What does the new administration mean for life sciences companies? has been saved
What does the new administration mean for life sciences companies?
Health Care Current | March 14, 2017
This weekly series explores breaking news and developments in the US health care industry, examines key issues facing life sciences and health care companies and provides updates and insights on policy, regulatory, and legislative changes.
- My Take
- Implementation & Adoption
- On the Hill & In the Courts
- Around the Country
- Breaking Boundaries
What does the new administration mean for life sciences companies?
By Greg Reh, Principal and Life Sciences Sector Leader, Deloitte Consulting LLP
Shortly after the election, the life sciences industry was wondering what was coming next. President Trump had not mentioned federal negotiation of Medicare drug prices in a while, state efforts to pass pricing legislation had failed, the outgoing Obama Administration had announced it would not move forward with the demonstration for regulating physician-administered drugs under Medicare Part B, and stock prices were on the rise. Bipartisan legislation – the 21st Century Cures Act – passed and was signed by President Obama, promising more resources and speed and modernization of the drug and device approval processes.
After eight weeks in office, it has become clear that the new Congress and administration are pushing forward on a number of proposals that have the potential to affect life sciences companies – in both positive and negative ways. While specific policies are still being formulated, here are some key policies to watch.
Repeal and replace
As a result of the Affordable Care Act (ACA), approximately 20 million people gained coverage either through the exchanges or Medicaid expansion.1 In both cases, prescription drugs and medical technology are covered services that people might not be able to afford if uninsured. If coverage is less comprehensive in a “replace” policy, demand for life sciences products could be lower. On the other hand, some industry taxes and fees that were created as part of the ACA may be repealed by Congress, including pharmaceutical industry fees and the medical device excise tax.
Recently, the administration has indicated that drug prices will be addressed in later legislation (more below).
Modernizing the FDA
President Trump has talked about reducing regulatory burden on the drug and device development process in order to reduce the cost of research and development and accelerate treatments to market. Efforts to move toward collaborative, adaptive regulatory processes, such as allowing data from digital sources (e.g., patient-centered data and real-world evidence), into regulatory discussions early on could help reduce the burden on all stakeholders involved. The agency has already taken steps to identify and modernize regulations in the face of scientific changes or citizen petitions.2
President Trump signed an executive order requiring that for every new regulation created, two must be repealed. This could impact the Food and Drug Administration’s (FDA) ability to implement certain 21st Century Cures provisions. Under the new requirements, FDA will need to identify cost reductions of equal value to any additional burdens associated with new regulations.
The current user fee programs under the Prescription Drug User Fee Act (PDUFA) and the Medical Device User Fee Act (MDUFA), which allow the FDA to collect fees from industry to help offset costs for application reviews, will expire in September and October 2017, respectively. Industry stakeholders and the FDA negotiated the terms of PDUFA VI and MDUFA IV in 2016, but execution of the agreement may be reevaluated under the new administration and Congress. Regulatory and hiring freeze executive orders might impact the FDA’s ability to act on provisions included in 21st Century Cures Act and the user fee programs.
Tax issues and trade agreements
- Leaving the Trans Pacific Partnership (TPP): The TPP had certain provisions related to data exclusivity for biologics that would have protected drug manufacturers’ patents in a number of countries, while shortening exclusivity from its current 12 years to eight years.
- Imposing a Border Adjustable Tax: Congress is considering this proposed tax, aimed at encouraging companies to move manufacturing to the US, which could negatively impact companies that are net importers of products and supplies from abroad. This could be particularly challenging for multinational companies with complex supply chains and distribution networks.
- Reducing corporate tax rates in the US: Congress is considering proposals that could make it easier for companies to repatriate money from abroad and reinvest in the US, potentially through increased mergers and acquisitions activity. Changes to the corporate tax rate could reduce incentives to pursue overseas inversion deals. Companies might also reconsider where intellectual property is held across the globe in light of potential tax reform proposals in Congress and Base Erosion and Profit Sharing Action Plans outside of the US.
