To date, the 2016 presidential election rhetoric has descended below core policy topics affecting the country, including healthcare and the evolving payer and pricing environment. However, the industry must pay careful attention – once a winner is decided in November, the realities of policy agendas will place a grip on how the innovative industry sizes the opportunity for existing and launch-phase products. With regard to access, the insurance exchange’s narrowing field participants will encourage cries for ‘repeal and replace’, as well as counter-arguments for the creation of a public option to provide greater choice to individuals seeking insurance through this mechanism. On pricing, Clinton’s proposal to create an oversight committee to monitor and fine manufacturers for ‘unjustified’ price increases could manifest in some form given supporting legislation from the right as well as at the state level. Although it may not be decipherable from the candidates’ discourse, but whoever wins this election will likely dictate the future of the pharmaceutical industry in the USA in ways previously impossible.
REVISITING CANDIDATES’ CORE POLICIES
As Election Day 2016 draws near in the USA, it is helpful to revisit the candidates’ relative positions on policies that will impact the world’s largest healthcare and pharmaceutical markets for years to come. In CBPartners’ last post on this topic, the unusual areas of agreement between the two political party’s nominees were brought to light. On the issues of MEDICARE drug price negotiation and drug reimportation, Donald Trump and Hillary Clinton are of one mind. Through MEDICARE / HHS price negotiation and loosening importation restrictions, both candidates foresee massive savings to Americans who are routinely reminded by the media that they pay among the highest drug costs in the world.
On the majority of other healthcare policy topics, Trump and Clinton fall into distinctly separate camps. Clinton has outlined an agenda that upholds the Affordable Care Act, limits out-of-pocket expenditures, and accelerates FDA approvals in low-competition therapeutic areas. Donald Trump has advocated reforms in line with the Republican party at large, especially the Paul Ryan (R-Wisconsin, and Speaker of the House) plans being debated in Congress. He would immediately repeal the ACA, replacing it with a system of tax deductions for individuals to offset the cost of purchasing private health insurance. He would also promote the uptake of Health Savings Accounts (HSAs), and other market-based reforms implemented by his running mate Governor Mike Pence in Indiana’s MEDICAID program.
RECENT DEVELOPMENTS AFFECTING POLICY PROPOSALS
In these areas, the candidates differ in both fundamental and technical views on the USA healthcare system, and would govern in drastically different ways. Since CBPartners’ last post, there have been two major developments to which the candidates have reacted: AETNA’s departure from most of the ACA Exchanges, and the MYLAN EPIPEN™ pricing controversy.
Beginning with AETNA, the insurance giant’s removal of coverage offerings from almost all state markets was far from unprecedented. AETNA was among many large health insurers, including UHC, ANTHEM, and HUMANA, that posted substantial losses from their ACA exchange business in the first years of enrolment. Losses in the hundreds of millions of dollars were cited, although in most cases they were offset by gains in other parts of the insurers’ business. Several possible explanations exist for these negative returns, driven by higher-than-expected numbers of patients who cost more than they contributed to the coverage pool within the exchanges alone. Many of the individuals gaining coverage were getting health insurance for the first time, or the first time in many years, and thus had many high-cost treatments or examinations that they had been putting off. Once they received coverage, this group began consuming healthcare at accelerated rates. Due to this consumption-surge, and the generally lower health of the uninsured in general, health insurers like AETNA lost money and confidence in the outlook of providing insurance for these individuals.
In response to these developments, the two presidential candidates and their parties have presented two paths forward. Democrats push towards expanding the enrolment pool in an effort to de-risk and incent private insurer involvement, as well as revisit the possibility of a public option. Republicans may call for ‘repeal and replace’, but the specifics of their arguments tend to focus on eliminating the exchanges as they exist today and associated taxes, while shifting MEDICAID funding to lump-sum block-grants and HSAs – essentially creating greater freedom of expenditure at the state and individual levels. The solution is likely a composite of these tactics, and through strong leadership in the White House and a theme of compromise, the ACA will likely survive.
ACCESS: DEMOCRATS BUILD ON THE ACA CONCEPT
Exploring the Democrats’ vision, it is clear they believe that the market will settle in over the longer term, suggesting that increasing incentives for younger, healthier individuals to gain coverage would go a long way towards offsetting the cost of less healthy enrolees.
Clinton in particular has proposed a national campaign targeting young people to sign up via the exchanges, similar to the drives Obama led during his tenure. In addition to such a push for enrolment, Clinton has advocated making it easier for states to expand their Medicaid through the ACA’s funding provisions, possibly including greater waiver use to encourage conservative states to opt-in on more of their own terms. She has also suggested allowing older Americans, above the age of 55, to buy their way into the MEDICARE program. In such a system, these individuals would pay premiums similar to a normal commercial insurance offering, but would be covered in the same manner and pool as those over 65 on MEDICARE. This could simultaneously remove many of the older patients from the exchange while leveraging the economies of scale that the MEDICARE program creates.
