Joe Biden is the projected winner of the presidential election, while control of the Senate will be won only by a slim margin following runoff elections for Georgia’s two seats in January. What does a divided government mean for the middle market? RSM is looking at the policy implications and key issues for various industries. This is one in our series of industry-focused outlooks for a Biden administration.
According to Joe Biden’s plan:
Biden plans to expand Medicare, lowering the age of eligibility to 60, and reduce drug costs by allowing the government to negotiate the price of drugs for Medicare beneficiaries, a move that the Congressional Budget Office estimates would cut drug spending by $450 billion over 10 years. The proposed 2019 House of Representatives bill aimed at lowering drug prices through negotiation would redirect these savings toward paying for new Medicare benefits, helping low-income Medicare beneficiaries and funding research. However, a closely divided Senate means the likelihood of the House bill being passed in its current form is significantly lower. The changes in the proposed bill would fundamentally influence the economics of new drug development by driving down drug costs while concurrently expanding patient access. Those are broad changes that have received Republican support, but there is disagreement in how they would be best achieved. The net impact of these two policies on drug companies’ bottom line will be difficult to predict until specific policies are proposed.
Biden has also campaigned on supply chain resiliency for our critical drugs and medical devices, and has said that the United States is “dangerously dependent on foreign suppliers.” Through his campaigning, he has voiced support for enhancing American research and development and manufacturing capabilities through private-public partnerships, more so than engaging in aggressive international trade and tariff efforts.
What a closely divided Senate means for life sciences:
One of the most significant expected changes under the Biden administration is the ceasing of attempts to dismantle the Affordable Care Act through executive action, even if ACA-related court battles persist. Importantly, Biden’s Department of Justice will not bring or join lawsuits whose goal is damaging the ACA, which Biden wants to expand. This will initially stabilize the environment for both payers and life sciences companies, and we believe that congressional efforts to repeal the ACA may somewhat diminish without the Republican Party having significant control of the Senate.
Given that Biden has said he wants to work across the aisle with Republicans, we do not anticipate that he will set health care and drug pricing policy via executive orders (which subsequent administrations could potentially reverse). However, we do anticipate Biden to reverse many of the executive orders Trump issued over the past four years.
Biotech and pharma organizations can also expect changes to drug pricing controls, even if these changes primarily affect Medicare and Medicaid beneficiaries in the short term. Biden has also stated he would leverage the Defense Production Act to its greatest extent to secure medical equipment and supplies to combat the coronavirus.
We also expect a sharp contrast in Biden’s approach to the pandemic. While Trump has launched major investments aimed at accelerating the vaccine development timeline, this approach has also clashed with the positions of federal public health officials and the Food and Drug Administration, consequently eroding public trust in such institutions. A Biden administration is expected to offer more consistent support to the scientific teams making public health and drug approval recommendations. We expect this approach to improve public confidence in the vaccine and create a broader willingness among Americans to get vaccinated.
What room for growth or evolution exists in life sciences?
Drug pricing is potentially the most disruptive item on the horizon for life sciences companies. This could be offset somewhat if Biden expands affordable access to health care. Strategies that allow branded drug companies to capture generic drug market share and revenue are likely to become controversial and could be targeted in drug pricing reform.
Moreover, changes among appointed members of the Federal Trade Commission—currently comprised of three Republican members and two Democrat members—will likely result in greater scrutiny of large mergers and acquisitions in the life sciences space. We also expect to see more long-term efforts related to expanding the ACA and Medicare, though changes to both will be time-consuming to implement.
In 2019, the Trump administration placed a two-year moratorium on the ACA’s 2.3% medical device excise tax, and Congress included full repeal in its 2020 appropriations package. Given Biden’s support for the ACA and calls for more extensive health care reform than has been seen under Trump, the new administration could lead to greater margin pressures on medical device companies in the form of additional taxes or increased cost pressure. These pressures may be partially offset with tax incentives and R&D funding for American medical device and drug companies that increase their domestic supply chain capabilities.
Questions that frame the path forward:
- What will drug pricing reform measures look like and how should pharma companies plan for them?
- If the United States moves to an international referenced price index for domestic drug pricing, what will the impact be on different drug classes (e.g., branded, generic, biosimilar, orphan, etc.)?
- How sensitive is a company’s revenue in regard to changes from expanded access to Medicare? Will the increase in patient access be sufficient to offset pricing pressures?
- If there is continued pressure around pharma supply chains, are companies investigating options for moving manufacturing away from controversial countries? Do life sciences leaders understand the tax, corporate structure, and regulatory implications of such moves?
- Are companies considering strategic acquisitions that will raise scrutiny with the Federal Trade Commission? If so, are they considering the potentially necessary requirements to receive FTC approval for such deals and creating structures to support such requirements?