Scrutiny on drug prices
President Trump and members of Congress continue to call out drug manufacturers with what are deemed to be “high priced” drugs or ones who raise prices on existing drugs without notice or explanation. Congress has introduced legislation to “fast-track” approval of generic drugs to stimulate competition and reduce prices and legislation to permit re-importation of drugs from Canada. In a meeting at the White House with pharmaceutical executives at the end of January, President Trump discussed “bidding” for drugs under Medicare, indicating that he may support legislation that gives the government authority to negotiate drug prices under the Medicare prescription drug program. Outside of the Medicare program, Republican “replace” plans proposed to date would shift much of the decision-making responsibility toward states. States may feel greater pressure to cut costs and, as a result, might propose legislation to control drug spending.
The President indicated that he intends to offer legislation around drug prices in future actions, but it is too early to guess at the direction that might take.
Where does this leave us?
Although collectively these policies could be significant, it is still too soon to know what shape they will take. Much of the impact will be determined by overarching tax policy and the balance between access and affordability struck by ACA “replace” provisions.
In the meantime, companies might consider doing some scenario planning, which calls for understanding these policies, including:
- How insurance coverage might change by payer (e.g., Medicaid, Medicare, exchanges, and commercial) in state markets will impact patient access to prescription drugs and medical devices; the American Health Care Act (AHCA) and other future legislation could lead to significant changes for consumers
- Assessing the financial impact of increased border taxes and potential strategies to ramp up manufacturing quickly in the US
- Re-envisioning drug or device development plans to incorporate some of the flexibility allowed by new provisions under 21st Century Cures
- Participating in the shift to value-based care by generating evidence and developing solutions to effectively compete on value, as defined by health plans, providers, and patients
In the face of rising health care costs, it is imperative that the US health care system deliver better care for lower cost. Life sciences companies can help to achieve this goal through the development of innovative treatments that cure disease or turn life threatening diseases into manageable conditions. Life sciences companies are working to remove barriers to enable more robust conversations and novel contracts among companies, health plans, and providers.3 It is critical that all key stakeholders – health plans, providers, life sciences, and patients – continue to collaborate to deliver better care for a lower cost.
1 Office of the Assistant Secretary for Planning and Evaluation, “Health Insurance and the Affordable Care Act, 2010-2016”
2 Regulatory Affairs and Professionals Society, “Trump Targets Regulations Again With New Executive Order,” February 27, 2017
3 Jared S Hopkins, Robert Langreth, and James Paton, Bloomberg, “Big Pharma’s Offer to Trump: Discounts When Drugs Don’t Work,” February 6, 2017
Implementation & Adoption
House Republicans introduce bill to repeal and replace parts of the ACA
Last Monday, March 6, the House Ways and Means and Energy and Commerce Committees introduced legislation, the AHCA, to repeal and replace the ACA. As described in the March 7, 2017 Reg Pulse Blog, the Ways and Means Committee (W&M) has jurisdiction over tax provisions in the legislation, and the House Energy and Commerce Committee (E&C) has jurisdiction over provisions related to Medicaid and other non-revenue measures.
Affordable Care Act
American Health Care Act
Individual and employer mandates
Individuals who do not maintain health coverage must pay tax penalties.
Employers with at least 50 full-time equivalent employees must pay tax penalties if they do not offer coverage that meets certain standards for affordability and minimum value to full-time employees and their dependents.
Nullifies the individual and employer penalties by setting them to $0 for months after December 31, 2015.
Tax credits to help purchase insurance coverage
Provided advanceable, refundable tax credits to individuals with incomes between 100-400 percent of the federal poverty level (FPL) who do not have access to employer coverage; all coverage must meet certain standards for affordability and minimum value.
Tax credit is on a sliding scale based on an individual’s income and the monthly premium for the second-lowest cost silver plan available on the exchange in the individual’s local area.
Provided cost-sharing reduction subsidies to help individuals with annual incomes that do not exceed 250 percent of the FPL with out-of-pocket costs.
Keeps tax credits and cost-sharing reduction subsidies in their current form through December 31, 2019, at which point they would be repealed.
Replaces the ACA’s tax credits with advanceable, refundable tax credits that are primarily based on age effective January 1, 2020. For individuals whose income exceeds $75,000 annually ($150,000 for joint filers), the tax credits would be reduced by $100 for each $1,000 in additional income.
The tax credits would grow annually by the consumer price index plus 1 percent.
