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Analysis

Drug Pricing Proposals Put Pharma at Greater Financial Risk

By Jack O'Brien  
   February 07, 2019

Efforts at the state and federal level to reduce prescription drug prices pose a financial risk for pharmaceutical companies, according to a new Moody's report.

Pharmaceutical companies face an increased downward risk as regulatory reform and legislative policies in 2019 aim to lower the cost of prescription drugs, according to a Moody's report released Thursday morning.

The report cited recent actions taken by the Department of Health and Human Services (HHS), including its proposal to eliminate rebates from Medicare, as among the most consequential policies that could negatively impact drug manufacturers.

The proposed changes to drug pricing offered by CMS, including the elimination of six protected classes housed under Medicare Part D and the potential introduction of an international pricing model for Part B, are also considered as forces that could hamper the industry.

Related: PBMs Launch Counteroffensive as Trump Administration Floats Plan to Eliminate 'Middleman' Drug Rebates

Moody's expects pharmaceutical companies with "product franchises protected by high rebates" to suffer in the long run from the proposed federal regulatory changes.

Legislative activity centered around lowering the cost of prescription drugs is likely to increase throughout 2019, according to the report, which will ultimately affect those with the highest exposure American and "provider-administered drugs" the most.

Pharma companies likely to be adversely affected:

  • Amgen Inc.
  • Gilead Sciences, Inc.
  • Merck & Co., Inc.
  • Bristol-Myers Squibb

Among those four drugmakers, the range of 2018 revenues derived from U.S. pharmaceutical sales ranges from 39% to 77%. 

Though the Trump administration's call for ending Medicare rebates has been received as a bold challenge to the pharmaceutical industry, the Moody's report highlights the fact that net prices will remain intact, at least initially.

This would result in a minimal negative impact on the industry at the beginning, which would be January 1, 2020 according to the proposed enactment day.

However, the proposal still remains subject to a 60-day comment period before being considered for implementation as a final rule. 

Outside of the White House's regulatory press to cap prescription drug costs, one of the main healthcare priorities listed by President Trump during his second State of the Union address, Congress is also floating legislation to address the issue.  

Sen. Chuck Grassley, R-Iowa, is spearheading an effort in the upper chamber to rally support for a bipartisan drug importation bill, a stance which has traditionally been opposed by Republicans.

Related: Sen. Chuck Grassley Backs Drug Importation Bill

States wage battle, too

In addition to efforts at the federal level, the Moody's report cites state-level reforms that are aimed at holding down prescription drug prices as well.

Colorado, Connecticut, and Oregon are all exploring ways to replicate Vermont's drug importation bill that was approved last year, and Louisiana is testing a subscription-based program to fund hepatitis C treatments. 

Among the several proposed changes in California is a plan to make the state the primary negotiator for drug prices on behalf of roughly 12 Medicare vendors.

Jack O'Brien is the finance editor at HealthLeaders. 


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