Why introduce legislation that will dead on arrival in the Republican controlled Senate? Because House Speaker Nancy Pelosi and other Democrats know that controlling drug prices is extremely popular with voters. And a proposal that is a serious effort to lower drug prices is a hammer that can be used over and over again to beat up President Donald Trump and Republican House and Senate candidates during the 2020 election.
The Republican defense is going to be what? We never brought anything up for a vote in the Senate because drug companies are big campaign donors. (It’s not like Democrats, such as presidential candidate and current New Jersey Senator Cory Booker, don’t take drugmakers’ money.)
Yeah, that’s going to fly.
So expect Democrats to keep bringing up the issue over and over again for the next 14 months.
Think that might be negative for the prices of drug stocks? I do. Which is why, tomorrow, I’ll be selling shares of Pfizer (PFE) out of my Dividend Portfolio. Pfizer paid its last quarterly dividend on August 1, 2019. (The stock currently yields 3.85%, which is an attractive yield if you don’t think the stock is set for a long losing streak on the drug-pricing election battle.)
Pelosi’s bill is expected to be introduced in the House sometime in the next week. The Washington Post has obtained a summary of the bill ahead of its introduction. It’s fair to characterize the proposed legislation as more aggressive than anything under consideration by the Trump White House or the McConnell Senate.
So what’s in the bill according to the Post?
The bill would allow the Secretary of Health and Human Services to directly negotiate prices on the 250 drugs that pose the greatest total cost to Medicare and the U.S. health system and that do not have at least two competitors in the market. That would include many insulins, cancer treatments, and specialty drugs. Those negotiated prices would then be available to all consumers, not just Medicare beneficiaries.
The legislation would also use an international pricing index that would ensure U.S. consumers do not pay more than beneficiaries in other countries, where prices are often lower because their governments directly negotiate prices. That is similar to a more limited proposal by the Trump administration that would base the price of some drugs in Medicare on the lower prices paid by other countries.
Drugmakers that do not reach an agreement with the government or refuse to participate in the negotiation would face a noncompliance fee equal to 75% of the gross sales of the drug being negotiated from the previous year.
Under an inflation rebate proposal, drug manufacturers would have to pay the U.S. Treasury if they raise prices above the rate of inflation on the more than 8,000 drugs in Medicare Part B, which covers expensive physician-administered drugs for cancer, dialysis and other illnesses, and Part D, its prescription drug benefit. If the manufacturer has raised the price above the rate of inflation since 2016, it can either lower the price or pay the price above inflation back to the Treasury. The money paid in penalties and anticipated savings would be used to cap out-of-pocket costs for seniors.
Some of these elements are in a drug-pricing bill introduced in the Senate in July and endorsed by the White House. But although the bill passed the Senate Finance Committee a majority of Republicans on the committee voted against the bill. And Senate Majority Leader Mitch McConnell (R-Kentucky) opposes fundamental elements of the bill and is unlikely to bring it to the Senate floor for a vote.
Shares of Pfizer are down 13.22% as of the close on September 11 since I added them to my Dividend Portfolio on December 17, 2018.