Politics Week! Who’s Saying What, and How They’re Trying to Change Healthcare

Big changes in healthcare are inevitable after this upcoming election, as every presidential candidate on both sides is promising some new and improved systems.

In this week's episode of Industry Focus: Healthcare, Kristine Harjes and Todd Campbell go over what each candidate is hoping to change, how much potential their plans have to effectively shake things up, and which have the most potential to boost or hurt the sector. Also, a look at one of their favorite stocks, Portola Pharmaceuticals (PTLA), including what huge drug it's working through trials now and why investors should be interested in this company. 

A full transcript follows the video.

This podcast was recorded on Feb. 24, 2016. 

Kristine Harjes: Making healthcare great again, on this healthcare edition of Industry Focus.

It's Wednesday, Feb. 24, 2016. Healthcare analyst Kristine Harjes here with your favorite healthcare guru, Todd Campbell, via Skype. Hi, Todd. How's your week going? You mentioned your hard drive crashed, which definitely isn't good news.

Todd Campbell: Yeah, Kristine, woo! I tell you, you hate to wake up in the morning and look at the computer and see that ominous message on your screen, but I think we'll be all right.

Harjes: Yeah, that is good to hear that you've recovered a little bit, but oh, man! That's no good. Hopefully you still were able to get in the mood and the swing of things for the episode today. We have a ton to talk about. As you might have picked up from the intro to the episode, we're talking a little bit about politics. You also would know this if you follow us on Twitter. We've started getting a little more active on there. Our handle is @MFIndustryFocus, if you want to find us on Twitter.

Yeah. We're talking politics. The Motley Fool is not a politically affiliated organization, but I feel like I should put it out there anyway that Todd and I are only human, so we could have our own opinions. We're going to try not to let them contaminate what we're saying here, but we just wanted to lay out, with the current presidential landscape, who is saying what and maybe some of the implications.

Let's start with the most radical first, Bernie Sanders. What do you say?

Campbell: Sure, yeah, absolutely. I thought that it would probably be good to go through some of the front-runners and discuss what their plans are. As an investing podcast, always helpful to maybe have a couple of investing takeaways here we can talk about as well.

Harjes: Sounds great.

Campbell: Yeah, and like you said, Bernie's as good a place to start as any, because you said that he's probably the most radical approach, and you're right. What Sanders is proposing is to absolutely take everything, throw it in the trash bin, and have the trash truck haul it away. He wants to get rid of Obamacare; he wants to toss aside employer-sponsored healthcare insurance and replace it with Medicare for all. So, basically, take the Medicare program that is currently in place for people above 65 in the country and roll it out to everyone.

Harjes: The big question there, how is that sponsored? Who's going to pay for this plan?

Campbell: It's an expensive plan. You can't insure 300 million people and have it not cost you a pretty penny.

Harjes: Are there any estimates out there on how much this could cost, and how do you even come up with that estimate?

Campbell: He says $1.4 billion is what the estimate is. You always, in any presidential candidate during election season, you always have to take any numbers that get tossed around with a very big grain of salt. The number that he's tossing around is $1.4 trillion. Sorry, I don't know if I said "billion" earlier. Trillion. $1.4 trillion.

That would be paid for by taxation. You increase the tax revenues by instituting a brand new employer tax that would be paid on wages earned by an employee, and that would be about 6.2%. Individual taxpayers would be on the hook for a 2.2% tax. There's some other tax changes as well, but those are the two biggies that would generate the bulk of the revenue necessary to pay for this Medicare-for-all proposal.

Harjes: It is kind of interesting that there are specific numbers being thrown out there. I would think this kind of thing is really tremendously difficult to estimate.

Campbell: Very hard. You get a lot of people, still, that aren't covered by insurance, even with the advent of Obamacare. You don't know what their utilization would be. You've seen what's happened with the institution of Obamacare and the fact that these insurers that are offering plans through their exchanges report they're not making any money on them because utilization of healthcare services from those patients is higher than predicted. We don't know how this is all going to shake out.