Gave states the option to expand Medicaid eligibility to individuals with incomes up to 138 percent of FPL.
The federal government paid 100 percent of costs for the expanded Medicaid population for 2014 through 2016, gradually decreasing to 90 percent of costs for the expansion population by 2020.
Codifies NFIB v. Sebelius, making it optional for states to expand Medicaid.
The enhanced federal contribution rate would apply only to expenditures for enrollees who were newly enrolled in Medicaid as of December 31, 2019 and did not have a break in eligibility for more than one month after that date.
Allows states to continue enrolling newly eligible individuals after December 31, 2019, but the traditional federal contribution rate for the state would apply.
States and the federal government share in the cost of Medicaid based on each state’s federal medical assistance percentage (FMAP).
The FMAP is determined annually by calculating the average personal income and comparing it to the national average personal income – states with lower average income have higher FMAPs.
FMAPs range from 50 percent (the minimum required matching rate) to 73.58 percent in 2015.
Limits the federal contribution to state Medicaid programs on a per capita basis for some categories of enrollees beginning January 1, 2020.
Sets fiscal year (FY) 2016 as the base year for targeted spending for each Medicaid enrollee category for FY2019 and subsequent years.
Applies separate caps to each enrollee category.
Reduces Medicaid funding for the following FYs if the state’s Medicaid spending exceeded its specified targeted amount.
Repeals the requirement that Medicaid cover the same essential health benefits that plans offered on the ACA Exchanges.
Medicaid payments to disproportionate share hospitals (DSH)
Reduced Medicaid payments to DSH by set amounts.
Repeals DSH cuts in 2018 for states that did not expand Medicaid.
Repeals DSH cuts in 2020 for expansion states.
Health care industry taxes and fees
Imposed new fees on health insurers and branded prescription drug makers, as well as a new excise tax on medical devices.
Repeals each of these taxes effective December 31, 2017.
Applies an excise tax of 40 percent to high cost employer-sponsored coverage (the Cadillac tax).
In 2015, Congress delayed the effective date of the excise tax from tax years beginning after December 31, 2017, to tax years beginning after December 31, 2019.
Delays the effective date of the Cadillac tax to tax years beginning after December 31, 2024.
AHCA also would revise certain features of health savings accounts (HSAs). It would keep the same the rules on what would plans qualify as HSA-eligible. But, it would increase the maximum amount that people can contribute so that it equals the sum of the annual deductible and out-of-pocket expenses permitted under a HDHP: $6,550 (individual coverage) or $13,100 (family coverage). It would also reduce the penalty for using HSA funds on non-qualified expenses from 20 percent to 10 percent.
The AHCA would create the Patient and State Stability Fund – $15 billion per year for 2018 and 2019 and $10 billion for 2020 through 2026 – with a goal of lowering individual costs and stabilizing health insurance markets beginning January 1, 2018. States could use the money in a number of ways, including to create state high-risk pools for individuals who do not have access to employer-sponsored coverage, to help individuals with high health care costs who are covered in the individual or small group markets with premium assistance, and/or to reduce out-of-pocket costs.
CBO releases estimates: On Monday, March 13, the Congressional Budget Office (CBO) released its estimate of the impacts AHCA would have on the federal deficit and on health insurance coverage. CBO says that from 2017 to 2026, AHCA would reduce the federal deficit by $337 billion – most of which would come from decreases in spending ($1.2 trillion), offset by $833 billion in lower revenues. CBO also projects that by 2018, 14 million additional people would be uninsured:
- Approximately 6 million fewer insured in the individual market
- Approximately 5 million fewer under Medicaid
- Approximately 2 million fewer in employer-based insurance
By 2026, that figure would rise to 24 million, as many of AHCA’s provisions would not start until several years from now.
While CBO expects premiums in the individual market to rise during the first few years, in 2020, CBO projects they would begin to fall. By 2026, average premiums are projected to be 10 percent lower on average than under current law. CBO says that three factors would contribute to lower premiums in future years:
- The risk pool would be younger, on average, than the current mix
- Repeal of the actuarial value requirements would lead health plans to offer plans that cover a lower share of health care costs
- States would use AHCA’s Patient and State Stability Fund to pay for reinsurance programs to support high-cost individuals
Stay tuned to the Reg Pulse Blog for more in depth analysis in the next few days.
