Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Is Obamacare a Disaster Waiting to Happen for Big Pharma?

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

Big pharma loves Obamacare, right? After all, the main lobbying group for big pharma, the Pharmaceutical Researchers and Manufacturers of America, or PhRMA, spent $150 million on an advertising campaign coordinated with the Obama administration to support the legislation. Jeffrey Kindler, CEO of Pfizer (NYSE: PFE  ) , emerged as a prominent cheerleader at the time the ACA was passed. One of the chief architects of the bill, Elizabeth Fowler, left the White House in December to work for Johnson & Johnson (NYSE: JNJ  ) . But will Obamacare really help big pharma -- or could it really a disaster waiting to happen?

Bad-tasting medicine
In return for those millions spent on promoting Obamacare, big pharma gets the privilege of spending even more money. Lots more money. For starters, the drugmakers must provide higher rebates to Medicaid for prescription drugs. This expanded rebate program will cost the industry around $20 billion over the next 10 years.

Pharmaceutical companies must also pay new excise taxes on branded drugs. Those taxes amounted to $5.3 billion over the past two years. By 2021, the cumulative total for the new taxes will top $30 billion. Since the amount a given company must pay is based on its percentage of total drug sales in the previous year, big pharma will pay the biggest bucks with this tax.

Filling part of the Medicare Part D "doughnut hole" will cost another $30 billion. Pharma companies must discount prices by 50% to senior citizens who reach the level of spending where this coverage gap exists. The grand total price tag for all of these new taxes, fees, and rebates for the industry over the next 10 years comes in at $80 billion. After helping to derail HillaryCare in the 1990s, were the folks at Pfizer, J&J, and other big pharmaceutical companies crazy to jump aboard Obamacare?

Pain for gain
There are two views that maintain that Obamacare is actually quite good for big pharma. The first perspective is that health care reform was destined to be passed in some form, and the industry's efforts helped minimize the potential damage. Even though drugmakers will shell out tens of billions of dollars, it could have been worse.

For example, some wanted to allow U.S. citizens to buy less expensive drugs from other countries. Others pushed for higher rebates for Medicare and Medicaid. Some Obamacare proponents pushed to enable Medicare to negotiate drug prices with pharmaceutical firms, thereby limiting the ability of the companies to set prices as they do now. Big pharma successfully blocked all of these measures that would have significantly added to costs.

The second perspective goes beyond this "glass half-full" viewpoint. Quite a few observers think big pharma will reap rewards from Obamacare that will exceed the added costs. They point to the estimated 32 million or so Americans who will gain insurance -- and buy more prescription drugs. The Centers for Medicare and Medicaid Services, or CMS, projects that prescription drug expenditures will double by 2020, adding another $35 billion per year in drug spending compared to what would have taken place without health care reform.

Another important win for the pharmaceutical industry with Obamacare is gaining 12 years of market protection for biotech drugs without generic competition. As big pharma invests more heavily in biologics, this extended exclusivity will translate to considerable added revenue over time.

Caveat emptor
However, the old Latin saying "caveat emptor" ("let the buyer beware") just might apply to buying into legislation as it does merchandise. While the hefty new taxes and fees are set in stone, the increased drug spending predicted by CMS isn't. And any additional spending that does take place won't necessarily go to brand drugs.

Two organizations created by Obamacare that could play key roles in limiting how much money pharmaceutical companies actually make are the Patient Centered Outcomes Research Institute, or PCORI, and the Independent Payment Advisory Board, or IPAB. PCORI's task is to compare the effectiveness of medical treatments. It will pass its recommendations along to IPAB, which is charged with controlling the costs of Medicare. Some predict that PCORI's influence will extend into other arenas as well.

Big pharma has good reason to be nervous about the decisions that these two new entities will make. It doesn't take much imagination to see how PCORI and IPAB could introduce a form of back door price controls. Another byproduct of Obamacare, Accountable Care Organizations, or ACOs, could also curtail profits for the major pharmaceutical companies by excluding some brand drugs from formularies.

Betting the pharma
The stocks for several big pharma companies have done quite nicely since the original passage of Obamacare in 2010. Shares in Pfizer, for example, are up nearly 60%. J&J's shares climbed more than 20% during the same period. Lilly (NYSE: LLY  ) is 49% higher than before the bill was signed into law.

