The results of the recent presidential election caught many by surprise, including much of the healthcare industry. Given her track record as First Lady, Senator, and Secretary of State, many felt they knew what to expect from a Clinton administration and were building plans for it. However, a Trump win has left many wondering what to expect in the years ahead.

While he campaigned, President Trump indicated he would repeal the Affordable Care Act, while also saying he would do something to help consumers with the high cost of healthcare, specifically calling out pharmaceutical prices. His recent announcement of Representative Tom Price to head HHS indicates that he is serious about an overhaul of Medicare and Medicaid. As he continues to build his cabinet and set priorities for his administration, many of our clients are asking what they should anticipate from a Trump administration. Here’s a summary.

Setting the Stage: Will Obamacare Be Repealed?

One of President Obama’s signature pieces of legislation, the Patient Protection and Affordable Care Act (PPACA), emerged from the frustration of increasing healthcare costs, inadequate quality, and coverage issues. However, its passage and enactment have done little to slow healthcare spending. Healthcare currently accounts for almost 18% of GDP and is expected to grow at a rate of 5% to 6%.1 In addition, through the increasing use of high deductible health plans, coinsurance, and growing co-pay structures, consumers and employers are paying more than ever before for healthcare and demanding that something be done to address their concerns.

The Republican Party, including President Trump, ran on a message of “repeal and replace Obamacare.” However, since the law was passed in 2010, many of its provisions have been enacted and will be difficult to unwind. In addition, some parts of the law are popular with the American populace, such as removal of pre-existing condition clauses. Others are showing early signs of success, including some of the bundled payment experiments.

One component of the legislation created the Center for Medicaid and Medicare Innovation (CMMI). This division of CMS launched numerous pilots designed to link payment to outcomes and expedite the transition from fee-for-service payment to a value-based system. These started out as voluntary, opt-in programs, but are trending toward mandatory participation by designated institutions. For example, the Comprehensive Care for Joint Replacement (CJR) bundled pricing program sets financial and quality targets for the entire 90-day episode of treatment for knee and hip replacement. Initiated in April 2016, the pilot was recently expanded to include the related diagnosis of hip and femur fracture—an acknowledgement of its preliminary success.

Throughout the run up to the election, a series of headline stories have focused attention on pharmaceutical pricing and on the contribution of the pharma industry to healthcare costs. Both the pricing of several new breakthrough therapies and the price increases taken by selected manufacturers exploiting monopoly positions on established drugs has created anxiety and a bipartisan appetite for action to rein in such practices. The issue is certain to receive attention as the Republican Party works to position itself as responsive to the concerns of the working and middle class.

Many insiders have indicated that even with a Republican-controlled Congress and White House, a total repeal of the law is unlikely; instead, specific changes designed to reduce bureaucracy while also providing consumers with some financial relief are more likely. In light of this, manufacturers should not assume that their sector of the healthcare industry will be exempt from federal attention. More specifically, we anticipate that specific sections of PPACA will be repealed or modified, such as some of the taxes (e.g., Cadillac tax, Medical Device Tax). We also anticipate that now that the 21st Century Cures legislation (e.g., H.B. 6) has been passed, it will pave the way for further changes.

What a New Administration Means for Manufacturers

A Trump administration and Republican-controlled Congress will pursue policies that support a market-based approach to healthcare through enhanced competition, greater transparency, and value-based pricing. Following are some of the ways in which we anticipate this will play out under the new administration.

Continued Pressure on Providers to Deliver Value: Recent efforts to link payment to outcomes and hold providers accountable for both cost and quality, like bundled pricing programs, MACRA, and penalties for readmissions and hospital-acquired infections will likely continue under the new administration. This will translate to growing pressure on manufacturers to justify their prices in terms of the economic and clinical value contribution of their products relative to competition and current standards of care.

Consumer Demand for Value and Transparency: One of President Trump’s goals for healthcare is to allow continued use of health savings accounts (HSAs). Touted by Republicans as a market-based model success story, this program will undoubtedly continue. Although growth in high deductible health plans (HDHPs) might be slowed by pushback from consumer advocates, these plans will continue to provide employers a way to mitigate expenses. As out-of-pocket spend for consumers continues, they’ll demand information that helps them understand the costs and value of products and services. This will in turn translate to increased scrutiny by providers of the cost and outcome contribution of the products they buy and use.

