Hillary Clinton Drug Plan Would Cap Consumer Costs, Mandate R&D Spending

The Democratic front-runner continues to flesh out her health care agenda.

Democratic presidential candidate Hillary Clinton claps on stage during the New Hampshire Democratic Party Convention at the Verizon Wireless Center on Sept. 19, 2015, in Manchester, New Hampshire.

Photographer: Scott Eisen/Getty Images

A day after a tweet about high drug costs from Hillary Clinton sent pharmaceutical and biotechnology stocks plummeting, the Democratic presidential candidate said that if elected, she’d implement programs to force the industry to concede tens of billions of dollars a year in tax breaks, lower prices and increase research spending.

Clinton’s proposals are a mix of programs that build on policy already in the Affordable Care Act, including caps on out-of-pocket spending. Other programs, like having the government negotiate prices directly with pharmaceutical companies, have been long-advocated by many Democrats. 

“It is time to deal with skyrocketing out-of-pocket costs and runaway prescription drug prices,” Clinton said Monday during a campaign rally at Philander Smith College in Little Rock, Arkansas. Nobody in America “should have to choose between buying the medicine they need and paying their rent.”

One proposal would limit how much patients could have to spend out of pocket for drugs to $250 a month, or $3,000 a year. It’s an idea that builds on policy in the Affordable Care Act limiting total out-of-pocket medical spending to $6,600 a year for an individual, and $13,200 for a family. The idea could squeeze health insurers, as well, which provide drug coverage for patients and typically cover a portion of the costs.

Another item would make drugmakers spend a minimum amount on research and development, just as Obamacare forces insurers to spend a minimum percentage of their revenue on medical care. Clinton would also bar pharmaceutical companies from deducting drug ad spending as a business expense, for tax purposes, which she said in a statement announcing the policies would save the government “billions of dollars over the next decade.”

Clinton's proposal would "turn back the clock on medical innovation," said industry group Pharmaceutical Research and Manufacturers of America in a statement. ``These sweeping and far-reaching proposals would restrict patients’ access to medicines, result in fewer new treatments for patients, cost countless jobs across the country and erode our nation’s standing as the world leader in biomedical innovation," said PhRMA president John Castellani.

The R&D proposal seems to directly target companies like Valeant Pharmaceuticals Internationals Inc., which has grown to a $78 billion market valuation through a series of deals rather than developing products internally. Last year, it spent $246 million on R&D, far less than companies of similar size, according to data compiled by Bloomberg. Valeant shares fell as much as 8.8 percent after Clinton’s tweet on Monday.

Clinton criticized Turing Pharmaceuticals AG, which bought a drug in August and soon after raised its price 50-fold. “Price gouging like this in the specialty drug market is outrageous,” Clinton said.

Alex Arfaei, an analyst with BMO Capital Markets, said Monday he doubts Clinton’s proposal will lead to meaningful price controls. “Pharmaceutical companies are easy targets in presidential politics, and these extreme examples provide great talking points,” he wrote in a note to clients.

The Democratic front-runner's ideas do have the power to rattle markets, though, as Monday showed. In the hours after she criticized Turing and said she’d soon issue the proposals, the Nasdaq Biotechnology Index lost more than $40 billion in market value as investors sold drug stocks. It was one of the worst days for the index in about a month. The index continued to fall on Tuesday, by 3.1 percent at 11:26 a.m. in New York.

Other proposals in Clinton’s package have been put forth by Democrats before, and gone nowhere. One of the biggest would give low-income people enrolled in Medicare, the U.S. health program for the elderly and disabled, drug coverage under Medicaid, which covers the poor. Known as “dual eligibles,” these poor, elderly people don’t have access to Medicaid’s highly discounted drug prices. Switching them to Medicaid drug coverage would save taxpayers $103 billion over the next decade, according to the Congressional Budget Office.

Clinton would also have Medicare negotiate prices, using the government’s purchasing power to get additional discounts. Such a proposal could save billions of dollars, though in the past has struggled to gain traction in Congress because of heavy opposition from Republicans and drug companies. Drugmakers argue that the private plans that administer Medicare’s drug benefit already negotiate prices for consumers.

Other proposals target expensive biologic and specialty drugs. One would lower the sales exclusivity for biotechnology drugs to seven years from 12. Another would have the government study the effectiveness of drugs, in an attempt to pressure pharmaceutical manufacturers to charge prices based on the value the treatments provide.

—With assistance from Jennifer Epstein in Little Rock, Arkansas.