Trump’s Executive Drug Price Efforts May Face Legal Rebuff
Partisan gridlock has made legislative progress on many issues difficult to achieve — particularly healthcare. Senate Finance Committee chair Chuck Grassley has been in negotiations with his Democratic counterpart, Ron Wyden, since early this year to advance a bipartisan bill that would address high drug prices, and although both sides say that progress is being made, it looks increasingly unlikely that draft legislation will be ready before Congress’ August recess.
The administration has made several efforts to advance policy to control healthcare prices by executive action, and so far, these have come to naught. One rule would have changed the interaction between drug makers and distribution middlemen, but the administration dropped the proposed rule changes because analysis showed they would likely lead to higher drug costs for seniors (a key demographic for both parties, since seniors get out to vote more than younger cohorts).
Another administration proposal that’s still in early testing stages would tie Medicare drug reimbursements to drug prices in other developed countries. Of course, most other developed countries have drug price controls, so the administration’s conservative critics say that this policy would amount to “importing socialism.” Drug companies are already preparing to challenge the proposal in court — even though it has not yet officially been made.
The issue is made more complex by the administration’s stated desire to repeal the Affordable Care Act (ACA). The price proposal relies on a Medicare agency created under the ACA — the Center for Medicare and Medicaid Innovation (CMMI) — and if the ACA were repealed, the proposed new rule could lose its legal footing.
Certainly, there are political currents just under the surface, with the administration anticipating election-year politics and working to steal the thunder of a traditionally Democratic issue.
Investment implications: Healthcare is still a political hot potato — particularly the biopharmaceutical industry. Investors should keep monitoring innovative companies, but if a healthcare allocation is not a necessity, we believe it’s best to avoid the sector until political headwinds abate. Those who need a healthcare allocation should consider looking in less contentious industries within or related to the healthcare sector, such as medical technology.