I think that the Sanders campaign is out there saying that if you earn $50,000 a year, a 2.2% tax means you're not going to be on the hook for nearly as much money as you'd have to pay for insurance out of pocket under the current schemes, even with subsidies picking up 80%, 90% of the cost of health insurance. The average person participating in the exchanges is still paying ... I think it's like, $80 or $90 a month for their health insurance, and Sanders says that his plan would cost them about $500 a month. Using that kind of math, I guess you could argue that the plan is best for low- and mid-income or moderate-income Americans. Probably more costly, obviously, for small business owners, depending on how they handle the accounting side of paying taxes on those wages rather than being able to write off the cost of paying for the health insurance for their employees.

Harjes: Yeah, makes sense. Let's take a look at the other Democratic candidate, Hillary Clinton. She seems to be the most supportive of Obamacare, of any of the candidates.

Campbell: Lately, Hillary's stance or campaign stump speeches have said, "Before Obamacare, it was called Hillarycare." It's probably not too shocking or surprising to hear that she doesn't want to make any changes to Obamacare other than to --

Harjes: Other than. Sorry, what was that?

Campbell: Hillary's saying that she doesn't want to change Obamacare or get rid of Obamacare. She wants to just make some subtle changes on the periphery that would increase the amount of care that's provided for free: more preventative office visits. She's also said that she wants to cap the amount that people would spend out of pocket for their medications at $250 a month. Her plan is to take the existing Obamacare program and, in her view, improve it so that people get more value out of it and aren't getting hit as hard by the copays and the co-insurance that the media reports a lot about.

Harjes: Yeah, it does seem like when I hear about Hillary's plan and then when I see her in the news regarding healthcare, it's always about drug pricing and how much people are paying out of pocket. That kind of makes me feel like maybe the pharmaceutical industry would most fear a Hillary presidency.

Campbell: Yeah, I mean, but Bernie has also come out with some plans to try and rein in drug prices. I agree with you, though, that Hillary has been more vocal about it. She really jumped on the bandwagon after the Turing Pharmaceuticals story broke last year about Martin Shkreli hiking prices 5,000% on a long-standing drug.

I think that you're right that drugmakers would probably lose the most under this scheme. Insurers would take a small hit because they'd have to provide more care, but they'd probably pass that along in the form of higher premiums. Hospitals would probably be neutral under her scheme.

Harjes: Interesting. Let's turn to the other side of the table and talk about some of our Republican candidates. What does Donald Trump want to do?

Campbell: Well, you know all of the Republican candidates have said that they want to repeal Obamacare, get rid of it.

Harjes: Which is not shocking.

Campbell: Yeah, that's not surprising. That's been their long-standing view. They want to go back to more of a free-market solution. Trump hasn't gone into a tremendous amount of detail on what he would do. In a 60 Minutes interview last fall -- I encourage all the readers to Google that; you can see the transcript of it -- he indicated that he'd like to repeal it, calls it a catastrophe and a disaster, and then replace it with another program that basically tore down the imaginary lines that prevent insurers from competing across from state to state to state. He also wanted to incorporate hospital care to take care of those who don't have insurance somehow.

He didn't really go into a lot of detail of how he would fund it, what the cost would be, or what Trumpcare would look like.

Harjes: Talk to me a little bit about the interstate competition aspect of this.

Campbell: Yeah. The way it works right now is that every state has their own insurance regulator, and every insurer that wants to participate within that state has to apply to that regulator and follow by the rules of each individual state. The argument against that would be that it prohibits larger patient pools that could spread the risk across more people, and as a result, it inflates the cost of premiums to consumers. Thereby, if you get rid of those state lines, you allow for the interstate competition between insurers, you could get larger patient pools, and theoretically, that would drive down premiums. I'm not sure how that would address, necessarily, high-risk pools, people with existing conditions, that type of thing, but that's the argument.

Harjes: OK. Is this something that we're seeing the other Republicans agreeing with?

