Donald Trump said he wants to remain unpredictable and when it comes to how his policies may affect the pharmaceutical industry, that description clearly applies. Although his election clearly removes the prospect of direct government controls on drug prices, some of the policies he favors can constrain the pharma sector. The most probable scenario is that unless Trump veers drastically off his likely course, pharma faces a larger threat from the commercial market.
As far as Donald Trump's health care policies and their implications for the pharmaceutical industry, the president-elect presents a bundle of contradictions. In the near term, his election and the Republican control of both Congressional houses removes the risk of government price controls. Pharma investors are cheered by Trump's intention to lower the corporate tax rate and institute a one-time repatriation tax on offshore profits. More generally, the lower priority that Trump and other Republicans place on unaffordable drug prices should boost pharma share prices.
Although pharma investors view Trump favorably, he also presents some potential hazards for them. The fact that he favors a complete repeal of the Affordable Care Act without proposing a clearly defined alternative introduces some major uncertainty. Trump also favors letting Medicare negotiate prices with drug manufacturers and allowing the reimportation of prescription drugs. Both measures could constrain pharma's unencumbered price gouging.
Other issues pose even more uncertainty for pharma. The Part B demo to limit the windfall in oncology and autoimmune drugs will be finalized soon. While most observers expect Trump and his new head of the Centers for Medicare & Medicaid Services (CMS) will water down the reform, no details have yet emerged.
Then too, formation of the Independent Payment Advisory Board (IPAB), designed to limit some of the windfall pharma gets from Medicare, will likely be triggered in 2017. That means Trump and his HHS Secretary must decide how to implement it. Congressional Republicans have long sought to limit Medicare expenditures and the IPAB provides a ready-made opportunity for curbing the fastest growing component of health care cost. How Trump and the Republican Congress will navigate that issue seems at this point to be truly a matter for conjecture.
While it does not appear likely that Trump will make reining in pharma a high priority, the industry still faces more clearly defined challenges apart from the new president.
Market forces continue to cause greater pricing pressure for pharma in crowded therapeutic categories. As examples, Lilly, Novo Nordisk and Amgen, during their respective third-quarter earnings calls emphasized pricing pressures in two distinct classes. Lilly and Novo noted how payer constraints on insulins affected the former's Humalog and the latter's entire insulin line. Amgen, for their part, pointed out that pricing pressures on TNF-inhibitors, the top-selling class for various autoimmune conditions, hurt revenue on their Embrel brand.
If the likelihood of direct government intervention against unaffordable drugs has receded, it appears that for the time being, the prospects for checking predatory drug pricing can be advanced by promoting situations where the various health care sectors wage bloody warfare against one another.
Health care is already more than 18.5 percent of GDP and its cost growth rate far exceeds that of the overall economy. When conservative politicians speak of the ballooning national debt, Medicare is the major factor they have in mind. Controlling the costs of Medicare and health care in general will require squeezing down the profits extracted by one of its major sectors: providers, payers and manufacturers.
Faced with only a slowly growing health care pie, the respective sectors will have to fight one another to preserve their individual profitability. When that happens, hospitals and pharma companies, for example, will have to wrestle each other to determine who keeps making the windfall profits and who takes a haircut.
The approximately 5,600 hospitals across the country employ nearly 5 million people who exert considerable influence on their local Congressmen and Senators. Pharma, meanwhile, is a justly despised industry with a public image assessed by the Gallup Poll as ranking at the bottom of 25 industrial sectors in the U.S. Pharma can pump hundreds of millions of dollars into campaign war chests, but the effectiveness of such booty remains limited when pitted against opposing votes that hospitals can muster in a Congressional district by claiming they are closing because drug prices put them in the red.
It remains an open question as to whose prices will take a trimming when providers and drug companies start throwing brickbats at one another. Although the resolution is by no means certain, it is likely that the nastier such contests become, the more pharma prices can remain affordable.