A final Clinton proposal has actually already been gaining traction in the Senate, the introduction of a government run public insurance option on the exchanges. This idea was included in early versions of the 2010 bill, and its removal created a rift between progressive and moderate Democrats at the time and over subsequent years. That schism has re-emerged today, as a bill to take up such a program has 33 signatories in the Senate, almost all of them progressive Democrats. The resolution is unlikely to get far in a Republican led chamber, but does set the stage for its early introduction during a possible Clinton administration. The public option is also interesting compared to other reforms because of how the Congressional Budget Office (CBO) reviewed it. The CBO believes that such an option would actually reduce the federal deficit in the near-term, possibly by as much as USD 150 billion over 10 years. This scoring enables a rarely-used parliamentary procedure, reconciliation inclusion, that would bypass the potential for a filibuster by a Senate minority. This option is still a longshot, having only successfully been exercised a handful of times in its 40 years of existence. However, in today’s polarized political environment, it may appear as a workable compromise given that polling indicates 60% of Americans support the idea of a public option.
While the likelihood of these policies’ potential implementation remains difficult to discern, the impact they would inspire is dramatic. Expanding coverage to more Americans has been demonstrated to greatly increase the rate at which they get their prescriptions filled, highlighted by a recent RAND study. Although logic indicates that greater coverage leads to better health outcomes, this has yet to be proven through the ACA. One early indicator is that the coverage expansion is working as intended: to increase access to medicine for millions of citizens.
ACCESS: REPUBLICANS’ ‘REPEAL & REPLACE’ GETS SPECIFIC
As stated earlier, Republicans have taken these ACA developments in stride as furthering their argument that the ACA cannot achieve its goal of bending the cost curve downwards. Donald Trump himself has tweeted that AETNA’s departure is, “only the beginning” for the healthcare law’s demise. In a potential Trump presidency, one of the first orders of business is likely include orchestrating a repeal of several major components of the ACA, specifically the exchanges and associated taxes. The Trump campaign has not been clear on what they would propose to fill the unmet need in the insurance market, but they have indicated support for several traditional Republican policies.
Likely reforms would include MEDICAID block-grants, allowing insurance to be purchased across state lines, promotion of HSAs, and the individual deduction for insurance premiums. While these policies would potentially reduce expenditures at the federal level, the simultaneous drop in the program’s revenue could mean they would be deficit-expanding in the longer run. For individual states, the block grants of Medicaid would open up space for them to try more creative policy alternatives that control costs, as Mike Pence did in Indiana. Under his administration, individuals who failed to pay MEDICAID premiums could be locked out of their coverage for up to six months, and would face higher copays than most MEDICAID plans.
These Republican proposals have not been extensively tested in the laboratories of democracy, but early research suggests that they could have negative impacts on market and health outcomes. One large study that compared individuals with HSAs to those on traditional plans found that they spent an average of six percent less on pharmaceuticals, presumably due to the higher cost-exposure. Similar comparative analyses by the RAND corporation and published in Health Affairs have found that individuals with higher deductibles report forgoing health coverage due to cost at rates of 20-25 percent. It’s less clear whether those foregone expenditures were savings on waste or potentially sub-optimal care consumption.
Without vigorous executive branch support, the forces described above would likely lead to increasing problems for the exchanges in the years to come, allowing Trump to hamstring the law through inaction. The likelihood that Republicans could successfully repeal the ACA even with the White House on their side is low, as Senate Democrats would likely filibuster any attempted legislation. Regardless of which candidate wins, the next president will still need legislative cooperation to pass their intended reforms.
PRICING: EPIPEN™ RAISES THE TENOR OF PHARMA DEBATE
The second major upheaval in the health policy domain recently came from the generics giant MYLAN. Increased public awareness of the company’s price increases for EPIPEN™, an allergic reaction rescue therapy, sparked outrage at what was perceived to be price-gouging and arbitrary hikes. Given that EPIPEN™’s active ingredient, epinephrine, is off-patent, many were confused how a near-monopoly had emerged for MYLAN in this field, with the company’s product covering 94 percent of the market. Aspects of the particular EPIPEN™ autoinjector device remain patent-protected, deterring other manufacturers from entering the market with identical products. The result has been that the rising costs of EPIPEN™ have gone unchallenged by traditional market forces, i.e., competition. While third-party insurance rebates have shielded most consumers from the list price, there have been growing instances where organizations and individuals have had to buy at a list price above USD 600. Parents of children with allergies often buy many sets of pens at a time, resulting in a worst case cost of over a thousand dollars annually.
