One of the most discussed topics during the 2008 Democratic presidential primaries, as we all know, was the health care reform. Each candidate sought a viable plan to cover the roughly 45 million Americans estimated to be without health coverage at any point during each year. Later, as the race for presidency narrowed, the then Democratic nominee and Illinois Senator, Barack Obama said that fixing health care would be one of his four priorities if he won the presidency. Shortly after being elected as the president of the United States, Obama on March 5, 2009 formally began reform process and held a conference with industry leaders to discuss reform and requested reform be enacted before the Congressional summer recess; however was not passed by the requested date. On March 23, 2010 after nearly a year of overall consideration by both chambers of Congress, President Obama signed into law the US federal statue of Patient Protection and Affordable Care Act (PPACA). The law is the principal health care reform legislation of the 111th US Congress, popularly referred to as the ‘Obamacare’.
By law, PPACA requires most adults, who are not covered by government or employer sponsored insurance plans, to maintain health insurance coverage or pay a penalty, a provision widely referred to as the individual mandate. The Act gave special consideration to people with less yearly income as well as expanded the Medicaid eligibility. Naturally, its policies reverberated through the health insurance industry, baring companies from considering pre-existing conditions or gender in coverage decisions. Therefore, requiring them to cover all applicants and offer the same rates irrespective of health status or gender. The Act was met with a lot of criticism with twenty-eight states, several organizations, and a number of private citizens filing actions in federal court challenging the constitutionality of the PPACA. However, on June 28, 2012, the US Supreme Court upheld the majority of the law including the individual mandate in a narrow ruling, clearing the main hurdle for the health care reform. So that’s the health care reform synopsized so far. And in light of the latest development, the headline question has become even more obvious now. Rephrasing the same question: how will this reform – that is unlikely to be repealed given the low probability of Republicans gaining a majority in the Senate-affect the Pharmaceutical stocks trade review?
In any ways, the PPACA is already here, as many portions of the Act have already been quietly enacted. The government has streamlined the approval process for drugs as well as passed several rules that will make it easier for people to get the lifesaving treatments they need. Moreover, the Supreme Court ruling lifts the cloud of uncertainty that has caused many health providers to delay decisions to modernize and invest in future technologies. For the big pharmaceutical companies, a day trader coach analysts is needed in expecting the growth in demand for drugs, as a direct result of mandate mostly will offset the increased fees and rebates linked with the health care reform. Therefore, the effect of the ruling on these companies should be insignificant. Nevertheless, any analysts believe investors’ sentiment towards pharma group should improve considering the expenses related to the reform are front-end loaded – which started in 2010 – and the growth in demand will not distinctly begin until 2014 – when the mandate goes into effect.
The generic drug manufacturers are also believed to largely remain unaffected. The likely reasoning for this is that most of these manufactures have broad geographic presence, catering to several countries and many more people around the world. So the effect of the US health care reform is unlikely to be felt in these companies. Additionally, the generic drug pricing is relatively unaffected by the law. This further leads us to believe that the additional drug volumes from newly insured patients will not have any meaningful effect on the valuations of generic firms. However, the medical device makers are largely viewed as the relative losers of this reform. In accordance with the new law, they are subjected to fees payable to the federal government through a different fee mechanism. Device manufacturers – excluding retail medical devices like glasses – will be required to pay the government 2.3% of the sale price of the device. The excise tax is presumed to grow costs of device makers to US$20 billion by 2019.
To summarize, the health care reform will not have any tremendous impact on the pharmaceutical companies, both big groups and generic drug manufacturers. And though it supposedly might have negative effect on the device manufactures, the general investors’ sentiment towards the pharmaceutical companies is expected to improve.