How will the pharma industry fare in 2018 under Trump?
Activists applauded the Supreme Court's decision in favor of ACA. Photo credit: Getty Images
When MM&M started reporting last year's policy preview story in October 2016, every person who commented did so under the presumption that, by the time the piece appeared several weeks later, Hillary Clinton would have been elected president of the United States. The belief was so strong that all of our sources declined the opportunity to revisit their comments following the election. “If Donald Trump somehow wins, we're going to have a lot more to worry about than something dumb we said to you a few weeks ago,” said one. “No offense.”
When that scenario came to pass, pharma and healthcare policymakers dug in for what they expected to be a tumultuous transition period. Yet when asked to reflect a year later on the first nine “lively” months of the Trump administration, they're almost unanimous in their belief that pharma has come out of it in far better shape than anyone could have expected.
“You can talk about the industry's reputation all you want, but [pharma is] winning,” says Julius Hobson, a senior policy adviser with Polsinelli in Washington, DC, and a former head of Congressional affairs for the American Medical Association. “There's no reimportation of drugs. There are no price controls. There is no authority for [the Department of Health and Human Services] to negotiate drug prices under Medicare and Medicaid. None of the things pharma was worrying could have happened under a Clinton presidency have happened.”
See also: Who's Getting Rich in Healthcare?
Nothing Hobson or his peers have to say about healthcare policy should be perceived as an endorsement of President Trump, of course. “What I didn't anticipate — what I don't think any of us anticipated — was how bad a president Trump would be. His inability to understand the details of anything on the policy side makes every effort that much more difficult,” Hobson says plainly.
President Trump met with pharma execs in late January. Photo credit: Getty Images
WORKING WITH — OR AROUND — THE PRESIDENT
But pharma hasn't had any real difficulty working with — or around — him. “The guy in the White House isn't a known enemy of pharma, as Hillary was thought to be, fairly or no,” explains John Kamp, executive director of the Coalition for Healthcare Communication. “We thought Trump was kind of an enigma, but the meetings that have happened — the big kumbaya one with the pharma CEOs — have been benign, and the rest of the time he has been distracted by the national anthem and whatever else. Take all that together and there's a sense he's almost a friend of pharma.”
Indeed, many pundits stop just short of describing the first year of the Trump administration as glorious for the industry, and that's after half a year's worth of fumbles on Affordable Care Act repeal and replacement. Pharma and healthcare executives, they suggest, compartmentalize quite well.
Heading toward 2018, that skill should come in handy. Most policy wonks expect pharma to continue to skate on issues that pose an existential threat. They caution, though, that nobody should get complacent with the status quo.
“Anybody thinking we dodged a bullet on drug pricing legislation is missing the boat,” notes Evercore ISI senior political strategist, head of political analysis, and managing director Terry Haines. “Those threats aren't as major as they would have been [under Clinton], but they haven't gone away.”
Of all the items on the healthcare policy radar, tax reform is generating the most attention and concern. That's not exactly a news flash, but some of the attendant ramifications and ripples have policy watchers on high alert.
Pharma behemoths are clearly interested in repatriating some of the cash currently stashed abroad.
There isn't likely to be a one-off tax holiday — an event during which companies could bring back their money without any substantial negative consequence — such as the one in 2004, which led to the return of more than $300 billion in offshore earnings, much of that belonging to pharma. But the current 35% rate on repatriated cash is likely to be slashed, with Trump stating he'd like to see the new rate land around 10%.
“Pharma would be OK with that,” Haines deadpans.
The flip side of this, especially for those on the marketing and media sides of the business, is the very real possibility the tax deductibility of marketing expenses will be either significantly curtailed or eliminated entirely. Yes, healthcare marketers have fretted about this for the last decade or so, which give all such “this time it's for real” pronouncements something of a Chicken Little feel. “It's kind of our sword of Damocles,” Kamp says. The deduction was left untouched in the first version of the House's tax legislation in early November. That could change in an eventual Senate markup version, however.
With that enormous caveat, the current math isn't favorable for marketers. Let's imagine, as earlier proposals have, the tax deductibility of these expenses is cut from 100% to 50%, with the rest amortized over the next five or 10 years. Per the Congressional Budget Office, that would put $169 billion into government coffers. If the current administration wants tax cuts elsewhere, $169 billion from the ad industry would sure come in handy.
Kamp tells of a September sit-down that leaders of The Advertising Coalition — an organization that counts advertisers, agencies, publishers, and broadcast networks among its members — had with “the folks doing the writing” at the Treasury Department. “They didn't say it directly, but essentially they told us that, yes, we're in the soup and it's up to us to get out of it,” he says.