In their defence, MYLAN has cited a series of justifications for the increase in price. When they acquired the EPIPEN™ rights in 2007, prices were around USD 50 per pen. Since that time, Mylan has undertaken advocacy and awareness campaigns to improve understanding of allergies, and how simple EPIPEN™ can serve as a safety net. They also began selling the pens in two-packs, and made some design improvements, such as the easily removed cap over the injecting needle itself. While they acknowledge the climb in price is not equal to the rise in costs they themselves face in production (specifically acknowledging the imbalance between a 500% rise in price versus a 100% rise in manufacturing costs discovered during a congressional hearing), many have dismissed their further explanations of how their overall profit-per-pen has not actually increased significantly. MYLAN’s CEO Heather Bresch has cited the complex system of rebates and insurance policies as the cause of the higher maximum price, pointing out that many people receive the pen for significantly lower personal costs, including many schools. The company has not produced concrete numbers on the percentage of patients paying full or reduced prices.
PRICING: CLINTON’S THREE PROPOSALS
In response to this widespread backlash, the Clinton campaign released a series of condemning tweets and created a new section of their policy website specifically addressing pharmaceutical price increases. Clinton opted for a three-pronged approach to avoid situations where lifesaving products cannot be accessed due to cost barriers.
First, her administration would advocate government purchasing of medicines deemed “essential” in a similar mechanism to vaccine procurement. Citing the precedent of the Vaccines for Children program, wherein federal funds purchase vaccines and distribute them among the states for individuals who would otherwise be unable to afford the medicine in question, this program would likely follow a similar path. The briefing specifies that this tool would be used, “in cases where there is insufficient competition and an unjustified price spike,” but did not qualify what would define “insufficient” or “unjustified”.
Secondly, building on previous calls for expansion of reimportation opportunities, Clinton advocates temporary FDA allowance for importation in similar cases of unjustified price increases. The drugs and production facilities would be required to meet FDA safety standards, but the hope is that this pathway could be triggered to increase access in dire situations.
The final component of this new plan, and by far the most controversial, is a proposal to hold drug manufacturers accountable for price hikes through financial penalties. An oversight organization would be created, with the authority to distinguish between price increases that were appropriate and “unjustified”. In the latter cases, direct penalties would be applied to the offending organization, with those funds going to expand access through other government programs. This aspect of the plan drew harsh criticism from various groups, on both legal and practicality grounds. Some asserted that this policy would simply shift more of the price into the initial list-pricing, pushing money around rather than delivering the true savings that occur through competition and insurer-contracting. Others believe that this watchdog group would be illegal in its own right, for various non-interference reasons. This may be the distinction that encouraged Senators John McCain and Tammy Baldwin to propose legislation of a similar nature with regard to monitoring price increases, without the punitive function in cases of “unjustified” hikes. This alternate policy would be similar to the recently passed Vermont legislation, which provides for review of price increases across the industry, then requests detailed information on what factors contributed to the need for a price increase. The only fines are connected to withholding of information, rather than subjective decisions made by the administrators.
PRICING: TRUMP STAYS AWAY
Donald Trump did not respond on the record to these events with a policy proposal, but did lament the difficulty that the price hikes caused for many Americans. Elsewhere in the Republican camp are ideas that would begin to address the issue of price hikes. In the Republican platform there was explicit language around enhancing competition by accelerating the FDA’s ability to approve new therapies, through a combination of removing regulations and focusing in certain product areas. This is in line with a major Republican effort in the Congress currently, the 21st Century Cures Act. This is seen as one of the rare bills that gains bipartisan support in today’s Congress, thanks to its two separate pillars. The first consists of regulation changes to accelerate approval timelines, lowering evidence requirements. The second is an increase in funding for government medical research across various institutions. The negotiations over this latter portion are believed to be the key to gaining enough Democratic votes to ensure passage.
The two candidates clearly intend to chart drastically different courses with regard to the life sciences field. Clinton may seek expanded coverage and increase access, though with greater regulations on price and marketing. Trump offers essentially the reverse, with reduced insurance coverage and greater cost sharing, but lessened restrictions at the FDA approval level. With these stimulating events, including ACA struggles and the MYLAN pricing saga influencing the health policy landscape, reforms from either party will be more expected during the next presidential term. Given the large potential effects such policies would have on the pharmaceutical industry, it will be important to monitor the candidates’ statements and the broader policy environment to be prepared for shifts within both their rhetoric and detailed platforms. Additionally, it will be critical to take into context each candidate’s shifting prioritization of healthcare relative to other priorities. CBPartners will continue to monitor the situation as it evolves, with a focus on the following:
• Executive Branch Nomination Indications
• Both candidates’ transition teams have begun floating some names for potential candidates in their respective administrations, such as DHHS and FDA officials
• The progressive wing of the Democratic party has publicized intent to “blackball” insufficiently progressive suggestions, which could foreshadow an aversion to industry-affiliated voices
• Progress on the Hill
• The 21st Century Cures Act has been likely pushed beyond this legislative session, according to leadership staff, but it is not out of the question that at least the details of a future bill could come into light
• The legislation introduced by Senators Baldwin and McCain on price transparency is much less likely to see traction itself, but may spawn further public debate or even state-level bills of a similar nature
Come back to this posting to learn more about how each candidate’s position, and their respective parties evolve based on the landscape changes and environmental market events.