Pharma weathered years of pricing scrutiny in Washington. Will 2020 be a bigger threat?

Washington D.C. skyline featuring Washington monument
As elections ramp up next year, drug pricing is expected to be a central topic. (Pixabay)

It's been years since bad-boy CEO Martin Shkreli touched off the drug-pricing furor, but it's still going strong—and some pharma watchers figured 2019 would mark a tipping point for action.

Despite bold-faced headlines and plenty of back-and-forth, though, the year brought a limited number of actual changes to pharma's pricing practices. Instead, it’s been drug pricing scrutiny itself that’s put the squeeze on pharma's pricing power and, to some extent at least, reined in the industry’s most aggressive pricing impulses. 

But 2020 could be different. Drug pricing is a hot-button issue for voters, and lawmakers might want to score election-year points, so the industry should brace for a tough year ahead. 

What's on the table?

First, let’s take a look at pending proposals. Perhaps the most contentious right now is House Speaker Nancy Pelosi’s bill, which calls for Medicare price negotiations, an international price index, fines for drugmakers who don’t negotiate and more. The pharma industry is pushing back hard, but the bill passed a vote in the House in mid-December. Experts don’t think it stands a chance in the Senate. 

President Donald Trump originally tweeted that it was “great to see” the bill, but more recently, the White House put its weight behind a bipartisan Senate effort instead. The bill from the Senate Finance Committee calls for simplifying Medicare, setting an out-of-pocket cap for part D patients, increasing transparency for pharma middlemen and more. A bill in Senate’s HELP committee, meanwhile, takes on surprise billing and PBMs.

For its part, the Trump administration has some drug pricing ideas of its own. The administration originally set out to take on drug rebates, but canned that idea after an unfavorable finding from the Congressional Budget Office. Now, the White House has switched gears to importation and an international pricing index.

And at the FDA, officials have worked to promote competition. New commissioner Stephen Hahn has said he's "very interested" in ways the agency can take on high prices, taking up an issue that was important for former agency head Scott Gottlieb. As commissioner, Gottlieb implemented programs to highlight "gaming" of regulations that helps branded drugs dodge competition and worked to improve generic approval figures.

Another important consideration for next year is the impeachment proceedings, which could lead to a breakdown of cooperation between the political parties and lead to more gridlock. After Democrats launched the impeachment process, Trump changed his tone and attacked Pelosi’s bill.  

Those developments in 2019 set the stage for 2020, and on the campaign trail, voters will surely be tuned into candidates’ stance and record. Will lawmakers come to an agreement before the election, or will it just be rhetoric amid a busy political year? 

Risks for pharma 

With its reputation in “not a good place,” the pharma industry is “in the crosshairs," Merck CEO Ken Frazier said at a Yahoo! summit in October. While the industry has signaled support for some drug pricing ideas, it’s blasted the Pelosi proposal by saying it would stifle innovation and lead to fewer new drug launches, hurting patients in the process. 

Industry leaders are more on board with the Senate proposals. In a November note, Bernstein analyst Ronny Gal said the Senate Finance Committee’s bill is “positive” for the industry, while the Trump administration’s international price index (IPI) model is a “mild negative.” Worst for pharma, House Speaker Nancy Pelosi’s plan is a “nuclear winter,” Gal wrote.   

The Finance Committee bill would have a “negligible” effect on drugmakers, hitting about 2% of sales. Still, that would be a “positive outcome” based on how intense the rhetoric is in Washington. The IPI would affect about 3% of sales and be “very uneven” on how it hurts various companies, the analyst wrote.  

Pelosi’s plan, meanwhile, would affect the entire industry and bring a “fundamental change of business model” for pharma companies.

How did we get here? 

Drug pricing has long been a hot topic in the drug industry, and scrutiny only escalated after now-infamous price hikes from Martin Shkreli, Valeant Pharmaceuticals and others. Politicians, patient advocates and others have spent years highlighting the industry’s price-hiking ways, and in turn, drug companies have tamed their price increases. Previously, many companies raised prices multiple times per year at various levels, but now, many raise prices once per year at single-digit percentages.  

Of course, single-digit annual hikes do add up to big increases over time. Will that self-policing be enough to convince Washington to keep the status quo, or will Congress and administration officials clamp down on the industry’s pricing? We’ll track the developments here all year.