Looking Ahead To A Trump Administration: Health Care And Life Sciences Industry Perspectives - Healthcare

Observers are digesting what the Trump Administration will mean for the health care and life sciences industry. Forecasting is more challenging for this incoming Administration than most given the relatively sparse policy details released during the campaign and the lack of a government service record to examine for clues. Today President-elect Trump's transition team released a one-page statement on health care policy, but many questions remain. Nevertheless, we offer below our initial observations and issues to watch in the months to come.

Potential Sea Change. Uncertainty is, as some like to say, the "obvious comment" that characterizes the whole prospective Trump Administration. Other than an intended "repeal and replacement" of the Affordable Care Act (ACA), President-elect Trump has provided relatively few details on a proposed health care agenda. Until these policies are fleshed-out, expect an environment where some business decisions and investments may be delayed, with a resulting impact on merger and acquisition activity. That said, other transactions may become more likely, as the threat of new restrictions under a Clinton administration are removed, along with the prospect of potential regulatory relief under a Republican-controlled federal government.
Affordable Care Act Repeal and Replacement. Trump has repeatedly indicated his desire to repeal and replace the ACA, including a vow to summon Congress into a special session for this task. If the law is repealed, however, what would take its place, and how would Congress address the roughly 20 million Americans currently covered in some way under the ACA (and the potential rise in uncompensated care costs that also would result)? Despite the call for repeal, certain parts of the law are popular. For instance, President-elect Trump noted on the campaign trail that he was in support of the ACA's prohibition against the use of pre-existing health conditions to deny coverage (or as a basis for premium-setting). Other proposals offered by Trump as candidate include allowing for the sale of health insurance across state lines as long as plans comply with state requirements, various tax benefits, and more transparency in health care pricing. In today's policy statement, President-elect Trump added support for high-risk pools, which he characterizes as "a proven approach to ensuring access to health insurance coverage for individuals who have significant medical expenses and who have not maintained continuous coverage." Congressional Republicans have offered a number of alternatives that are likely to be a springboard for reform, most notably the "Better Way" plan proposed by House Speaker Paul Ryan. In fact, according to the Speaker's office, "in the 114th Congress alone, House Republicans have introduced more than 400 individual bills that would improve our nation's health care system" – demonstrating that Congress is not reticent about legislating on health care issues. The new Senate's Republican majority will not have the 60 votes required to override a potential Democratic filibuster of legislation to fully repeal the law. While Congress could use budget reconciliation authority (which requires only 50 votes in the Senate) to make significant changes, the drawn-out pace of the budget process may not satisfy those who want quick action in this area. Regardless of the legislative vehicle, after years of calling for Obamacare repeal while President Obama was in office, the Republican Congress will be under tremendous pressure to act quickly – even if it is a "down-payment" on reform — now that Republicans will control the presidency and the Congress.
Medicaid Impact. Trump has called for transforming Medicaid into a block grant system – which also has been advocated by Republican health policy reformers. However, such a huge change in this major state-federal program—which provides coverage for over 70 million people—is not likely to happen quickly. Most notably, the formula for what amounts states would receive under a block grant program, as well as the requirements that states would need to satisfy for the block grants, are far from settled. Numerous parties would be intensely interested in any such reform, including individual states (and their respective congressional delegations), health care providers, manufacturers, health insurers, and patient groups. More immediately in the context of ACA repeal and replacement, there is a question as to how Congress will address the increased federal match in Medicaid expansion states and how states will respond.
Fraud and Abuse. We don't expect reforms to fraud and abuse laws to be a high priority for health industry associations and lobbyists, given that no one wants to be perceived as "soft" on health care fraud. We do not anticipate that the crushing fraud and abuse environment will change nor do we expect that the federal False Claims Act (FCA) provisions contained in the ACA will be repealed. Indeed, Trump Administration likely would want to continue the associated revenue stream, and in practice it would be hard to dismantle FCA provisions given that there are likely hundreds of cases filed by whistleblowers that are currently in the pipeline, under seal. Furthermore, certain champions of a hard line against health care fraud – such as Senator Chuck Grassley – will remain in Congress and are unlikely to change course.
Drug Pricing. Initial market reaction would suggest that drug manufacturers are better off under a Trump Administration, given Secretary Clinton's campaign promises regarding reforms of drug pricing mechanisms for federal health programs. That said, the Trump campaign website states that while "the pharmaceutical industry is in the private sector, drug companies provide a public service," and proposes to allow "consumers access to imported, safe and dependable drugs from overseas...." Mr. Trump has also spoken about potentially negotiating drug prices. In light of public perceptions surrounding this issue, we believe the industry should expect some changes—although these could be relatively benign (e.g., clearing FDA's backlog of generic drug approvals).
Future of CMS Innovation Agenda. While innovation center reforms did not draw significant opposition when they provided voluntary opportunities to reap rewards for delivering care more efficiently, CMS's pivot to mandatory bundled care arrangements (e.g., the Comprehensive Care for Joint Replacement program and proposed Episode Payment Models) have drawn the opposition of many providers and more recently prescription drug manufacturers in light of proposed Medicare Part B drug payment reforms. House Republicans have called for repeal of the Center for Medicare and Medicaid Innovation (CMMI) reform authority; even without repeal, however, the new administration is likely to scale back the scope and pace of innovative "mandatory" Medicare payment reforms.
Device Tax. The ACA device tax is currently suspended for 2016 and 2017, and it would not be surprising if this tax were permanently repealed as part of reform of the ACA.
Broader Regulatory & Statutory Action. A new Administration (particularly when it ushers in a party change) often results in a call for a regulatory review or moratorium, which presents an opportunity to reshape pending policies. This could include, for example, delaying action on pending rules or even postponing the effective date of recent rules. Furthermore, while we have no direct clues yet, a new administration and Congress always present opportunities to revisit perennial health law issues such as reinstatement of the Stark Whole Hospital Exception, the long-term care hospital (LTCH) 25% rule and moratorium on new LTCHs, the inpatient rehabilitation facility (IRF) 65% rule, off-campus provider-based site-of-service differentials, and many other contentious subjects of debate. There also could be pressure from physicians to roll-back complex reforms to physician payment policies set to go into effect in 2017 under the Medicare Access and CHIP Reauthorization Act of 2015. Republican lawmakers may be motivated to revisit the compromise Congress reached on the sustainable growth rate and seek to simplify the pending implementation of the Merit-based Incentive Payment System (MIPS) or participation in an Advanced Alternative Payment Model (APM). In other areas, President-elect Trump today very generally committed to advance health care research and development, reform the Food and Drug Administration "to put greater focus on the need of patients for new and innovative medical products," "modernize" Medicare," and "protect individual conscience in healthcare."
Congressional Republican Priorities. One clue as to Republican health care objectives is found on the "A Better Way" website, which provides the following exchange: Thus, the Congressional agenda could be fairly ambitious. However, repealing features of the ACA that were scored as saving federal funds, like the IPAB, will be scored as revenue losers, requiring offsetting revenues/savings under congressional budget rules.