Translated: Seriously, this time it's for real. Kamp notes the immediate effect of such a change would be a 12% increase in the after-tax cost of marketing in the first three years following enactment. “What do you do when the cost of advertising goes up?
You do less of it,” he continues. “If this is in the tax bill, the best thing that could happen to us would be for the bill to fail.”
This is a real possibility. Hobson predicts the ambitious goal of tax reform will ultimately devolve into a series of tax cuts. “During the Obama administration, Republicans couldn't agree among themselves on tax reform. What makes anyone think they can do it now?” he says. “You've got two sides unwilling to work together on anything. You can only get so much done that way.”
FDA commissioner Scott Gottlieb at a hearing on the opioid crisis. Photo credit: Getty Images
Whatever their concerns about tax reform and other regulatory issues, pharma policy pros are more or less unanimous in their happiness about the direction of the Food and Drug Administration under new commissioner Dr. Scott Gottlieb. They believe he has brought a degree of stability to the agency.
“If there's one thing I can tell you about Scott, it's that he's a guy who understands priorities. He won't get bogged down in politics or name-calling,” says Peter Pitts, president and cofounder of the Center for Medicine in the Public Interest, as well as a former FDA associate commissioner.
In the minds of many policy watchers, the most important thing FDA leadership can provide is the proverbial steady hand. According to Pitts, Gottlieb affected an agencywide attitude adjustment the first day he walked in the door.
“What we've seen is a move from entrenched ambiguity to radical predictability — in dealing with inspection issues, with off-label comms policy, in the rationale for and use of breakthrough designations, you name it,” Pitts explains. “Scott understood from day one that the great enemy of the FDA becoming an innovation partner with the industry is ambiguity. Pharma wants to know where it stands one way or the other. They want to know how and why things work so they can invest their time and resources, and do a better job for patients.”
Haines praises Gottlieb for much the same reason. “He started out fairly aggressively, but not in a way that was perceived as negative to industry. Those early actions, such as what you saw with tobacco [in July, the FDA announced a surprisingly ambitious plan to regulate tobacco and nicotine], surprised people in a good way,” he notes.
There also appears to have been a huge shift in the way GOP loyalists perceive the role and responsibility of the FDA, from “please get out of the way” to “let's do this thing together.” According to Pitts, the relationship gelled over the course of the summer.
“The Republicans are better learners than the Democrats, or at least the most recent bunch of Democrats,” he says. “They came to the table with the proposition that the FDA was a sea anchor to innovation — but what they learned, because they asked good questions, is the FDA can be and is a crucial part of the solution. Rather than keeping medicines and new medical technologies from the public, the FDA is trying to accelerate their approval.”
A guard watches over the FDA building in Rockville, Maryland. Photo credit: Getty Images
OFF-LABEL AND MORE
Clearly the FDA figures prominently in many of the debates that are likely to linger into 2018, notably the continuing conversation around off-label communication. During a Q&A that followed Gottlieb's keynote presentation at a Regulatory Affairs Professionals Society meeting in September, the commissioner seemed to suggest the FDA had found itself on the wrong side of the First Amendment in years past. This led many interested observers to believe that some movement on off-label communications is imminent.
“The ability to have off-label discussions is going to increase, and that will be good for patients and for everybody who does professional comms,” Kamp says. “We've had that black cloud over our head for many years. It feels like we're finally at a point where we can clean that up and enable more and better communication. I don't know when it will happen, but I think it will happen soon. It's a decade overdue.”
Pitts agrees, adding, “For off-label comms, the momentum is there. Scott's statements on the subject are of a large volume and extremely directional.”
Hobson wonders about the fate of the 340B drug discount program, which came under further scrutiny from the House Energy and Commerce Committee in October.
Lawmakers questioned whether hospitals and health clinics are using the deep drug discounts they receive through the program to help patients. Pharma wants the program diminished, or at least revised in a manner that limits its breadth.
“There is a sense hospitals are making a nice profit off 340B. They're not putting the savings back toward patient care. Instead, they're building new towers. Or at least that's what pharma thinks,” Hobson explains. He blames Congress for having drafted the initial legislation poorly, which has made implementation challenging.
And no pharma policy overview would be complete without a mention of the Affordable Care Act, about to enter its eighth year of galvanizing political discourse.
While most pundits sigh audibly when asked about its ultimate fate, they wonder if pharma is quietly rooting for the status quo to prevail.
“If there's a true broad-based [ACA] reform effort, drug pricing will almost certainly be a part of it,” Haines warns. “Politically, that's an easy one for everybody involved. I'm not sure the industry appreciates the risk it faces here.”