2020 election creates ‘perfect storm’ for drug price reform by year-end

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Congress is likely to pass a “middle-of-the-road” drug pricing reform package by the end of the year as both President Donald Trump and Democrats seek a policy “win” heading into the 2020 presidential election, according to RBC Capital Markets.

“Dynamics into election look to be [a] perfect storm,” RBC analyst Brian Abrahams said in a note sent to investors Monday. “While GOP leaders do not see drug pricing reform as a top priority, both [House Speaker Nancy] Pelosiand Trump are very committed to having policy change. ”

Health care consistently ranks as a top issue for voters. Democratic presidential candidates, such as Sen. Bernie Sanders, are pushing for “Medicare for All,” a plan to replace private health insurance with public coverage. Pelosi and Trump are working on plans that would make tweaks to Medicare, the federal government’s health insurance plan for the elderly.

Eliminating rebates that drugmakers pay to pharmacy benefit managers for getting their drugs covered in Medicare’s Part D prescription plan seems most likely to be implemented, Abrahams said. In fact, Senate Finance Committee Chairman Chuck Grassley said last month that he would like to include the proposal in a bipartisan bill making its way through to the full Senate.

Pharmaceutical companies supported the rule, arguing the rebate system drove up both list prices and out-of-pocket costs for consumers. The PBMs, which serve as middlemen between drugmakers and insurers, were opposed.

Trump, who has said drug companies are “getting away with murder,” is also likely to push for a proposal that would allow Medicare to create an “international pricing index ” to bring drug prices in line with what other nations pay, Abrahams said. However, that policy will be very challenging to implement and enforce, he added. Pharmaceutical companies are fiercely opposed to the proposal.

The president’s plan that would allow the U.S. to legally import cheaper prescription drugs from Canada is also worth watching, though its chances of getting implemented are low, Abrahams said.

“We see a number of other hurdles to implement this policy, including Canada’s willingness to allow medical supply chain disruption that could lead to drug shortages or manufacturer supply restrictions,” he said.

Abrahams said rhetoric and policy changes could create sector weakness in the short-term, particularly for stocks with greater exposure to the proposals such as Celgene and Regeneron Pharmaceuticals.

The health-care industry is the worst-performing sector in the S&P 500 so far this year. The Health Care Select Sector SPDR Fund, an ETF that tracks the health-care industry’s biggest companies, has risen by 5.14% year to date as of Friday’s close, significantly lagging the S&P 500′s nearly 17% rally.

Though Abrahams expects a drug pricing reform package, he does not expect the U.S. health-care system to shift to a single-payer health-care system that’s paid for through taxes. “However, our consultant sees expanding the public option, such as offering Medicare Advantage for All, as more feasible,” he said.

[“source=cnbc”]

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