However, I wouldn't bet the farm that big pharma will thrive under Obamacare. There are still plenty of unknowns on how the landscape will ultimately change. Some companies, particularly Lilly, face the even greater threat of continued revenue loss as blockbuster drugs go off patent.

Obamacare will certainly help several parts of the pharmaceutical industry, though. With increased focus on controlling costs, generic drugmakers should do well. Mylan (NASDAQ: MYL  ) looks to be a good pick in this group. It shares have jumped nearly 34% since the legislation passed. Biotech companies that specialize in drugs that are more resistant to price controls should also outperform. Celgene  (NASDAQ: CELG  ) , for example, makes several cancer drugs for rare diseases and can set its prices much higher than many drugs on the market. The stock has gained nearly 74% since Obamacare's passage.

Will Obamacare be disastrous for big pharma? I don't think so. Will it provide a huge bonanza? I doubt it. I'm neither apocalyptic nor euphoric about the impact of Obamacare on big pharma. The $80 billion in new taxes and fees over the next decade is significant but won't wreck the industry. There could be a boom of new drug spending, but it will likely be largely skewed toward generics. My hunch is that big pharma might have gotten a better return on that $150 million spent on promoting Obamacare from another investment -- like maybe developing new and improved drugs.

Disastrous impact on America?
There's plenty of debate about the impact of Obamacare on the overall U.S. economy, but legendary investor Warren Buffett sees something else as potentially disastrous for America. What macro trend was Mr. Buffett referring to when he said "this is the tapeworm that's eating at American competitiveness"? Find out in our free report: "What's Really Eating At America's Competitiveness." You'll also discover an idea to profit as companies work to eradicate this efficiency-sucking tapeworm. Just click here for free, immediate access.

Read/Post Comments (26) | Recommend This Article (12)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 23, 2013, at 4:27 PM, DividendsBoom wrote:

    $150 million is a drop in the bucket. Pharmaceutical companies made a calculated decision to support Obamacare early to shift as much of the costs for the program to other parties as possible. It worked.

  • Report this Comment On March 23, 2013, at 5:06 PM, mitch1951 wrote:

    What isn't said in this article is that whatever good O'care does for pharmaceuticals is out of the pocket of the people. Higher rebates from the drug companies on Medicare prescriptions means the price Medicare recipients pay is higher than it should be. Maybe good for drug companies but bad for us. When you can buy prescriptions from Canada for one-third the prices here, you can see how messed up this is.

  • Report this Comment On March 23, 2013, at 5:17 PM, bugmenot wrote:

    Insurance rates are about to skyrocket. Doctor shortages are now certain. Obama could end up killing more Americans than Osama could hope for. And if Obama's polarizing speeches cause a civil war, darn ... that is scary. Who vetted this corrupt Chicago Democrat. He is turning the country into Chicago - bankrupt, corrupt, violence, and murder.

  • Report this Comment On March 23, 2013, at 5:17 PM, sbruce715 wrote:

    Somebody please explain to me why everyone is so sure that this debacle will ever get us to a 95% of coverage. With the latest info from the insurance industry with regards to dramatically increased premiums over the next year, do we really still believe all the young, healthy uninsured are going to run out and purchase coverage? This year the penalty is estimated to be $95 for those without coverage. Hmm, let's see, "should I pay 95 or $4000+ for services I likely won't use?" The entire program was written by an entitled little rich kid(Gruber) who has never once had to decide between feeding his children or paying a premium. He doesn't have the life experience to understand what it is to be poor. His health care reform program in Mass. was funded by the federal government, certainly not by low and middle class workers. When you're relying on someone else's money many things can become successful. This whole program was catered to insurance companies, big pharma, hospitals, and doctors. What happens when we fail to reach the 95% threshold for coverage? And what happens if we fail to even break 90%. Nothing about this program makes sense and yet still it's been shoved down all of our throats. Someone please shed some light.

  • Report this Comment On March 23, 2013, at 5:26 PM, Clarity8757 wrote:

    Yes everything Obama touches is a disaster waiting to happen. He is a hood ornament. He doesnt' care about anyone or anything, white or black, male or female. He only cares about the $$$ he's getting from the super pacs to screw us over.