Congress marks up the bill: Last week, lawmakers in the House of Representatives held committee meetings to mark up the AHCA; the bill passed both the W&M Committee and E&C Committee. W&M considered amendments to the bill regarding taxes and spending implications, and E&C considered amendments regarding access and affordability. AHCA will now head to the Budget Committee and then the House Committee on Rules for consideration before going to a full floor vote in the House of Representatives. Several measures, such as modifications to premium tax credits and the employer and individual mandate provisions, were not available for the markup.
- Ways and Means: After an 18-hour markup, W&M passed its part of the legislation early Thursday morning. In the markup, lawmakers discussed a report from the Joint Committee on Taxation, which estimated the AHCA would cost the federal government approximately $575 billion in lost tax revenue. During the markup, the lawmakers discussed at length the costliest tax provisions of the AHCA.
- Energy and Commerce: The E&C markup lasted nearly 28 hours. The committee did not pass any major amendments to its part of the legislation. House leadership and the administration have said that AHCA represents the first stage of the new health care reform. Many lawmakers expressed support for many of the provisions from the ACA that AHCA proposes to keep – such as allowing young people to stay on a parent’s plan until they are 26, prohibiting annual or lifetime benefit limits, and prohibiting health plans from discriminating against those with preexisting conditions. Some lawmakers, however, expressed concern about the provisions that phase out federal support for Medicaid expansion. Some Democrats said that the roll-backs in AHCA are potentially too aggressive, and some Republicans said that the timeline is too long.
(Source: CBO, Cost estimate for the American Health Care Act, March 13, 2017)
Survey: Many providers can provide cost estimates in advance but say that few patients request them
A recent survey found that the majority (75 percent) of health care providers in inpatient hospital and ambulatory care settings can provide a cost estimate in advance of a service, but fewer than 25 percent of patients request one. In many cases, this may be because patients do not know they can request cost estimates in advance or at the time of service. The researchers indicated that health care providers may not have a financial incentive to provide a cost estimate without a patient request, but it could improve customer satisfaction.
The survey also found that health care providers and patients have different perspectives on how long patients take to pay bills. Half of health care providers (51 percent) say it takes patients more than three months to pay their full balance, while only 18 percent of patients reported that it took them longer than three months. This could be because patients often have multiple statements. Providers can use practices like credit card-on-file processes to reduce patient confusion and delay.
HIMSS Analytics conducted the patient and health care provider surveys during January 2017.
(Source: HIMSS Analytics, “2017 Patient Payment Check-up,” February 2017)
Health Affairs: Early oncology care models improve quality, reduce costs for end-of-life patients
A new study from Health Affairs found that the three early oncology care models that received Health Care Innovation Awards through the Centers for Medicare & Medicaid Services (CMS) Innovation Center (CMMI) reduced costs while improving quality in end-of-life care for cancer patients.
The models, the Patient Care Connect Program (PCCP), the Comprehensive Assessment with Rapid Evaluation and Treatment (CARE Track) model, and the Community Oncology Medical Home (COME HOME) model, all share common elements with the CMMI Oncology Care Model (OCM), which began in June 2016. According to the authors, all three models reduce unnecessary care and costs in the last six months of life for OCM participants.
The models use different approaches, ranging from medical homes to palliative care.
The study found that encouraging use of alternative palliative care options could reduce unnecessary utilization and costs. Other findings:
- Both the COME HOME and PCCP models had statistically significant reductions in emergency department visits compared to a control group.
- COME HOME model participants’ costs were 6 percent lower than those in the control in the last 30 days of life.
- PCCP participants costs were 18 percent lower than those in the control in the last 90 days of life.
- While the CARE Track cohort was too small to find statistical significance, the direction of the findings supported some savings.
- More PCCP participants received hospice care in the last two weeks of life compared with the control group.
The authors say that this research shows that oncology medical home models can improve quality and reduces costs for cancer patients and shows the value of patient navigation coordinators for end-of-life care. As discussed in the Deloitte report, “The evolution of oncology payment models: What can we learn from early experiments?” patient-centric approaches that improve access to care and promote shared-decision making show promising results for reducing financial burden and some have seen improved quality outcomes.