Campbell: Yeah, actually. If you look at Ted Cruz and Marco Rubio, two other, we'll call them front-runners, on the Republican side, they all say similar things in that they want to get rid of Obamacare, get rid of the restrictions that prevent competing across state lines for pools. There are some subtle differences, however, between Cruz and Rubio that investors and Americans overall should probably be aware of.

Cruz definitely would appear to be more interested in a free-market approach to the health insurance industry. Rubio has suggested a refundable and advanceable tax credit that people would be able to use to pay for their health insurance. Both candidates have said, "Hey, let's try and decouple insurance from employers so that you can move from job to job without worrying about losing your insurance." Cruz hasn't said how he would do that, but Rubio has said that these tax credits could do that.

Harjes: Are these tax credits kind of in the form of HSAs? Is that what we're looking at?

Campbell: No, what he's saying is that ... currently, the way it is now, is that you have tax deductions that you can take once the spending on medical eclipses certain levels of your adjusted gross income. That reduces your taxable income, but it doesn't have as big a benefit as a tax credit would be, which actually reduces how much you owe in taxes, dollar for dollar. What he's saying is that it would actually provide a refundable tax credit. That would mean that, theoretically, you could get money in your pocket every year that you could use to help pay for your premiums. He also did say, though, that you could use that money to establish HSAs, if you wanted to. You could use it any way you want to help lower your healthcare costs.

Harjes: Got you. Looking at all these different plans, they're clearly very different from one another. As an investor, what do you do? Is there a way that you can play on any of these trends?

Campbell: In broad terms, yes. I think that obviously the drugmakers would do best under the Republican proposals, in my view, because the Republicans haven't really come out with specific plans to rein in drug pricing. I think insurers would probably be net neutral in a Republican situation because, while they're not making money on Obamacare plans now, they all think that they eventually will, and that those margins will be about 2% to 3% --

Harjes: Or that they'll just drop.

Campbell: Theoretically, you could lose millions of consumers that way.

I think, overall, hospitals probably, providers of healthcare services, would do best under all of these plans, because, theoretically, the more people who can get access to care, the better.

Harjes: Yeah. I would expect some volatility, though, at the least.

Campbell: Yeah. I think that we're already seeing that in healthcare stocks since last fall. It could very well be that if you look at ... this is something our investors remember, too. If you look at the debate leading up to the elections that preceded Obamacare, healthcare stocks really got punished. There was a lot of misinformation and a lot of people worrying that the healthcare sector would implode if something like this passed. That's not come to fruition. Healthcare was, indeed, one of the best-performing baskets in the market once Obamacare actually launched.

Try not to make any short-term decisions based upon what these presidential candidates are proposing. Look at each individual stock as a business first, and then go from there.

Harjes: Speaking of thinking along the long-term investing mind-set, I would love to direct our listeners to focus.fool.com, The Motley Fool's flagship stock-picking newsletter, which very much emphasizes this sort of long-term mentality and investing and holding. It is called Stock Advisor. Since we love our podcast listeners so much, we are offering Stock Advisor two-year subscriptions for $129 at that link, focus.fool.com. Definitely check it out, if you want to learn some more about the service. It really is a fantastic service, and you'll find a lot of interesting healthcare companies within the service as well as great picks from the rest of the investing universe.

We received a really interesting question this past week from Christopher Andrews, who says that he's been a Fool since 1998. He's listened to The Motley Fool in 15 to 20 different countries or territories, he says, on multiple deployments, and many more to come. Christopher, thank you for the question, for writing in, and thank you for your service.

Christopher asked us about a company called Portola Pharmaceuticals, which, if you have listened closely to us, we have talked about Portola a little bit before. I think back in December, we talked about it on a different show, MarketFoolery. Todd, before I was even hosting the show, you did a show with Michael Douglass, our last host, about Opko Health and Portola. This is a company that's very much on our mind. I'm personally quite bullish on it.

Christopher is basically asking, he opened up a little position in it, and started researching and got more and more excited about what this company has to offer. Todd, what I'd love to have you address on the show is whether anything has changed since the last times that we've talked about this company, and where the company looks to be going from here.