Q: Does this plan give back the more than $800 billion that Obamacare raided from Medicare?

A: Our plan rescinds the most damaging changes Obamacare made to Medicare, including IPAB [Independent Payment Advisory Board], the CMMI, and Medicare Advantage. It was designed with the looming insolvency of the program in mind. That's why our plan targets relief in the Medicare Advantage program.
Payor and Provider Consolidation. Aetna's $33 billion purchase of Humana has been blocked by the Department of Justice, which has filed suit to prevent the deal. Almost simultaneously, the Department of Justice sued to stop Anthem's proposed acquisition of CIGNA. On the provider side, the Department of Justice scored significant court victories in recent challenges to hospital mergers in Illinois and Pennsylvania. Will a Trump Justice Department view consolidation in the health care industry in a different light? Trump has at times viewed large mergers – particularly in the media industry – with suspicion.
State Legislative Response. As the Trump Administration and Congressional Republicans seek to repeal and replace the ACA,, state legislatures, particularly those controlled by Democrats, may become more active by attempting to preserve some aspects of the ACA and grappling with Medicaid expansion. While state legislatures are likely to be reactive to proposals first coming out of Washington, we've already seen an indication that individual states make take a different policy approach to health care coverage and spending. For example, California Senate President pro Tempore Kevin de León (D-Los Angeles) and California Assembly Speaker Anthony Rendon (D-Paramount) released a statement on the results of the President election broadly indicating that the state Democrats intend to pursue policy proposals more similar to those of the Obama Administration.