(Source: Colligan, E., Ewald, E., Ruiz, S., Spafford, M., Cross-Barnet, C., Parashuram, S., ‘Innovative Oncology Care Models Improve End-Of-Life Quality, Reduce Utilization And Spending,’ Health Affairs, March 2017)
On the Hill & In the Courts
White House memorandum asks federal agencies for the costs of regulatory actions planned for FY2018
Last week, the White House asked federal agencies to include in their regulatory action submissions a preliminary estimate of how much FY2018 regulations will cost or save. The memorandum includes guidelines and procedures for the head of each agency to use when compiling this report. It restates several provisions of the January 30, 2017 executive order on reducing regulation and controlling regulatory costs (see the February 7, 2017 Health Care Current).
The guidance says that agency submissions should:
- Ensure the total costs of any new significant regulatory actions are fully offset
- Identify two existing regulatory actions to eliminate for each new regulatory action
- Provide total costs or savings with each new or repealed regulation in FY2018
- Omit long-term regulatory actions (ones that will not be taken in the coming year)
The submissions will go into the 2017 Unified Agenda of Federal Regulatory and Deregulatory Action (Unified Agenda) report, which the White House will release. The regulatory reform officer from each regulatory task force will prepare the submission by March 31, 2017. The regulatory task forces are part of the executive order on regulatory reform (see the March 7, 2017 Health Care Current).
Health plans disagree on length of the open-enrollment period for exchanges
America’s Health Insurance Plans (AHIP) sent a letter to CMS saying that it agrees with many of the policy changes it proposed recently to the individual market. However, some health plans said they disagree that having a shorter open-enrollment period would be good for consumers and the overall risk pool. This comes after CMS proposed to change the dates of the 2017 open enrollment period, limit special enrollment periods (SEPs), allow flexibility in actuarial value requirements, and increase pre-enrollment verification processes (see the February 21, 2017 Health Care Current).
AHIP said that there is little time to take regulatory actions that would affect the 2018 plan year because health plans need to meet state and federal filing deadlines for their 2018 products and rates. Nevertheless, AHIP supports many of the policies in the proposal, such as tightening SEP eligibility and enrollment criteria, allowing health plans to collect outstanding balances from individuals before they enroll, shortening the open enrollment period to November 1 - December 15, 2017, and deferring to state review of the adequacy of plan networks. AHIP also said that CMS should apply continuous coverage requirements to all SEPs and give health plans greater flexibility around actuarial value requirements, recommending that the de minimis range be expanded to -4/+4 percentage points.
However, not all plans agree with moving to a shorter open enrollment period. Some health plans say that it could result in only the sickest individuals signing up for coverage. For example, MVP Health Care says that a shorter open enrollment period could discourage healthier people from signing up for coverage.
CMS received over 2,500 comments on the market stabilization proposed rule before the deadline last week.
Around the Country
MACPAC: Per-capita Medicaid caps could limit states’ negotiation power
A Medicaid program financed based on per-capita caps could make it more challenging for states to negotiate with managed care plans, according to the Medicaid and CHIP Payment and Access Commission (MACPAC).
As proposed, the AHCA would limit the federal contributions to state Medicaid programs to a per-capita cap beginning January 1, 2020. State allotments of federal funding would be based on their Medicaid funding for each enrollee category from FY2016. Each state’s targeted spending amount would then indexed annually to the medical component of the consumer price index.
Many Republican lawmakers say that a per capita cap in Medicaid would give states increased flexibility to administer benefits how they see fit for their state’s population and needs. However, a recent presentation by MACPAC researchers and discussion among commissioners did not support greater flexibility. Commissioners discussed how a capitated budget set a year in advance could limit states’ ability to negotiate with managed care plans or address health issues as they arise (e.g., unexpected virus outbreaks or public health emergencies). MACPAC says that if the federal government is deciding the per-member per-month payments, it would limit what states can do to encourage efficiency or quality.
While commissioners discussed a wide range of topics, they agreed that states may not have enough data or modelling capabilities to accurately estimate per-capita costs for the 74 million people on Medicaid and cautioned against transferring too much risk to the states.
