BidenCare: Biden’s Healthcare Proposals: Tax Penalties on Manufacturers, Launch Price Caps, & More
President-elect Joe Biden has not been shy in his intent to shake up the healthcare industry through regulation. Throughout his 2020 presidential campaign, Biden promised to reduce drug costs and make healthcare more affordable once in office. Most notably, he plans to expand the Affordable Care Act (passed under his vice-presidency) by providing a public health insurance option for working Americans - directly opposing Trump’s plan to repeal Obamacare. For this month’s blog, HaydenCG will unpack the effect of several of Biden’s proposals on different stakeholders within the market access ecosystem. We have chosen to focus on the proposals which we believe could have the most immediate and lasting impact on our industry. Figure 1 depicts a simplified industry flow chart which we will use to highlight the effects of Biden’s proposals.
Biden’s Plan: HaydenCG Analysis
Regulation 1: Tax penalties on drug manufacturers for price increases above the general rate of inflation
With tax penalties for price increases looming, drug companies may need to rethink their pricing strategies, placing a greater emphasis on the product’s entire lifecycle. An unintended consequence of this policy could be higher WAC prices at launch as opposed to today’s practices of yearly price increases.
Presumably, the main premise behind such regulation is to make prescription drugs more affordable; however, it is challenging to identify the direct impact to patient costs beyond keeping current out-of-pocket spend flat. Moreover, many pharmaceutical companies posit that tax penalties and price controls, such as those in Europe, limit the ability to develop new drugs and reduce patients’ overall access to innovative therapies. A study conducted by the Galen Institute found that between 2011 and 2018, Americans had access to 89% of innovative therapies; by contrast, France and Switzerland only had access to 48% of newly developed drugs, and Belgians and the Netherlands at 43% and 56%, respectively. This could also impact brands that are already marketed, with current drugs potentially observing a reduction in investment to improve upon them (such as expanded indications, applying new mechanisms of action to new therapeutic areas, etc.).
Regulation 2: Allow Medicare to directly negotiate prices
“The Biden Plan will repeal the existing law explicitly barring Medicare from negotiating lower prices with drug corporations.” The existing law referred to on Biden’s campaign website is Medicare’s non-interference clause, which allows only third-party payers (i.e., pharmaceutical benefit managers) and not the Secretary of HHS to negotiate drug prices in Part D. The website also goes on to state that “drug manufacturers can charge whatever price they choose to set [in Medicare]”, thereby undermining the current role of PBMs. While some of this language is fairly standard Democratic campaign stumping, a removal of the non-interference clause would lead to meaningful change in Part D negotiations.
The idea behind direct negotiations in Medicare is to consolidate the government’s negotiating power and extract larger discounts from manufacturers. However, simply removing the non-interference clause does not necessarily achieve that goal. Direct Medicare negotiation can be implemented in several ways, each with their own implications on drug prices. CMS having a “seat at the table” for each individual payer negotiation may not be enough to lower prices, as each individual payer would still set their own formulary, and PBMs still profit off high-list high-rebate drugs. Only through implementation of additional regulation (such as a single Part D formulary or mandatory price caps) would Medicare achieve its goal of acting as a single-payer negotiator. These strategies are used by foreign nations around the globe and can be quite effective. As we will discuss, Joe Biden has outlined a strategy of his own to reflect what he considers to be best practices from other nations.
Regulation 3: Create an independent review board determining the true value of new medications based on international prices when available. Medicare will pay this price.
Everyone knows the US pays more for drugs than any other country, so it comes as no surprise that Biden wants to tie US drug prices to those negotiated in markets overseas. If passed, this regulation could slash Medicare prices overnight and force manufacturers to reconsider their international market access strategies. For those products without international reference prices, an independent review board would recommend a reasonable price based on a value evaluation  not unlike what ICER does today. Depending on how these values stack up against those determined by similar review boards in other countries, new brands may want to be more diligent in deciding which foreign markets to launch into first; rarely does entrance into any single foreign market justify a significant hit to US net sales. Within the US, caps on list prices would likely decrease competitive contracting in Medicare as brands would be left without much room to discount.
Along with elimination of the non-interference clause, the idea for an independent review board underlines Biden’s push for ultimate negotiation leverage in Medicare. With HR3 having made it through the House, it seems that Biden is not the only one in Washington who wants to shake up Part D; tying US drug reimbursement to prices abroad is one of the few ideas garnering bipartisan support. Although a temporary restraining order has been issued against Trump’s ‘Most Favored Nations’ plan, the Biden administration may achieve more success now that both wings of Congress have a thin Democratic control following the Georgia Senate run-offs.
What Biden Has Not Talked About
Notably absent from Biden’s list of proposals has been any language surrounding rebate reform or the coverage structure of Part D, both issues which have been discussed in a series of executive orders by President Trump in 2018 and 2020. While Trump’s executive orders call for point-of-sale rebates and out-of-pocket caps in Medicare, they provide little guidance toward the execution of these proposals. Rebate reform has long been a focal point for President Trump and HHS Secretary Azar; however, a clear path towards implementation and infrastructure continues to elude even the industry’s most knowledgeable. Such uncertainty could explain the Biden campaign’s decision to focus instead on different, perhaps more graspable policies to win over undecided voters. Ultimately, Biden’s victory means that major rebate reform remains unlikely for the foreseeable future.
Special thanks to Andres Hoffman for his work on this blog post.
Hayden Consulting Group
HaydenCG is the life sciences industry's premier Market Access and Commercialization strategic consultancy. Our focus is to deliver game-changing strategic guidance and analytical vision to transform the commercial trajectory of therapies, portfolios, and entire companies. Our services are designed to create competitive advantages, establish strong analytical foundations, build growth plans, and address Life Science industry's most pressing Access, Reimbursement, Policy, and Commercialization challenges. Follow us on LinkedIn.
Armour, Stephanie. “Where Trump and Biden Stand on Health Care.” The Wall Street Journal, 18 Oct. 2020, www.wsj.com/articles/where-trump-and-biden-stand-on-health-care-11603029600.
Stolberg, Sheryl. “Trump Administration Asks Supreme Court to Strike Down Affordable Care Act.” The New York Times, 26 June 2020, www.nytimes.com/2020/06/26/us/politics/obamacare-trump-administration-supreme-court.html.
Barlas, Stephen. “Democratic Presidential Candidates Lead Attack on Drug Prices: Health Insurance Expansions Tougher on Drugs than Dems’ Bill in House.” Sept 2019
“Plan to Protect and Build on Obamacare: Joe Biden.” Joe Biden for President: Official Campaign Website, Biden For President, 11 Oct. 2020, joebiden.com/healthcare/.
“America's Concentration Crisis.” Concentrationcrisis.openmarketsinstitute.org, Open Markets Institute, 2020, concentrationcrisis.openmarketsinstitute.org/.