Height Casts 65% Odds That Congress Rolls Back Pharma Discounts

Pharmaceutical manufacturers are lobbying to reverse Medicare Part D discounts before Congress passes its omnibus spending bill by March 23. 

By Height Capital Markets’ assessment, the odds are marginally in big pharma's favor. The campaign-leading Pharmaceutical Research and Manufacturers of America boasts a 65-percent chance of victory but still won't emerge entirely unscathed, Height analyst Andrea Harris said in a Wednesday note. 

“We believe that if Congress agrees to reverse the changes to the discounts in full or in part, Congress would require a concession from PhRMA in order to offset the budgetary cost of reducing manufacturers' required discounts." 

What's The Problem?

February’s Bipartisan Budget Act of 2018 accelerated closure of the Medicare Part D coverage gap by deepening the discount requirements enforced on manufacturers, according to Height Capital Markets. Drugmakers took part of the cost load off Medicare Advantage and the Prescription Drug Plan, which saw their portion of the bill cut from 20 percent and 25 percent, respectively, to just 5 percent.

The new policy will increase manufacturer contributions from 50 percent to 70 percent and is expected to cost the drug industry about $10 billion over a decade. 

A Possible Solution  

Height expects the industry to pressure a discount reduction from 70 percent to 60 percent.

“We believe it is unlikely PhRMA will convince Congress to reverse the increased discount in full; the $10-billion price tag is too high,” Harris said. “But we do think that, in exchange for other drug pricing policies, lawmakers could scale back the BBA change.”

The anticipated alternative would reduce consumers’ out-of-pocket spending while putting no new pressure on 2019 MA and PDP premiums. Harris foresees retention of the 25-percent beneficiary burden, with MA coverage between 5 percent and 15 percent.

Who Will Be Affected?

The discounts forced on manufacturers would be less than expected but steeper than current rates.

The condition would hurt makers of top-selling Part D drugs, which, according to Height, include Sanofi SA (ADR) SNY, GlaxoSmithKline plc (ADR) GSK, Merck & Co., Inc. MRK, Pfizer Inc. PFE, Eli Lilly and Co LLY, AstraZeneca plc (ADR) AZN, Celgene Corporation CELG, Gilead Sciences, Inc. GILD, Amgen, Inc. AMGN, AbbVie Inc ABBV, Teva Pharmaceutical Industries Ltd (ADR) TEVA, Biogen Inc BIIB and Johnson & Johnson JNJ.

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