  • Report this Comment On March 23, 2013, at 5:28 PM, Clarity8757 wrote:

    Obama used the 'black' thing' to get elected but he never felt it. He played all the blacks. They have 14% unemployment and he couldnt care less. Private sector job loss never caused him a minute of indecision. Because he doesn't care about any of us. He takes money from super pacs for his own gain and so that Mooshelle gets more bling and shuts the hell up.

  • Report this Comment On March 23, 2013, at 5:31 PM, Clarity8757 wrote:

    Obama is a liar and a phony. If Biden blew off $585K on a lousy trip to Paris, what's Obama blowing on all his trips???? Obama doesn't care about this country or any one of us. He is a liar.

    Doesn't matter what color he is or what color we are. He only cares about GREEN. He's a whore in sheep's clothing. The last 5 years have been the worst 5 years in US history and he doesn't care. He goes off on his vacations and phone business trips and blows tons of tax payer money laughing all the way. He is a whore!

  • Report this Comment On March 23, 2013, at 6:29 PM, airjackie wrote:

    After so many years of no regulations and being free to change what ever they want the fear is the law will stop this. Now interesting how Big Pharma had no problem settleing in with Romneycare and everyone is happy with the success for over 7 years. Notice 2008 Romney looked to make Romneycare Federal as he saw how well it works. Well same plan but called Obamacare. Obamacare has already saved taxpayers money and Affordable Act even made Insurance companies give back the money they over charged customers. But it seems some American like the Ryan Plan where you pay in the system but get no benefits.

  • Report this Comment On March 23, 2013, at 6:48 PM, Therob70 wrote:

    The problem stem from an industry driven by profits. Face it, there is no profit in curing people. The profit is in treating the symptoms and keep selling their high dollar drugs. Take THC for example. It has been proven to cure many cancers by scientist in Spain and Briton but it can't be patented. Big pharma stands to loose Billions if it gets out. They buy the FTA and then the FTA just pulles the medical licenses of any doctor that even talks about it. Doctors are not in control of how they treat people. Obamacare changes none of that. I trust a tribal witch doctor more than our current system. They my not have as much knowledge but at least they are trying to cure me.

  • Report this Comment On March 23, 2013, at 8:59 PM, lilyvonshtupp wrote:

    Its a disaster , period.

  • Report this Comment On March 24, 2013, at 1:16 AM, ctyank99 wrote:

    The socialist Obama does not care about jobs! He cares about bigger government and more government control and more dependence on government. He wants social justice at any cost. He wants to make things "fair" in this country because in his eyes they have not been to date. He is out to correct that. To hell with the country and the principles that made us the greatest and most prosperous nation in history. He's gonna make things fair, no matter who he hurts!!!

  • Report this Comment On March 24, 2013, at 2:55 AM, AKretired wrote:

    Big Pharma has had and probably will continue to seek the most favorable advantage, for profits. There has been a fight to make supplements (vitamins and minerals, etc.) available now over the counter, as part of a prescription program or to regulate them so it is difficult to obtain.

    As some writers have stated, Big Pharma makes money over illnesses we have and makes more as long as we stay addicted to their medicines.

    Alternative medicine and non-traditional medical practices have taken root in our society. AMA and the drug companies have fought against anything that takes away their monopoly on health care and how and who one can see for treatment.

    Obamacare has opened the door for Americans to finally wake up to the controls of AMA and Big Pharma in keeping Americans hooked like an addict to their one way or you will not survive without us train of thought.

  • Report this Comment On March 24, 2013, at 4:05 AM, davidmaitre wrote:

    Yes, Republican patriots, it's much better to have 50 million Americans without health insurance including 8 million children. Why should the US act like other civilized countries that provide universal care for their citizens: Canada, UK, France, Germany, Holland, Belgium, Norway, Sweden, Australia, Taiwan, Switzerland, Italy, Portugal, Spain, Iceland, New Zealand, Austria, Singapore, Luxembourg, Slovenia, Denmark, Finland, and South Korea, Finland.

    PS: Patriots. Do you want to get rid of the "socialist" medicare also along with the "socialist" military, public school system, public works, public police, pubic fire, etc. Or do you prefer a Republican president and company that lies the country in war and wastes and squanders 100s of billions of tax dollars as well as brave Americans lives.

  • Report this Comment On March 24, 2013, at 4:11 AM, Dadw5boys wrote:

    Disaster waiting to happen ? Big Pharma is a disaster !

