Fitch: Presidential Politicking Heightens Drug Pricing, ACA Risk

NEW YORK--()--The Affordable Care Act (ACA) has so far taken a backseat role to drug pricing in this presidential election cycle, but both topics are expected to be featured in policy proposals and debates leading up to Election Day, according to Fitch Ratings.

In the near term, these issues pose headline risk to healthcare equity prices that may influence capital deployment decisions. Over the longer term, there is risk that change in the political and legislative environment could result in massive change and disruption to business models.

Drug price control proposals have been a perennial part of the political dialogue for years, regardless of the party in charge. Fitch believes the idea of risk around drug price controls being specifically tied to the outcome of the presidential election is overblown. The most commonly stated concern about the industry's exposure to the drug pricing debate is that a model where Medicare negotiates drug prices poses a significant risk to the industry. Even if the government is given a role to negotiate pricing, it is unclear exactly what this would mean for the industry. Normal competitive dynamics would still exist, which should give drug manufacturers the upper hand in negotiating prices for new drugs that truly provide a better value than existing therapies.

As it pertains to the ACA's future, the viability of the public health insurance exchange markets remains one big question hanging on the outcome of the upcoming election. Vibrant exchange marketplaces with adequate competition to ensure rational pricing would likely be the best case scenario for healthcare providers and, by extension, the rest of the US healthcare industry. This is more likely to occur with a balance of power that favors Democrats.

We think the public exchanges are salvageable if some compromise can be reached to mitigate the problems insurers are experiencing with the exchange risk pools. Centers for Medicare and Medicaid Services (CMS) has been actively trying to accomplish this through the rulemaking process, and it has stepped up efforts as the end of the Obama administration approaches.

Whether CMS can do enough through rulemaking to address the issues with the exchange risk pools remains to be seen. A more comprehensive solution requiring legislation is possibly necessary. Various ideas have been floated by politicians and pundits, including a public plan option operating alongside the exchange plans in certain markets or increasing the tax subsidies to encourage relatively healthy people to sign up for exchange plans.

These potential solutions would have complex and wide-reaching implications for the healthcare industry. For example, in order for the public plan option to work, it would ostensibly have to be a cheaper alternative than the existing commercial plans. Cheaper premiums would most obviously result from lower payments to providers by the plan. Even assuming that one of these solutions can be brokered in a politically palatable manner to get enough Republicans to go along, healthcare providers may have to make some concessions to facilitate healthy exchange markets.

Additional information is available on www.fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

Related Research
What Investors Want to Know: U.S. Healthcare (Takeaways from Recent Investor Meetings)
https://www.fitchratings.com/site/re/887285

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Contacts

Fitch Ratings
Megan Neuburger, CFA
Managing Director, Corporates
+1 212 908-0501
Fitch Ratings
33 Whitehall Street
New York, NY
or
Kellie Geressy-Nilsen
Senior Analyst
Fitch Wire
+1 212 908-9123
or
Media Relations
Alyssa Castelli, +1 212-908-0540
alyssa.castelli@fitchratings.com

Contacts

Fitch Ratings
Megan Neuburger, CFA
Managing Director, Corporates
+1 212 908-0501
Fitch Ratings
33 Whitehall Street
New York, NY
or
Kellie Geressy-Nilsen
Senior Analyst
Fitch Wire
+1 212 908-9123
or
Media Relations
Alyssa Castelli, +1 212-908-0540
alyssa.castelli@fitchratings.com