Monday, May 23, 2016
A comprehensive government crackdown on high drug prices isn’t likely soon. Still, investors shouldn’t let their guard down.
Biotech and pharmaceutical stocks have struggled since last summer when the controversy erupted into a big political issue. Last week’s congressional hearing on the Obama administration’s proposed experimental overhaul of the Medicare Part B program served as a reminder of pricing peril.
One aspect—details will be finalized this year—could allow future administrations to empower the Centers for Medicare and Medicaid Services to use “value-based purchasing.” These tools might allow CMS to offer incentives for the use of biosimilars, lower-cost versions of biologic drugs analogous to traditional generics.
The good news for investors is the new model has met significant opposition from lawmakers, the industry and some patient advocacy groups. It is possible CMS will soften terms in the model before it issues its final rule, or the next president won’t make reining in drug costs a priority. But revenue from medicines whose clinical benefits don’t match a high price tag could be increasingly at risk. That is because value-based pricing is also catching on in the private sector.
Cigna announced contracts this month with developers of certain cholesterol drugs. These allow it to pay lower prices if patient outcomes aren’t as positive as expected. That won’t have as far reaching an impact as if the government comes down hard on pricing. But it could involve some pain.
Source : wsj.com