With the assumption of a Biden/Harris administration, it is worth taking a moment to review some of their proposals and the potential impact they may have on the PBM industry. It is important to note that many of these efforts will require congressional support to move forward, so close attention to which party has control of the Senate will assist in determining the likelihood of such policy advancing. While campaigning, Biden has laid out many proposals with respect to healthcare, most of which have in common the effect of expanding the Federal government’s role in this space.
In the “mostly” beneficial area, several items come to mind. First, Biden has expressed a desire to create a “Public Option” within the ACA. There are some parallels to “Medicare for All,” but this a smaller expansion. Second, it is proposed that increased dollars will be provided to state Medicaid plans, particularly during the COVID-19 pandemic. Third, expansion of coverage among undocumented immigrants has been promoted. Finally, lowering the age of eligibility for Medicare to 60, rather than 65 has been suggested. All of these efforts, if enacted, would serve to increase the population and utilization potentially eligible for management by PBMs. As a rule though, this expansion will likely be lower margin, and more tightly regulated than what is typical in the commercial space.
In the detrimental column, we can point to policy efforts such as allowing the Federal government to negotiate for Medicare, Biden’s attitude toward a pricing index, and limiting price increases in Medicare and the proposed Public Option to inflation. With respect to drug pricing in Medicare, the Trump administration has advocated a largely free market approach through the elimination of the safe harbor for rebates. This approach was not viewed favorably by PBMs, but it is hard to see the industry being any more enthusiastic about surrendering negotiation to the Federal government for Medicare drug purchases. Loss of the ability to negotiate brings into question formulary independence, and, potentially, a national program for the pharmacy benefit that somewhat resembles Medicaid. In perhaps the only area where the Biden and Trump administrations converge, both advocate a pricing index policy, although Biden’s approach is somewhat narrower than the rule recently promulgated by Trump. Either approach is unfavorable to PBMs, particularly those involved in managing the medical drug benefit. Both positions will lower prices, and potentially utilization, resulting in negative impacts to PBM margins. A third policy that may negatively impact PBMs is the approach to link price increases to inflation in Medicare and the Public Option. Managing inflation is a positive, but many PBMs have price protection/predictability clauses in their contracts that will deliver less value if price increases are constrained.
To conclude, a Biden administration will present both challenges and opportunities. How much it differs from the current state of affairs is likely dependent on whether the Democrat party succeeds in gaining control of the Senate and is thereby able to move significant legislation forward. PBMs will prepare for the new Biden/Harris Administration and act nimbly to protect their margins and bring value to their customers. This indicates manufacturers should monitor and prepare for additional aggressive and innovative strategies by PBMs.