Campbell: Yes. Things have indeed changed, and the fact is that Portola's lead product candidate, which is Andexanet alfa, the application for approval has been accepted by the FDA, and an FDA decision on that drug is expected in August. The reason investors want to pay attention to this drug is that, if approved, it will be the first reversible agent or antidote for a brand new type of anticoagulant that's being used increasingly more every quarter known as Factor Xa inhibitors. These Factor Xa inhibitors are breaking down, I guess, the market share dominance that Warfarin's had in the indications for the last 50 years. As a result, these drugs -- Johnson & Johnson (JNJ 1.49%) makes one of them, Pfizer (PFE 2.40%) and Bristol-Myers (BMY 1.30%) teamed up another one, Xarelto and Eliquis are their names. They're racking up sales in the billions of dollars per year.

Problem is, without an antidote in existence, if someone who's taking one of these drugs falls and has a bleeding event or requires emergency surgery, then it's a little tricky for the hospital to figure out how to stop them from bleeding so that they can be cared for.

Harjes: That sounds like a lot of if's there, like, "If they have an emergency surgery." How big, actually, is this market? Are there numbers out there?

Campbell: Yeah. Portola estimates -- of course, this is from the company -- they estimate that between 1% and 4% of all patients treated with Factor Xa's suffer some sort of event or hospitalization that may benefit from the use of their drug. They peg that number at about 100,000 people per year. We have no idea whether the FDA will approve this drug. I think that they will, but we don't know that, and we don't know how Portola would price it. Even if you throw a price tag on there of $10,000, you're talking about a billion-dollar-a-year drug.

Maybe what you say is, "OK, this is probably going to bring in at least hundreds of millions of dollars a year in sales for this company." That's guesswork, but it's as close, probably, as we can get at this point.

Harjes: The huge question left on my mind, then. This is a $1.6 billion market cap company. They potentially have a blockbuster drug that's already through phase 3 trials, it's awaiting approval, it looks, by all means, like it's going to get approved. It has all of these Big Pharma companies interested in it. Why has it not been bought yet? Is this a buyout candidate?

Campbell: I think ... listen. You can't invest based on M&A. You and I have talked about this over and over and over again. It's a fool's errand to try and seek out companies that you can buy ahead of somebody else acquiring them.

Harjes: Honestly, I don't think I would want them to get bought out.

Campbell: Yeah, and I don't think they'd want to get bought out, either. It wouldn't shock me. You look at Johnson & Johnson and Pfizer and Bristol-Myers. They supplied money to fund the research into this antidote. I have a hard time believing that someone along the way didn't say, "Hey, how about we team up?" Last month, Bristol-Myers and Pfizer did license rights to the drug in Japan, in a deal that's worth about $90 million plus royalties, so that gives you some idea of the level of interest from the big pharmaceutical companies in this company.

Yeah, I think that there's a good opportunity here for investors. Obviously, there's the risk that this drug doesn't get passed and approved, but I think that, for people who are willing to take on that chance, yeah. This is a company that I think business makes sense to own.

Harjes: Yeah. They actually aren't just a one-drug company, too. We won't dive into that, because we only have so much time on the episode, but definitely check out this company if you are looking for a smaller-sized healthcare company. I think both of us are pretty bullish on it. Of course, you have your normal caveats.

I am required to tell you that as always, people may have interest in the stocks that we talk about. The Motley Fool could have formal recommendations for or against them, so, as always, don't buy or sell based solely on what you're hearing, but check out fool.com. We have a good bit of coverage. I know, Todd, you've written plenty of articles on Portola. It's intriguing. It's an interesting story. It's kind of a fun one to explain, too. It's like, "Oh, well, they're making a drug that undoes the work of other drugs!"

Campbell: Yeah. Yes, I absolutely would encourage all the listeners, viewers, to go out. You can go right to the Fool website and search under the ticker in the top right hand corner, and those articles pop right up.

Harjes: Yep. PTLA is the ticker, if you're curious. Many thanks, Todd, for the diversity of knowledge you shared with us today, and folks listening, thanks for tuning in. Fool on!