mix by payer channel analysis. The result of all the preceding policies, if enacted, would be a resetting and lowering of the overall structure of drug net prices, and decreasing marginal profitability on all resource allocations across the entire supply chain from R&D portfolio investments through to commercial promotion activities.
What then should pharma companies do now to prepare themselves for future onerous legislation on drug pricing? Key suggested pharma company reactions are noted below, all involving the application of commercial analytics (see Chressanthis for further details):4
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Develop R&D portfolio investment models to ensure the optimization of resource allocation.
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Invest in analytical modeling capabilities to understand the direct and societal value of new medicines when engaged in pricing decisions.
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Leverage economic models to develop the societal value of medicines.
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Develop and apply a value/outcome-based & patient/healthcare system-oriented commercial model design (CMD).
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Institute a more rapid drug commercialization process using analytics to achieve higher sales growth 12-18 months after launch.
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Implement a robust marketing-mix allocation process to ensure optimal use of promotion spend.
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Develop robust sub-national promotion-response models to estimate coefficients on promotion channels and then apply these inferential models for improved forecasting.
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Apply econometric modeling to measure the effects of variations in plan control and access design on brand performance and patient health outcomes.
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Adopt a customer-centric omnichannel analytics approach.
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Apply artificial intelligence (AI) and machine learning (ML) to generate real-time changes in model output information.
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Create a nimble and efficient data architecture to handle the size and diversity of the growing myriad of different data sources and accelerate the data-to-insight cycle.
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Generate capabilities in using technology to facilitate the implementation of the preceding analytical and data innovations.
Major political events are often miscalculated or ignored on their potential business effects. Pharma companies are particularly exposed to political-induced policy risk, given the attention the industry has among the electorate and politicians. Furthermore, the existence of the COVID-19 pandemic has directly caused and induced long-term changes, while accelerated existing forces that were already in place, causing changes in pharma commercial models and analytics. Pharma companies need to understand and prepare for contingency plans on how such trends, events, and future public policies will significantly affect commercial operations. This will allow companies to ensure that potentially life-saving medications continue to get to the appropriate patients and mitigate the negative societal health outcome effects that will be created by public policy measures on imposing increased drug price regulations.
A more complete version of this article can be found at the following site:
Learn More - "What Is In Store For The Pharma Industry After The 2020 Elections?"
References
- The Washington Post, published online, continuously updated, and viewed on 10 November 2020, available at https://www.washingtonpost.com/elections/election-results/house-2020/
- Hopkins J. Industries look to new policies, scrutiny. Pharmaceuticals. The Wall Street Journal, 2020; 9 November: A7.
- WSJ Staff. Biden to push U.S. policy in new direction. Health care. The Wall Street Journal 2020; 9 November: A11.
- Chressanthis G. What is at stake for the pharma industry from the upcoming 2020 elections: how should companies prepare? Axtria Research Hub, published online September 2020, available at https://insights.axtria.com/whitepaper-what-is-at-stake-for-the-pharma-industry-from-the-upcoming-2020-elections-how-should-companies-prepare