    Take a pen draw a large circle. In the middle of that draw a small circle.

    The small circle repersents all the safe chemicals, compunds and all combinations for the human body and they have already been


    Outside the small circle are all the chemicals, compunds and combinations that are harmful to the human body. To have a Patent all New Drugs must include some of these harmful things.

    That is why you see warning this drug can kill you or posion you.

  • Report this Comment On March 24, 2013, at 6:02 AM, Jack1131 wrote:

    I hope this is true. It's about time these pill pushing pigs paid back what they steal from us.

  • Report this Comment On March 24, 2013, at 7:48 AM, UDT wrote:

    I see the liberals on here will do as usual and ignore all fact. Oblundercare is as big a disaster as the oblamer presidency. Projected costs triple, will add 6 trillion to defecit, so convoluted as to be untenable, causing private insurers to raise rates, peole losing their doctors....All the things oblunder said it wouldnt do....just like everything else the worst president in our history has done, either wrong or a lie. Thanks you idiot.

  • Report this Comment On March 24, 2013, at 7:56 AM, MichaelAmericano wrote:

    Why do we care about whether or not abusive mega-corporations lose a small percentage of the money they over-charge the American public? When medicine with the exact same ingredients is a tenth of the price outside this "free" democracy of a nation? (Special interests will agree they are free to buy influence). Oh that's right your portfolio is more important than the inflated rates sick people are forced to pay.

  • Report this Comment On March 24, 2013, at 8:55 AM, yrag01 wrote:

    Republicans had EIGHT YEARS UNDER BUSH TO ADDRESS HEALTHCARE, AND UTTERLY NEGLECTED the Americans were suffering at the behest of price gouging big HMOs, drug companies and medical insurance companies who were donating/bribing the GOP WITH MANY TENS OF MILLIONS OF DOLLARS—LET THE GOUGING OF THE AMERICAN PEOPLE CONTINUE—right Repubs?

    Even now as they attacking and claim they'll repeal 'Obamacare', Republicans STILL have ABSOLUTELY NO PLAN ON HOW TO FIX OUR OUT OF CONTROL HEALTHCARE MESS, except to supposedly 'request' big HMOs to discuss the issue. WHAT, DO YOU TAKE US ALL FOR IDIOTS? Average sensible people KNOW Republican views are 100% financed by HMOs, drug companies and medical insurance companies—and they LOVE the status quo because it makes them RICH.

    The line Republican leaders have been feeding to their followers is basically that Democrats haven't cleaned up the mess created by Bush Jr. and themselves fast enough.

    Healthcare reform will cost $1 trillion. This is the premise behind Republican calls to repeal "Obamacare," the sweeping new healthcare reform law. Yet it's an extrapolation of an extrapolation, and only half the story at that. The Congressional Budget Office, the best source of data on the cost of healthcare reform, estimates that new government costs associated with reform between 2010 and 2020 will add up to about $1.2 trillion. That's the figure cited by critics of the plan. But CBO also says those costs will be offset by more than $1.3 trillion in cost savings and new revenue, which will lower the national debt by about $170 billion over that time period--not raise it. Accounting for just the costs, and not the offsets, is like calculating your household finances by adding up all your bills but leaving out the income used to pay for them.

  • Report this Comment On March 24, 2013, at 9:54 AM, JD0701 wrote:

    Boy, I can see the Kochie-paid haters are all over this site, also. Considering the huge gift Cheney/Bush gave to their Big Pharma pals in the form of the ridiculous Medicare Part D, I think they should rebate even more. It's such a hoot when these right-wing haters gripe about the ACA as government intrusion, all the while holding signs up the say, "Keep your government hands off my Medicare." As for insurance rates, they go up every year, ANYWAY. There is sooooo much greed in the healthcare industries. Never should have been made a profit-making industry. Worked so much better for the patient, when it was a service, rather than a for-profit industry.

  • Report this Comment On March 24, 2013, at 10:56 AM, byrontx wrote:

    The Republican plan was so much better....oh, wait. There wasn't one. Just defending a system that causes two-thirds of the bankruptcies in the U. S.

    That's got to be a better system; one that destroys finances and families, right?

