The Politics of Healthcare

Baird and Strategas Break Down What the Inflation Reduction Act Means for Healthcare Sector

As midterm elections loom large in the United States, Healthcare and Biotech companies are still assessing the impact of legislative and policy changes related to the Inflation Reduction Act. At the same time those companies and investors are trying to anticipate what a potentially different balance of power in congress could mean for the industry in 2023.

At our 2022 Global Healthcare Conference, Baird’s Healthcare Biotech Specialist Mike Perrone hosted a robust Q&A discussion with Jeanette Lowe, Director of Policy Research for Strategas, about the increasingly dynamic relationship between government policy, regulation and the business of Healthcare.

Following are some key takeaways:

In 2008, before the financial crisis, there were only 26% of the S&P 500 companies who said that government was their number one risk and concern. By 2018, that doubled to 56% of S&P 500 companies.

Jeannette Lowe, Director of Policy Research, Strategas Securities

The Increased Cost of Doing Business

In addition to a 15% minimum corporate tax on companies with profits of $1 billion or more and a 1% tax on corporate buybacks over $1 million (starting in 2023), the Inflation Reduction Act has specific implications for Healthcare and Biotech, including:

• More generous Affordable Care Act subsidies extended through 2025
  More than 2.5 million people added coverage after these subsidies increased in 2021 under the American Rescue Plan. Had they expired, insurance companies anticipated many would drop coverage, likely forcing communication of premium increases before the election.

• Medicare can now negotiate the price of prescription drugs
  In a July 2022 poll, 76% of Americans supported this idea. Many companies are not yet concerned as it starts with just 10 Part D drugs in 2026. It ramps up quickly, though, with an additional 15 in 2027, another 15 (from Part D or B) in 2028, 20 more in 2029 and up to 100 by 2030.
• Other Medicare provisions shift costs to insurers and drug companies
  Insulin cost sharing capped at $35/mo., elimination of cost sharing for adult vaccines covered under Part D, inflation rebates for Part B and Part D drugs (all effective 2023); full Part D Low-Income subsidies for beneficiaries up to 150% federal poverty level (effective 2024); limited premium increases and caps on out-of-pocket costs at $2,000 annually (effective 2025).

Looking Ahead

The sheer amount of change introduced in the Inflation Reduction Act and recent polling data may point to less uncertainty about the future as Healthcare and Biotech adapt to the new rules of the road. But there are some potential developments Baird and Strategas are watching:

• The 2022 Election
  While the likelihood of further sweeping change in the Healthcare sector seems low even if Republicans were to regain control of Congress, there is the possibility that Congressional gains for Democrats could open the door to revisiting items that didn’t make it into the Inflation Reduction Act, like a 15% global corporate tax, expansion of Medicaid in states that have not done so yet and increasing home health benefits.

• R&D Tax Credits
  A 2017 tax law change required companies to amortize R&D tax credits over five years (rather than dispensing all at once) starting in 2022. There was discussion of reversing that in this bill, but that did not happen. Congress may try to delay this requirement in the lame duck session.

• An M&A Wave
  Drug price negotiation means companies will need pipelines for new drugs, which could spark a surge in biotech M&A activity. Heightened regulatory scrutiny of mergers – especially consolidation – and the increased FTC focus on drugs in particular will act to slow that wave in the U.S. and increase the likelihood of antitrust challenges. Cross-jurisdictional issues, with even tougher stances in Europe, could further complicate the landscape for multinationals, resulting in greater cost to get deals done. Pre-merger reviews, looking for and addressing potential regulatory triggers before announcing a deal, could help mitigate these obstacles.