Streamlining and Adding Value Criteria to the New Product Approval Process: A common complaint of both industry and consumers is the time it takes to bring new products to market. Since the approval period often cuts into a product’s patent protection period, manufacturers argue that if they could speed the approval process, they would have more time to recoup their investment—and could lower prices accordingly. Part of the 21st Century Cures legislation recently signed into law provides more funding to the FDA to streamline regulations, increase capacity, reduce redundancies within the review process and ultimately, increase the speed with which it reviews branded and generic products. This approach will both address manufacturers’ concerns about delayed approvals, and will accelerate the entry of competitive products to the market, serving as a further check on cost. Such an approach will send a message to consumers that the federal government is interested in helping citizens have quicker access to newer life-changing medications as well as lower cost alternatives.

Beyond streamlining the process, we anticipate that the FDA will also get support for broadening the criteria it uses for approving products to include an economic and clinical value component. Historically, the FDA’s focus has been just on safety and efficacy. Establishing a threshold of clinical and economic benefit the product must demonstrate to be approved will reduce the number of “me too” products that only add to the total cost of healthcare.

In 2017, the Prescription Drug User Fee Act (PDUFA) and Medical Device User Fee Act (MDUFA) are scheduled for review. Since fees from these programs are used to offset product review and approval process costs, it is likely that the government will seek an increase in these fees in return for decreasing product review time. The rationale will be that the value of accelerated review will accrue to manufacturers and the cost should be borne by the manufacturer. Although a preliminary agreement has been reached for MDUFA, final approval might be delayed if the new administration believes it is too heavily weighted toward industry and not consumers. The agreement aims to:

1. Liberalize Approval Criteria

The U.S. takes great pride in ensuring that marketed pharmaceutical and medical device products are safe. However, many have expressed concern that the process for ensuring safety and efficacy requires significant time and resources without addressing the risks and benefits that matter most to patients. Some preliminary efforts were made to incorporate patient-reported outcomes from clinical trials into the review process, and we expect these efforts to be accelerated.

2. Toughen Enforcement of Anti-Competitive Manufacturer Actions

The introduction of generic products often precipitates a rapid reduction in branded product pricing. However, some manufacturers have employed a variety of tactics to delay generic introduction, including paying the first generic entrant to refrain from entering the market. There is potential that the definition of anti-competitive action will be tightened and enforcement will be stepped up.

3. Explore Reference Pricing for CMS

During the campaign, both candidates expressed interest in allowing CMS to negotiate drug prices directly with manufacturers. One of the common concerns is that the price for drugs paid by Americans is significantly higher than that paid in other countries. While manufacturers claim that U.S. pricing enables them to recoup investment, other countries become free riders. Manufacturers also claim that failure to support higher pricing will move lucrative jobs overseas; however, numerous manufacturers have already moved their headquarters and manufacturing out of the U.S. and continue to take advantage of higher pricing in the U.S.

Other developed countries, such as England and Germany, have established processes for weighing cost versus benefit in making coverage decisions. Efforts in the U.S. to create a similar approach have failed due to concerns about rationing and perceived “death panels.” One way to address these concerns is to allow an agreed upon margin above the best price approved in other countries, i.e., a “reference price,” thereby ensuring Americans are getting an appropriate return on their investment.

Ideas that Likely Won’t Have Traction

Price Controls: Any type of price control, like matching VA pricing or putting restrictive formularies in place, is not likely to happen. Although both candidates proposed allowing dual-eligible patients to receive the Medicaid price, it was not one of President Trump’s core goals for healthcare. In addition, with a Republican-controlled Congress, this idea probably won’t see enough support to pass into law.

Medicare Part D Formularies: It has been proposed that Medicare be allowed to exclude certain drugs from its formularies. Although proponents feel this idea would reduce costs for Medicare, opponents believe this will result in cost-shifting to commercial plans and consumers, as they’ve seen with the Veterans Administration model. This proposal is unlikely to move forward.

The Last Word

There is no doubt that the next few years will herald significant change across the country and across healthcare. The new administration will be focused on a market-based model centered on transparency, accountability, and value-based pricing. To win in this environment, manufacturers need to ensure they can demonstrate the economic and clinical value of their products in a way that resonates with core stakeholders, including payers, providers, policy-makers, and consumers. Failure to do so will require even a pro-business administration to make further changes.

Resources:

1. CMS.gov, National Health Expenditure Data and NHE Projections 2015-2025.

  • Michael N. Abrams, MA

    Michael Abrams, MA is Managing Partner at Numerof. Michael is Managing Partner of the strategy consulting firm that helps major pharmaceutical, device, payer, and delivery organizations define, create, and deliver value across healthcare.

    • Kimberly E. White

      Kimberly White, MBA is Vice President, Pharma and Device Practices at Numerof. Kim specializes in market access strategies and commercialization approaches that work in the new healthcare.

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