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Obama’s healthcare bill will not boost drugs sector

THE US House of Representatives’ approval of the long-awaited and highly contentious Healthcare Reform Bill leaves final ratification to the Senate. Importantly, although costly ($940bn, or £623bn, over 10 years), the key provisions contained within the Reform Bill are not scheduled to become effective until 2014 and between now and then additional regulations will be needed, probably requiring at least one amendment bill. Note too that before that date Congressional mid-term elections must be fought (which could result in a big swing to the Republican Party) and a further presidential election must take place. Plenty of scope, therefore, for significant further dilution although President Obama will naturally take the headlines and plaudits for a reform in which he has invested so much personal political capital and which is, on paper at least, the single biggest US healthcare industry reform since the enactment of Medicare under President Johnson in 1965.

According to the Congressional Budget Office (CBO) the alterations envisage that 93 per cent of legal US citizens will have health insurance by 2019, an increase of around 39m (up from 83 per cent currently). All US citizens will be required to take out healthcare insurance despite the apparent desire on the part of many to remain uninsured due to age and a need to maintain flexible employment conditions. The young tend to be limited users of healthcare and in a move which might impact on insurance providers the segregation of guaranteed issue and effective purchase may result in insurance products only being acquired by this demographic group at the point at which they require treatment not before.

The full details of 2,900 page draft legislation are still being pored over, particularly as pages were being adjusted right up to the last minute, however, we maintain our long-held view that the impact on the pharmaceutical sector is likely to be relatively limited because the proposed legislation appears to alter very little from the deal already negotiated between the industry, the Senate Finance Committee and the Obama government. Critically, the pricing of prescription products remains free from external interference. The proposed legislation excludes any form of public option (which would result in government becoming a major force in the industry), further rebates in Medicare Part D, governmental negotiation of Part D pricing and cheap imports from low cost countries. The net effect is that our view on the sector in the wake of the House vote is unchanged.

Jeremy Batstone-Carr is director of private client research at Charles Stanley.