Beware this summer’s surprises

By Jon Bigelow • Executive Director of the Coalition for Healthcare Communication

So far, so good: The beginning of the Biden administration has had a largely positive impact on the biopharma industry, notably marked by an effort to “stick to the science”; a fairly efficient roll-out of COVID-19 vaccines that allows reopening of schools and many aspects of normal daily life; and expansion of Affordable Care Act (ACA) coverage. But behind the scenes, pressure continues to build surrounding high prescription drug costs and changes in tax policy. 

Early 2021, in review

President Biden entered office in January after a bruising election campaign, with the narrowest of majorities in the House and Senate, and—despite decisive margins in electoral as well as popular votes—with a large portion of the electorate continuing to deny that he actually won. Yet he has pursued big initiatives through a torrent of executive orders and massive legislative proposals. Even while focusing on fighting the pandemic and boosting the economy, he is pursuing progressive goals on climate change, taxation, racial justice, economic inequality—and health policy. 

Behind all of this is that President Biden and Democratic leaders in Congress fear they have only this year in which to accomplish major initiatives. Their slim House and Senate majorities are highly vulnerable in next year’s midterms (and, in fact, could even be lost before then if there are any illnesses, deaths, or resignations in Congress), so “it’s now or never” to enact their agendas.

“Rescue,” “Jobs,” and “Families”

By Executive Order, Biden created a new ACA open enrollment period to run from February 15 to August 15. Although intended to help persons who lost their employer-based insurance when they lost their jobs during the pandemic, the special enrollment period is open to all. Then in the $1.9 trillion American Rescue Plan, the President won a major expansion of ACA coverage by increasing the size of subsidies, lowering the income threshold for eligibility, and offering enticements for “hold-out” states to expand health access through Medicaid.

Expansion of ACA coverage increases the market for prescription drugs. By May 1, over 1 million Americans already had taken advantage of open enrollment to sign up for new coverage; almost 2 million others benefited from revised plans with markedly lower premiums. 

In the proposed $1.8 trillion American Families Act addressing human infrastructure, President Biden would extend these increased ACA subsidies past their current December 2022 sunset. Early comments by White House Chief of Staff Ron Klain fed expectations that much of the planned spending would be paid for by measures to reduce Medicare expenditures on prescription drugs by $500 billion. In the end, the president backed off, apparently fearing that adding limits on drug prices could make an already difficult path to passing the Families Plan impossible; instead, he would increase taxes on wealthy individuals. 

The proposed $2.3 trillion American Jobs Act on physical infrastructure includes large investments in biotech R&D. Because this bill is to be financed by corporate tax increases, it does exact a cost on biopharma. The nominal corporate tax rate is to be increased from 21 percent to 28 percent; tax avoidance strategies that have benefited pharma (for example, assigning patents to overseas subsidiaries) are to be closed; and a tax would be imposed on book value of large companies with high profits but little taxable income.

The risks that lurk

Of course, the Jobs Act and the Families Act will be subject to extensive negotiation and horse trading, even to win the votes from moderate Democrats needed to pass under the budget reconciliation process. The final shape of the legislation—and whether either or both plan will even pass—remains in doubt. There are notable potential hazards here for biopharma. 

First, there is stiff Republican opposition to the increases in corporate taxes proposed in the Jobs Act. Some centrist Democrats also express concern; for example, Sen. Joe Manchin (D-W.Va.) does not want the corporate tax rate to rise above 25 percent. Other Democrats want to repeal the provision in the 2017 tax cut bill that set a $10,000 maximum on deducting state and local taxes—thus adding to the cost of the Jobs Act. In the wheeling-and-dealing over the next few weeks, a pharmaceutical marketing tax (either limited to direct-to-consumer advertising or more broadly covering marketing to healthcare professionals as well) may be more palatable politically than some other tax increases.

Second, there is strong sentiment in Congress to enact measures limiting prescription drug prices, either as part of the Families Act (averting some tax increases on wealthy individuals) or as a separate bill that could garner enough bipartisan support to survive a Senate filibuster. H.R. 3, the drug prices package passed last year by the House, was recently reintroduced; Senate Finance Committee chair Sen. Ron Wyden (D.-Ore.) and others are working on alternative legislation that might garner some Republican support.

Jon Bigelow

Late 2021, in preview

Negotiations over what does or does not get included in the Jobs Act and the Families Act will chew up much of the summer. This will make for a crowded and complicated legislative calendar, given other looming deadlines.

The federal budget process, always difficult, got off to an even later start than usual with the awkward transition from the Trump to Biden administrations and the early emphasis on vaccines and economic stimulus. It seems highly unlikely that both houses of Congress will approve all of the major appropriations bills before the next fiscal year begins on October 1; expect to see “continuing resolutions” kicking this can down the road into the autumn.

Add in a further complication: The current suspension of the federal debt limit ends July 31, and the Treasury Department is already warning that it will have difficulty financing the government as soon as August unless Congress acts to either raise or suspend the limit again. This situation will give Republicans additional leverage to push back against the Biden infrastructure and tax increase proposals.

Pharma has gained an expanded market and avoided drug pricing limits so far, but beware unpleasant surprises in the negotiations ahead.  ]milies Act will be subject to extensive negotiation and horse trading, even to win the votes from moderate Democrats needed to pass under the budget reconciliation process. The final shape of the legislation—and whether either or both plan will even pass—remains in doubt. There are notable potential hazards here for biopharma. 

First, there is stiff Republican opposition to the increases in corporate taxes proposed in the Jobs Act. Some centrist Democrats also express concern; for example, Sen. Joe Manchin (D-W.Va.) does not want the corporate tax rate to rise above 25 percent. Other Democrats want to repeal the provision in the 2017 tax cut bill that set a $10,000 maximum on deducting state and local taxes—thus adding to the cost of the Jobs Act. In the wheeling-and-dealing over the next few weeks, a pharmaceutical marketing tax (either limited to direct-to-consumer advertising or more broadly covering marketing to healthcare professionals as well) may be more palatable politically than some other tax increases.

Second, there is strong sentiment in Congress to enact measures limiting prescription drug prices, either as part of the Families Act (averting some tax increases on wealthy individuals) or as a separate bill that could garner enough bipartisan support to survive a Senate filibuster. H.R. 3, the drug prices package passed last year by the House, was recently reintroduced; Senate Finance Committee chair Sen. Ron Wyden (D.-Ore.) and others are working on alternative legislation that might garner some Republican support.

Late 2021, in preview

Negotiations over what does or does not get included in the Jobs Act and the Families Act will chew up much of the summer. This will make for a crowded and complicated legislative calendar, given other looming deadlines.

The federal budget process, always difficult, got off to an even later start than usual with the awkward transition from the Trump to Biden administrations and the early emphasis on vaccines and economic stimulus. It seems highly unlikely that both houses of Congress will approve all of the major appropriations bills before the next fiscal year begins on October 1; expect to see “continuing resolutions” kicking this can down the road into the autumn.

Add in a further complication: The current suspension of the federal debt limit ends July 31, and the Treasury Department is already warning that it will have difficulty financing the government as soon as August unless Congress acts to either raise or suspend the limit again. This situation will give Republicans additional leverage to push back against the Biden infrastructure and tax increase proposals.

Pharma has gained an expanded market and avoided drug pricing limits so far, but beware unpleasant surprises in the negotiations ahead.