  • Report this Comment On March 24, 2013, at 11:04 AM, globaltruth wrote:

    The true cost of health care is that most of it goes to insurance companies and drug companies. Follow the money as they say and it all leads to these two entities. Make health insurers non profit would be a good start to reduce the rates of increases in health care. Regulating the drug industy and allowing the purchase of drugs from other countries would be another way. But bioth these ideas effect thier profit margin so they will scream like hell to stop that. Why would any one in their right mind use insurance industry figures to see if our health care is reasonable or not or whether it will work?? Do you think they are a bit biased???

  • Report this Comment On March 24, 2013, at 12:28 PM, glenns45 wrote:

    15000 Pages of Regulations, that buy design were written to lower Health Care Standards and Bankrupt America.

  • Report this Comment On March 24, 2013, at 12:45 PM, pebud2002 wrote:

    Didn't pharma get 4 trillion dollar under Medicare Part D?

  • Report this Comment On March 24, 2013, at 2:16 PM, Whocaresaboutus wrote:

    Interesting story---BUT----no one in government, healthcare, Big Pharm cares a hoot about our health..for the last 20 years thousands upon thousands have been severly damage by Fluoroquilone drugs, Levaquin, Cipro, Avelox...the FDA has received 75,000 adverse reactions complaint, yet the damage continues. Damage disabling victims, lose jobs, homes, relationship, deaths and suicides, continues everyday. Once damaged the medical society turns a blind eye, no cure, no treatment. Victims are told you have Fibromylagis, Chronic Fatigue Syndrome, MS, on and on. More pain killers, tests, specialists etc. yet the patient never gets better. All because Big Pharma will not admit to this poisoning, WHY? Big $$$$ Meds,,,,,,

  • Report this Comment On March 25, 2013, at 12:01 AM, davidmaitre wrote:

    I don't hear you holy Republican penny- pinching patriots complain about the $60 billion plus wasted or lost to fraud in Iraq and Afghanistan such your hero lied our nation into war.

  • Report this Comment On December 13, 2013, at 6:07 PM, pharmavictimRN wrote:

    Did not read all the comments - did anyone mention the mandatory yearly injection of viruses (aka flu shots) into anyone wanting to keep their job in the healthcare industry?

    Obamacare ties Medicare and Medicaid payments to having at least 90% of the doctors and nurses in a healthcare facility receive the yearly flu shot.

    There is little or no scientific evidence that flu shots are safe OR effective!

    Read the articles from Peter Doshi or the Cochrane Collaboration to see how little data there is regarding these vaccines.

    You always hear the phrase "the studies show" flu shots work - the problem is actually, no, the studies do not show that.

    Unlike traditional vaccines(many 95% effective) flu shots are only 50-65% effective against the strain of flu in the vaccine .....which is ONLY ONE OF MANY, MANY VIRUSES that can cause the flu.

    Only about 60% of HCW were only getting vaccinated when they were not being threatened with their jobs....not surprisingly now the vaccination rate is almost 100%

    Bet that gives the stock in those companies a good bump.

    Oh yea....and pregnant women are being pushed to take the flu shots when the package inserts ALL say the shot should not be given to pregnant women unless clearly indicated....if you know anyone who is pregnant, ask them if they were given the flu shot. And ask them if they were given a package insert and/or told that there is a precaution against flu shots in pregnancy.

    Americans need to stand up against this trend toward the drug companies having so much influence over what we are required to put into our bodies in order to keep our jobs. Today the healthcare workers, tomorrow everyone.

    And remember, we do not even know if flu shots are safe or if they work.

Add your comment.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2327514, ~/Articles/ArticleHandler.aspx, 10/1/2016 10:12:41 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 12 hours ago Sponsored by:
DOW 18,308.15 164.70 0.91%
S&P 500 2,168.27 17.14 0.80%
NASD 5,312.00 42.85 0.81%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/30/2016 4:00 PM
CELG $104.53 Up +1.76 +1.71%
Celgene CAPS Rating: *****
JNJ $118.13 Up +0.86 +0.73%
Johnson and Johnso… CAPS Rating: *****
LLY $80.26 Up +0.52 +0.65%
Eli Lilly and Co. CAPS Rating: ***
MYL $38.12 Down -0.35 -0.91%
Mylan CAPS Rating: ***
PFE $33.87 Up +0.55 +1.65%
Pfizer CAPS Rating: ****