Election Results 2016: Preliminary Considerations for the Drug and Device Industry

President-elect Donald Trump has moved aggressively to establish his transition team, identify and vet candidates for high level political appointments and begin to develop policy proposals for his Administration. President-elect Trump has signaled potential interest in a number of proposals that could have a significant impact on the pharmaceutical and device industry.

Repeal and Replace the Affordable Care Act

President-elect Donald Trump’s top healthcare priority is to repeal and replace the Affordable Care Act (ACA). The Trump platform did not provide a detailed health plan, although it did include a “portability” proposal allowing the purchase of insurance plans across state lines. In addition, President-elect Trump recently indicated that he would not seek to repeal two ACA provisions: allowing adult children to remain on their parents’ health plans until age 26 and prohibiting insurance companies from denying coverage to those with pre-existing conditions.

In order to fully repeal the Affordable Care Act, legislation must be approved by both Houses of Congress. Due to Senate filibuster rules, Senate passage requires 60 votes unless congressional leaders opt for using the budget reconciliation process to partially repeal the ACA by removing the budgetary provisions that support implementation. Reconciliation legislation requires only 51 votes for Senate passage, but Congress will have to approve a budget resolution before consideration of a reconciliation bill may begin.

President-elect Trump has indicated that he will work with Congress early next year to repeal and replace the ACA. In addition to his proposals, the final package is likely to include elements from long-standing Republican proposals, including repealing the individual and employer mandates, creating high-risk pools and block-granting Medicaid. Individuals would be able to deduct premium payments from their taxes and use tax-free health savings accounts. The Independent Payment Advisory Board, medical device tax and the annual fee on branded prescription drug manufacturers and importers are expected to be eliminated.

The Trump Administration need not wait for the Congress to act—the White House may choose to issue executive orders and propose regulations designed to repeal or significantly change certain sections of the law.

Implement State Block Grants for the Medicaid Program

President-elect Trump supports the use of Medicaid block grants, a policy also supported by House Speaker Paul Ryan. This policy is not a new concept and, in fact, was included in the Balanced Budget Act of 1995 which was approved by Congress but vetoed by President Bill Clinton. By implementing this block grant policy, Medicaid would no longer be a federal/state entitlement program through which certain beneficiaries are entitled to receive specific benefits. Instead, it would change to a capped, individual state program where a defined number of beneficiaries will qualify for benefits. President-elect Trump also is expected to support “per capita caps” and offer states additional flexibility for operating their Medicaid programs.

Address High Drug Prices and Pricing Transparency

During his campaign, President-elect Trump supported several measures to address prescription drug pricing. It is unclear which, if any, of these proposals will be pursued. One drug pricing proposal included allowing drug importation from foreign countries; however, this proposal was removed from Trump’s webpage last week, possibly because it conflicted with his stance on trade. A second proposal was a requirement for price transparency for all healthcare providers, including doctors, clinics and hospitals and possibly the pharmaceutical and pharmacy benefit manager industries. Such requirements may be relegated to the state legislatures, although state initiatives may face challenges as well, as evidenced by the proposed price control law rejected by California voters last week. Finally, President-elect Trump previously supported negotiating prescription drug pricing in the Medicare Part D program; however, he may be backing away from this proposal as well. President-elect Trump’s website now speaks of “modernizing Medicare,” reflecting terminology often used by House Speaker Paul Ryan, who favors privatization of Medicare, eliminating this entitlement in favor of premium support for purchase of coverage from private plans.

Corporate Tax Reform

President-elect Trump’s tax plan includes several proposals that have relevance to the pharmaceutical industry. His stated goal is to encourage businesses to invest in America instead of going overseas to avoid paying such high corporate taxes. Specifically, Trump’s plan lowers the business tax rate from 35 percent (one of the highest in the world) to 15 percent. Further, the tax plan includes a 10 percent tax on repatriation, “instantly [bringing] trillions of dollars back into the U.S. economy now parked overseas.” In addition, the Trump tax plan allows manufacturers headquartered in the U.S. to choose between “expensing of plant and equipment, an invitation to massive investment,” or deducting interest expense. Finally of note, President-elect Trump eliminates the “carried interest loophole for Wall Street and the death tax, which falls especially hard on small businesses and farmers.”

Expedited Approval of Drugs

President-elect Donald Trump supports reforms to “cut the red tape at the FDA,” noting that there are “over 4,000 drugs awaiting approval, and we especially want to speed the approval of life-saving medications.” President-elect Trump has pledged to propose such legislation within his first 100 days in office, although he has not released a detailed proposal.

Notably, the 21st Century Cures Act sponsored by outgoing House Energy and Commerce Chairman Fred Upton and Ranking Democratic Member Diana DeGette contains a number of sections focused on streamlining and modernizing FDA approval processes. If this bill does not pass in the lame duck post-election session, it will add impetus (and a template) for President Trump to take action in 2017. The reauthorization legislation for the user fee agreements, which expire on September 30, 2017, would provide a vehicle for such FDA reforms. 

For more on other breaking drug pricing related news, visit Sidley’s Global Drug Pricing page.

 
Sidley Government Strategies Practice

Sidley Healthcare Practice
 
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