Health care bill ‘most aggressive action’ on drug pricing: Analyst

Raymond James Healthcare Policy Analyst Chris Meekins joins Yahoo Finance Live to discuss the expectations for the Manchin-Schumer deal, expanding regulation on drug prices, out-of-pocket Medicare expenses, and the outlook for pharmaceutical company earnings.

Video transcript

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JULIE HYMAN: A revive bill put forward by Senate Democrats would significantly expand regulation of prescription drug prices, as well as help lower out-of-pocket costs for Medicare users. This is as part of that larger climate bill, spending bill that-- we were just showing Joe Manchin that he appeared to agree to last week.

Joining us to discuss the recent legislation, what it means for the healthcare industry is Raymond James Healthcare Policy Analyst Chris Meekins. Chris, it's great to see you. So there's some interesting stuff here. I mean, obviously, the bill is fairly extensive in terms of the different areas that it hits. But healthcare is in there at least for now.

How significant are some of these prescription drug changes? Because for now, it seems like it's not very broad. It affects mostly, what, Medicare and Medicaid, right?

CHRIS MEEKINS: Yeah, it does. I mean two things can both be true. This can be the most aggressive action in a generation against the pharmaceutical industry related to regulating drug pricing. And at the same time, it could also be not really have a meaningful sector of wide impact on earnings going forward, right?

So this can be the most consequential thing. But also when you take all the different details about Medicare and the fact that it doesn't impact the launch prices of drugs, doesn't really impact the commercial market, when you take all these things together what you realize is, yeah, there's a lot of noise around it but the company should be OK.

BRAD SMITH: And so from this point forward, how do you expect that some of the healthcare companies that have already seen their wave of consolidation pre-pandemic, adjusting of the policies and the insurance mechanisms to really kind of account for what many of us believe will be a longer implication that COVID has as related to the healthcare policies as well-- how do you believe that the companies, themselves, are monitoring where this healthcare bill continues to move forward and the changes that they're gonna need to make?

CHRIS MEEKINS: Well, I live in the Washington DC area. So I can tell you they're very focused on it, especially the pharmaceutical industry because I see television ads back-to-back nonstop. It seems like every commercial break there's some television ad about how this bill will kill innovation for all these big diseases going forward, and will cut Medicare by $300 billion. So clearly, the pharmaceutical industry does not want this to pass.

With that being said, when you take a look at the bill, one, a lot of what they're actually going to implement with regard to allowing Medicare to negotiate drug prices for a very limited number of drugs, meaning a very specific set of criteria, that doesn't actually start impacting earnings till 2026. So in the near term, consumers aren't likely to see a big change in what they actually have to pay for pharmaceuticals. And there's still a lot of time for the pharmaceutical industry to adjust their business models to these changes.

BRIAN SOZZI: Chris, what do you anticipate the-- you know, there's a lot of focus on the tax increases that are coming with this bill. What's the chatter from those you're speaking with?

CHRIS MEEKINS: Yeah, no question that a lot of the focus-- initially, this was going to just be a healthcare bill. Remember, Joe Manchin said, I'm willing to talk about tax and energy after I get the July inflation number. And so the thought was, this will just be pharmaceutical pricing, which is like $300 billion in savings over 10. Only about $190 billion of that is real from the pharmaceutical industry. The rest is kind of fake money in DC.

And then spending somewhere between 30 and 60 with regard to expanding-- continuing the expanded Affordable Care Act subsidies. If those had gone away at the end of the year, you would have seen about three million more uninsured. And premiums increase on average 50% for those that are on the exchanges.

So when it comes to taxes, the big question is what Senator Sinema now going to do that they thrown these taxes back into the bill. She has expressed opposition to the carried interest piece, which is about $14 billion of the $700 billion bill that they supposedly have.

So everyone's watching two things this week. One, what's the Senate-- the Senate parliamentarian going to allow them to include in the bill of the 725 pages? And two, where does Senator Sinema and obviously, Senator Menendez come down on this bill going forward?

JULIE HYMAN: So to get back to the drug pricing for just a second, Chris, so if it's not going to cause a significant hit to revenue at the pharmaceutical companies, is it going to be a significant savings for consumers? And is there any possibility that we will see a ripple effect in the industry beyond just A, those very-- that very narrow list of drugs and B, Medicare recipients?

CHRIS MEEKINS: So what we're seeing, in my opinion, is that the industry is going to be able to adapt. There'll be some drugs that get cheaper for consumers. But the biggest thing this bill leaves out is the fact that it doesn't touch what a drug company can price a launch price of the drug. So when a drug's first coming on the market, they can do whatever they want.

So if they think they're going to lose revenue because of this bill on the out years or lose it from product X, they can make up for it with product Y by increasing that cost initially. So new products are likely going to be--

JULIE HYMAN: So Chris, to be-- to be clear, it sounds like what you're saying is that this bill will have exactly the opposite effect intended. In other words, it will not bring down the overall cost of drugs. In fact, it's possible we could even see a tick up in prices if you look at, again, the overall cost.

CHRIS MEEKINS: What I somewhat tongue-in-cheek said, this bill could also be called the increase drug launch price act, because that's what it's probably going to do is increase the launch price of drugs. So some drugs on the market awhile will get cheaper. Just everything new, the most innovative technologies we need to cure these diseases are probably going to be more expensive as a result of this bill.

BRAD SMITH: OK, and so for all of the drug manufacturers who have a ton of research and development that goes into each one of these launches as well, we've seen this push to kind of open source some of their patents. Does that then get pulled back in the name of making sure that they're able to securitize enough of their profits because of the overall changes that this bill would actually implement, too?

CHRIS MEEKINS: Yeah, I don't think there's much of an appetite in Congress to pull back the patents in a meaningful way. What you have seen is some Progressives pushing the administration to take actions related to march and rights at the National Institutes of Health. I'm still skeptical that gets done.

We've seen some actions related to COVID in the international community going forward. So I think patents largely will be protected. But what we know, especially for drugs and Medicare, is if you're one of those drugs that gets targeted for negotiation, which is single source, small molecule on the market, at least nine years, biologics at least 13, and one of the 10 to 20 they choose each year, you know, you're probably going to make less than you would have otherwise made, even if you still have the patent rights to those drugs in those years.

JULIE HYMAN: Interesting stuff, Chris. And we'll keep watching to see the progress-- or lack thereof of the bill through Congress. Chris Meekins, Raymond James Healthcare Policy Analyst. Great to catch up with you as always. Thanks, Chris.