Shortly after the election, the life sciences industry was wondering what was coming next. President Trump had not mentioned federal negotiation of Medicare drug prices in a while, state efforts to pass pricing legislation had failed, the outgoing Obama Administration had announced it would not move forward with the demonstration for regulating physician-administered drugs under Medicare Part B, and stock prices were on the rise. Bipartisan legislation – the 21st Century Cures Act – passed and was signed by President Obama, promising more resources and speed and modernization of the drug and device approval processes.
After eight weeks in office, it has become clear that the new Congress and administration are pushing forward on a number of proposals that have the potential to affect life sciences companies – in both positive and negative ways. While specific policies are still being formulated, here are some key policies to watch.
Repeal and replace
As a result of the Affordable Care Act (ACA), approximately 20 million people gained coverage either through the exchanges or Medicaid expansion.1 In both cases, prescription drugs and medical technology are covered services that people might not be able to afford if uninsured. If coverage is less comprehensive in a “replace” policy, demand for life sciences products could be lower. On the other hand, some industry taxes and fees that were created as part of the ACA may be repealed by Congress, including pharmaceutical industry fees and the medical device excise tax.
Recently, the administration has indicated that drug prices will be addressed in later legislation (more below).
Modernizing the FDA
President Trump has talked about reducing regulatory burden on the drug and device development process in order to reduce the cost of research and development and accelerate treatments to market. Efforts to move toward collaborative, adaptive regulatory processes, such as allowing data from digital sources (e.g., patient-centered data and real-world evidence), into regulatory discussions early on could help reduce the burden on all stakeholders involved. The agency has already taken steps to identify and modernize regulations in the face of scientific changes or citizen petitions.2
President Trump signed an executive order requiring that for every new regulation created, two must be repealed. This could impact the Food and Drug Administration’s (FDA) ability to implement certain 21st Century Cures provisions. Under the new requirements, FDA will need to identify cost reductions of equal value to any additional burdens associated with new regulations.
The current user fee programs under the Prescription Drug User Fee Act (PDUFA) and the Medical Device User Fee Act (MDUFA), which allow the FDA to collect fees from industry to help offset costs for application reviews, will expire in September and October 2017, respectively. Industry stakeholders and the FDA negotiated the terms of PDUFA VI and MDUFA IV in 2016, but execution of the agreement may be reevaluated under the new administration and Congress. Regulatory and hiring freeze executive orders might impact the FDA’s ability to act on provisions included in 21st Century Cures Act and the user fee programs.
Tax issues and trade agreements
• Leaving the Trans Pacific Partnership (TPP): The TPP had certain provisions related to data exclusivity for biologics that would have protected drug manufacturers’ patents in a number of countries, while shortening exclusivity from its current 12 years to eight years.
• Imposing a Border Adjustable Tax: Congress is considering this proposed tax, aimed at encouraging companies to move manufacturing to the US, which could negatively impact companies that are net importers of products and supplies from abroad. This could be particularly challenging for multinational companies with complex supply chains and distribution networks.
• Reducing corporate tax rates in the US: Congress is considering proposals that could make it easier for companies to repatriate money from abroad and reinvest in the US, potentially through increased mergers and acquisitions activity. Changes to the corporate tax rate could reduce incentives to pursue overseas inversion deals. Companies might also reconsider where intellectual property is held across the globe in light of potential tax reform proposals in Congress and Base Erosion and Profit Sharing Action Plans outside of the US.
Scrutiny on drug prices
President Trump and members of Congress continue to call out drug manufacturers with what are deemed to be “high priced” drugs or ones who raise prices on existing drugs without notice or explanation. Congress has introduced legislation to “fast-track” approval of generic drugs to stimulate competition and reduce prices and legislation to permit re-importation of drugs from Canada. In a meeting at the White House with pharmaceutical executives at the end of January, President Trump discussed “bidding” for drugs under Medicare, indicating that he may support legislation that gives the government authority to negotiate drug prices under the Medicare prescription drug program. Outside of the Medicare program, Republican “replace” plans proposed to date would shift much of the decision-making responsibility toward states. States may feel greater pressure to cut costs and, as a result, might propose legislation to control drug spending.
The President indicated that he intends to offer legislation around drug prices in future actions, but it is too early to guess at the direction that might take.
Where does this leave us?
Although collectively these policies could be significant, it is still too soon to know what shape they will take. Much of the impact will be determined by overarching tax policy and the balance between access and affordability struck by ACA “replace” provisions.
In the meantime, companies might consider doing some scenario planning, which calls for understanding these policies, including:
• How insurance coverage might change by payer (e.g., Medicaid, Medicare, exchanges, and commercial) in state markets will impact patient access to prescription drugs and medical devices; the American Health Care Act (AHCA) and other future legislation could lead to significant changes for consumers
• Assessing the financial impact of increased border taxes and potential strategies to ramp up manufacturing quickly in the US
• Re-envisioning drug or device development plans to incorporate some of the flexibility allowed by new provisions under 21st Century Cures
• Participating in the shift to value-based care by generating evidence and developing solutions to effectively compete on value, as defined by health plans, providers, and patients
In the face of rising health care costs, it is imperative that the US health care system deliver better care for lower cost. Life sciences companies can help to achieve this goal through the development of innovative treatments that cure disease or turn life threatening diseases into manageable conditions. Life sciences companies are working to remove barriers to enable more robust conversations and novel contracts among companies, health plans, and providers.3 It is critical that all key stakeholders – health plans, providers, life sciences, and patients – continue to collaborate to deliver better care for a lower cost.
1 Office of the Assistant Secretary for Planning and Evaluation, “Health Insurance and the Affordable Care Act, 2010-2016”
2 Regulatory Affairs and Professionals Society, “Trump Targets Regulations Again With New Executive Order,” February 27, 2017
3 Jared S Hopkins, Robert Langreth, and James Paton, Bloomberg, “Big Pharma’s Offer to Trump: Discounts When Drugs Don’t Work,” February 6, 2017