One year away from the next presidential election, the rising cost of prescription drugs is once again at the forefront of American politics, with action plans from two Democratic candidates in two days.
And brace yourselves, drugmakers: Analysts figure the target on your backs will only get bigger.
After former VP Joe Biden unveiled a price-hike-limiting plan Monday, Sen. Kamala Harris has now unfurled her own proposals to combat rising drug costs—and they'd be a major blow for drugmakers. The escalation from Democratic candidates could lead to a contest for the most punitive pricing plan with President Donald Trump, who's made big promises to rein in pharma that haven't yet paid off.
Harris’ “People Over Profit” plan would require the Department of Health and Human Services (HHS) to put a hard cap on select prescription drug prices at the average price in other developed nations, she said in a statement Tuesday. The government’s price cap would be updated annually, according to the plan, and account for inflation.
The plan, set with an action date from Congress within 100 days of her inauguration, would levy a 100% tax on sales that exceed the HHS cap, which would “go back directly to consumers” through rebates, she said.
Harris also floated the idea of using aggressive litigation and the 1980 Bayh-Dole Act’s “march-in” provision as punitive measures for drugmakers who don’t follow the new rules, allowing her administration to license out patents for rogue prescription drugs to keep companies in line.
The political pile-on
While drastic in its implications for the industry, Harris’ plan resembles a similar proposal from Biden, fellow Democratic candidate Sen. Bernie Sanders, whose call for an overhaul of U.S. drug pricing was previously backed by Harris, and Trump, a Republican, who has demonized Big Pharma’s focus on profits.
On Monday, Biden said he favored a plan to cap drug price increases at the rate of inflation and promote drug imports from other countries, a significant new streak of aggression after his relatively neutral take on the industry in the past.
Last week, Trump vaguely alluded to his administration’s push for a “favored nation” clause for drug price negotiations that would cap government payer costs at the lowest possible comparable price in the developed world.
While unclear how such a provision would work or how the newest plan differs from older proposals, Trump has said pharma has “taken advantage of this system for a long time.”
Despite that tough talk, Trump did push for a recently abandoned rebate overhaul that the drug industry favored and passed a massive tax cut bill that proved to be a boon for investors rather than R&D investment in innovative drugs.
Looking past the talk
With all hands on deck raking pharma over the coals, analysts are keeping a wary eye on the industry’s volatile future—no matter who takes office in 2021.
On Monday, the Trump administration pulled its much-anticipated rebate overhaul, which would have favored drugmakers over pharmacy benefits managers, with a scathing Congressional Budget Office report the likely culprit. Government researchers found the plan would increase federal spending by as much as $180 billion over 10 years and potentially lead to higher premiums for seniors.
Another Trump administration push to require drugmakers to disclose drug prices in direct-to-consumer advertising was also nixed last week after a federal judge called the proposed rule an end-run around Congressional authority.
Although maintaining the status quo is likely a win for the drug industry, Wells Fargo analyst David Maris said the move could actually be a sign of even more punitive measures to come in the near future as the Trump administration girds itself for a re-election run.
“Taking all of this together, we believe this means a plan could be coming to directly impact drug pricing that may be more punitive,” Maris wrote in a note to investors Monday. “We expect drug stocks to remain volatile and headline risk from government action … are negative.”