Biotech and Pharma

Does Trump believe Medicare should negotiate prices?


When it comes to Medicare's ability to negotiate the price of prescription medicines, party lines are clearly marked.

Democratic presidential candidates Hillary Clinton and Bernie Sanders have both proposed that the government health-care system for the elderly, among the largest purchasers of prescription drugs, should have that power. Republicans — and the drug industry — have dismissed the suggestion as leading to price controls that would hamper innovation.

So comments from GOP front-runner Donald Trump on Monday night come as a surprise. He reportedly supports the idea that Medicare should negotiate the price of prescription drugs, claiming it would save $300 billion annually, according to news reports citing The Associated Press.

This would be a big deal. Our current system forbids Medicare from negotiating drug prices. Clinton's focus on the issue in September, in the form of a tweet about price gouging, took 5 percent off biotech stocks in one morning. And though Republican candidates, like Sen. Marco Rubio, have focused on drug prices before, they haven't called for that provision.

"I think the market will pay careful attention to the [Republican] response, maybe more so than Hillary," Robert W. Baird analyst Brian Skorney wrote in an email. "If the Republicans start favoring price control, it will be a big problem for the sector."

Trump's actual comments, though, while clearly critical of the drug industry, don't explicitly state he would aim to give Medicare power of negotiation.

"They say like $300 billion could be saved if we bid them out," Trump told an audience in Farmington, New Hampshire Monday night. "We don't do it. Why? Because of the drug companies, folks, because of the drug companies."

Donald Trump
Getty Images

Trump went on to reference tax inversions, another issue for which Democrats have skewered the drug industry.

"Take a look at Johnson & Johnson, take a look at Pfizer," Trump said. "They're leaving us and we're still not doing anything. 'Hey we're leaving! By the way, don't dare negotiate drugs.' Excuse me?"

Johnson & Johnson is not pursuing an inversion; it is domiciled in the U.S. Pfizer, though, has proposed to merge with Allergan in a $160 billion deal and move its corporate headquarters overseas.

An email to the Trump campaign to clarify the candidate's comments wasn't immediately returned.

Not everyone agrees with Trump's math on the savings from such a move. Medicare spent $143 billion on drugs in 2014, out of the U.S.' total spend of $374 billion, leading biotech investor Len Yaffe to challenge Trump's $300 billion in proposed annual savings.

Obamacare, drugs spur higher health-care inflation rate

"Mr. Trump's argument is severely flawed," Yaffe wrote in an email.

But if Trump does support the proposal — and it's adopted by other Republican candidates — that could spell more trouble for biotech stocks, Skorney said. The Nasdaq biotechnology index is already down 16 percent this year.

"If Republicans, in general, start to side with Trump on this issue instead of the classical opposition to the Democrats' recommendation," Skorney said, "it would insinuate that there could be a change in legislation."