Arkansas governor seeks to amend Medicaid expansion plan
Last week, Governor Asa Hutchinson announced plans to amend the state’s Medicaid expansion waiver to include stricter work requirements and stronger eligibility rules and to change the part of the program that pays for employer-sponsored insurance (ESI). During the Obama Administration, Arkansas expanded Medicaid under a Section 1115 waiver called “Arkansas Works.” The waiver required enrollees to seek work and was nicknamed the “private option” because of the state’s choice to buy private coverage for the newly eligible Medicaid population.
Through a waiver amendment, the state is requesting federal approval to:
- Limit eligibility for the Arkansas Works program to people with incomes at 100 percent of the FPL – $11,880 for an individual and $24,300 for a family of four – bringing it down from 138 percent
- Add a work requirement for all non-disabled adults
- Replace the current ESI program, where Medicaid covers low-income employees’ contributions to ESI plans, with a more targeted program that focuses only on individuals who are working for small employers and earn at least 75 percent of the FPL
- Transition the control of the eligibility process from the federal government to the state
Arkansas covers approximately 220,000 Medicaid beneficiaries with commercial insurance and 25,000 medically frail adults through the state’s fee-for-service program. The state estimates that 20 percent of the Arkansas Works population has income above 100 percent of the FPL. Under this new model, that population would be eligible for subsidies through the federal exchange, subsidized by the federal government rather than a combination of federal and state funding.
If approved by the US Department of Health and Human Services, the changes would go into effect January 1, 2018.
Skin in the game: Innovations in boosting immunity and fighting off pathogens
Skin is the largest organ, and scientists are discovering new ways to harvest the healthy bacteria that lives on our skin to help fight harmful bacteria. A team at the University of California, San Diego is in the early stages of developing and testing skin creams that may guard patients with eczema against risky bacteria that gather on cracked skin. The research may shed new light on how the microbiome - communities of microorganisms, including bacteria, fungi, and yeast that live all around us – influence health.
Bacteria on our skin can cause infection when common skin disorders such as eczema break down the skin. In particular, the health care community is concerned about the rise of a harmful bacteria called Staphylococcus aureus that is increasingly resistant to antibiotics.
The California research team discovered that certain strains of protective bacteria on the skin secrete antimicrobial peptides, a type of natural antibiotic. In lab tests and in animals, these substances have been shown to selectively kill Staphylococcus aureus, even a drug-resistant strain known as MRSA, without killing neighboring and healthy bacteria like typical antibiotics do.
Because people with eczema for unknown reasons have a lot of the wrong kind of bacteria on their skin and not enough of the healthy bacteria, replenishing the healthy kind with a cream may help them.
So far the team has tested just five patients who had a colonization of Staphylococcus aureus on their skin without a full blown infection. After culturing some of the rare protective bacteria from their skin and growing a large supply in a lab, researchers mixed a dose into an over-the-counter moisturizer for the patients to try. A day later, much of the staph was wiped out compared to the untreated arms. Clinical trials in larger groups of patients are currently underway.
Analysis: The World Health Organization recently released a list of 12 antibiotic-resistant “superbugs” or priority pathogens that pose the greatest risk to human health. The agency has ranked the pathogens for which there is greatest need for new antibiotics. The purpose of the list is to help ensure antibiotic manufacturers and researchers are aware of the research and development priorities and to serve as a reminder that in the next decade if new, effective antibiotics are not developed, drug-resistant infections could cause more deaths than cancer.
Patients most at risk are those who are hospitalized and may require blood catheters or ventilators. These bacteria can cause severe and deadly infections and are resistant to even the most powerful antibiotics. Certain strains of Staphylococcus aureus are listed as a high priority (ranked below the critical category).
Innovation in antimicrobials has slowed in recent years. 21st Century Cures, the bipartisan legislation to modernize drug and device development and approval that was signed into law in December 2016, creates an expedited pathway for antimicrobials that treat serious or life-threatening infections. The pathway could help encourage the development of new antibiotics. The populations affected by multidrug-resistant infections are small, so being able to have smaller clinical trials than typically required may help companies enroll enough participants to study the drug.
(Source: Teruaki Nakatsuji et al, Antimicrobials from human skin commensal bacteria protect against Staphylococcus aureus and are deficient in atopic dermatitis, Journal of Translational Medicine, February 22, 2017)