After lawmakers on Capitol Hill threatened to bring in new laws to tighten control over the nation’s largest pharmacy benefit mangers to curb skyrocketing drug costs, health-care stocks were poised to end the week in the red Friday .
President Trump administration’s legal challenge to the Affordable Care Act, former President Barack Obama’s signature health insurance law, and Sen. Bernie Sanders’ new “Medicare for All” bill also weighed heavily on the industry’s shares.
The XLV, an ETF that tracks health-care industry’s biggest companies, was down by 1.48% for the week as of Friday morning. The biggest declines came from insurers Humana, Anthem and UnitedHealth Group, which were down more than 5% for the week through Thursday’s close.
Executives from CVS Health, Prime Therapeutics, Humana, Cigna and UnitedHealth’s OptumRx testified about the rising prescription drug costs before the Senate Finance Committee on Tuesday. The PBMs left the congressional hearing mostly unscathed. However, Chairman Sen. Chuck Grassley, R-Iowa, hinted that the committee is ready to bring in new laws to cut down drug prices.
Ana Gupte, a senior health-care services analyst at Leerink Partners, said that the health-care sell-off is mostly driven by the proposed legislative changes to the PBMs’ business model. These are paid so-called rebates by Big Pharma for getting their drugs covered by public and private insurance plans, like Medicare. These so-called backdoor deals have been suspected by lawmakers of increased drug costs for patients.
It is very likely that lawmakers would force drug companies to give those rebates to consumers instead, starting early next year, Gupte said.
A federal appeals court in New Orleans said separately on Wednesday that it will hear arguments in July on a lawsuit which is backed by President Donald Trump to overturn Obamacare. According to an estimate from the Congressional Budget Office, dismantling the health-care law could lead to 32 million more uninsured people in the U.S. by the year 2026, .
Sanders also unveiled a universal health-care plan on Wednesday, which would eliminate most of the private health insurance by creating a government-run system to provide health insurance for all the Americans.
Gupte said that Newsflow on the Medicare for All proposal from Senator Bernie Sanders and the scheduling of the hearing on the Texas Court decision to overthrow the ACA at the Fifth Circuit Court of Appeals in July last year has also contributed to the sell off in health-care stocks.
An analyst at Evercore ISI, Ross Muken, told clients in a note that watching the industry’s shares fall has not at all been fun, but added that he expects first-quarter earnings to be positive as fundamentals generally are positive and utilization still appears to be under control.