Election may be good for pharmacy, but changes likely slow, experts predict

6/23/2008

WASHINGTON —Whether American voters hand Barack Obama or John McCain the keys to the White House next fall, the election of a new president may herald better times both for retail pharmacy and the generic drug industry, financial and health policy experts predicted late last month. But even a new president and a possible shakeup in Congress aren’t likely to spawn rapid or wholesale changes to the U.S. healthcare system, they noted.

Changes are likely to be “slow and incremental” rather than dramatic and sweeping, despite the current mood of U.S. voters and the elevation of health care as a hot election-year issue, said Paul Heldman, a director and senior health policy analyst at Citi Investment Research.

Addressing reporters and investors on the likely impact of the election on retail pharmacies, pharmacy benefit managers and drug companies, Heldman predicted that neither election-year politics nor pressure from voters, politicians and advocacy groups is likely to spur a sweeping overhaul of the U.S. healthcare system in 2009. Nor is that pressure likely to lead to a dramatic lowering of health care or drug costs, or universal health coverage, in the near future, Heldman said.

Slowing the pace of change will be a divided Congress, whoever is elected president and broad disagreement between Democrats and Republicans over how to fund a broader insurance safety net, he added.

Heldman predicted that 2009 will bring some reforms to the healthcare system, but added that those changes “will be smaller than the vision the presidential candidates have laid out for the country.

“It’s more likely we’re at the start of a four- or five-year debate before we get major health coverage expansion or major changes in the law that would significantly reduce the growth of healthcare spending,” Heldman added.

As for the retail pharmacy industry itself, “Under either party, the drug stores should benefit with the continued movement to generics offsetting brand-name and Medicaid pricing pressures,” noted Citi Investment Research analyst Deborah Weinswig in a May 27 report. “Additionally…the next Congress will probably pass a law that allows for expedited approval of generic versions of biotech drugs.

“This should benefit the margins on specialty pharmaceuticals, which are a growth driver for the drug stores, and accelerate the increased mix of generics,” Weinswig continued. She added that drug retailers “may benefit slightly more under McCain, as he highlights retail in-store clinics as a health-cost solution.”

The presumptive Democratic and Republican presidential nominees, Sens. Obama of Illinois and McCain of Arizona, have widely differing views over the role of government in health care. “McCain’s policies are designed…to encourage growth of the individual insurance market and to relieve employers of the cost burden of providing coverage,” Heldman said. “He would replace the tax preference of people getting their insurance through their employer with tax credits that can be used to help offset the cost of all individual and employer health insurance.

“Sen. Obama’s model focuses more on government subsidies, raises money from employers and really relies on people using those subsidies to get coverage if they don’t have it through their employer in the health insurance market,” Heldman added. “He would also raise taxes on wealthier Americans to help finance his plan.”

“Financing is a major issue,” Heldman said. “Obama wants to raise taxes on people making over $200,000 a year and reduce taxes on people making less than that after the Bush tax cuts expire. That is a key part of Obama’s health expansion financing.”

McCain, on the other hand, “is on record supporting an extension of [Bush’s] tax cuts,” he added.

The result could be a stalemate, Heldman said.

On the other hand, he said, both Obama and McCain support direct government negotiations with drug makers for lower prices for drugs purchased under the Medicare Part D drug benefit program. That could spur the chances next year for passage of a law allowing for direct drug-price negotiations, Heldman added.

Heldman called that a negative for drug retailers and PBMs “to the extent that it could put pressure on prices throughout the drug distribution chain, and reduce PBM leverage on drug pricing under the Medicare drug benefit.”

However, he said, “government negotiating leverage with the pharmaceutical industry would require politicians to agree to deny seniors access to drugs if companies refuse to negotiate.”

For that reason, he said, “I think the government would use that authority sparingly at first. So the idea that either candidate is going to walk into the White House and flip a switch and [create] a widespread tamping-down of drug prices is very unlikely at this point.”

Whichever candidate reaches the White House in 2009, the outcome of the election could be positive for the generic drug industry, according to the policy expert. Given the cost pressures on drug utilization, Heldman predicted the “continued and possible acceleration of generic drug usage trends under all candidates and outcomes.”

Both candidates favor greater reliance on lower-cost generics, he added. What’s more, said Heldman, “Both Sens. McCain and Obama want a greater…investment in health information technology.” The result, he said, could be “a positive for pharmacy to the extent that through initiatives like e-prescribing, there’s greater generic drug substitution, a higher-margin business for them and for the PBM.

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