Find episode transcript below.
GLENN HUNZINGER:
00:00:00:00 This episode is being recorded on April 11th, 2025 and reflects the information available at the time of recording. As we know, America is in motion here and so subsequent updates may not be reflected in this discussion as things continue to evolve and change.
00:00:20:10 Welcome everybody to PwC’s Next in Health podcast. I'm Glenn Hunzinger, PwC's Health Industries leader.
JENNY COLAPIETRO:
00:00:27:01 And I'm Jenny Colapietro, PwC’s Consulting Commercial Leader. And Glenn and I are here today with Kelly Griffin, a director in our Health Policy and Intelligence Institute. Phil Sclafani, a principal serving our pharmaceutical, life sciences and med-tech clients.
00:00:41:07 Ruchita Kewalramani, Principal in Health Services, serving health insurers and health systems. Kelly, Phil, and Ruchita are here today to provide an update on the latest policy announcements and how they could impact healthcare as we near the first 100 days of the Trump administration. Kelly, Phil, Ruchita, welcome to the program.
KELLY GRIFFIN:
00:01:00:12 Thanks for the introduction.
GLENN HUNZINGER:
00:01:02:02 Kelly, let's start with you. Nearing a 100-day mark, there's certainly a lot going on here as far as policy shifts, executive actions and just the agenda being pushed by the government and second-term President Trump. So, what are you hearing? What are you seeing? Let's talk about it.
KELLY GRIFFIN:
00:01:20:03 Sure. I mean, from congressional debates of which programs and types of funding to cut to maturation of Department of Government Efficiency, DODGE, and the Make America Healthy Again initiative; healthcare is now very much center stage of policy discussions. And then on top of that, we've seen some really big policy changes hit the market already, even in these first 100 days.
00:01:39:12 This includes the move to increased enforcement of price transparency provisions and a refocus of CMI generally towards disease prevention. We've also seen a shift in enforcement priorities and anti-bribery, anti-corruption laws, and a more targeted approach on mergers and acquisitions oversight from FTC while still maintaining past guidelines.
00:01:58:02 Then there's of course, tariff policy. We'll touch on that a little bit more in detail later, but that's kept us all quite busy as stakeholders are reassessing supply-chain dynamics and operational impacts. And lastly, I can't forget the recent workforce reductions, leadership changes within health agencies.
00:02:12:07 These are anticipated to slow approval processes for new medical products and shift agency priorities altogether, potentially affecting the pace and focus of regulatory activities.
JENNY COLAPIETRO:
00:02:22:16 Absolutely. And I think one of the most talked about developments has been proposed cuts to government healthcare programs like Medicaid and the NIH. What are the ripple effects of these funding shifts across the health eco-system, from pharma and med-tech manufacturers to payers and providers? We'd love to get each of your perspectives. Phil, let's start with you.
PHIL SCLAFANI:
00:02:41:17 Thanks, Jenny. So, as we look at what might come around some of these government-funding cuts, I think it's helpful to probably first start and understand the scale of what could happen. And let's go into sector by sector. So, in terms of what can happen, I think about the direct impact of these government insurance program funding, like for Medicare and Medicaid potentially being cut upwards of 20 to 30%.
00:03:01:06 So, not small cuts like we've seen in past administrations, probably more than we've seen in many of our lifetimes, especially coming down from the peak of spending during the pandemic. It's a massive shift, right? So, if we look at the math of the administration trying to keep a relatively balanced budget while extending the significant tax cuts
00:03:17:06 and the blueprint that we saw just came through the House, even really the only place to look outside of defense spending, or maybe some new accounting mechanisms that aren't really taking hold, is significant cuts to healthcare. And that's even what the reductions we've seen so far across government departments, including HHS.
00:03:33:07 So, I think we're looking at a period where, from a pharma-biotech perspective, anybody that's heavily exposed to or counting on government channels with a lot of business and Medicare, Medicaid and other programs, it's probably going to be a tough adjustment, as those programs really simply will have to find ways to spend less.
00:03:49:15 And ultimately, pharma would have less sales and revenue coming from those programs. For providers, we could see significant challenges keeping patients on therapy, getting them access, and on to new therapies, helping patients stay adherent to treatment as all those potential utilization management measures might come in.
00:04:06:09 For payers, definitely a time to re-evaluate how you would manage benefits on the private plans that manage Medicare Part D, Medicare Advantage, manage Medicaid. If there's less funding available there, they have to look at how they're managing access to drugs and their formularies. And certainly, Ruchita will add a little bit more here.
00:04:24:07 Unfortunately for patients, this may ultimately lead to lesser access to therapy and more challenges getting on. So, something we're certainly keeping an eye on. We'll see what shape and form, but right now the math looks like potentially some significant cuts coming down the line.
RUCHITA KEWALRAMANI:
00:04:37:20 Hi all. As Phil rightfully pointed out, healthcare will remain a pretty big focus for the DODGE's agenda, especially as they attempt on addressing the increase in trillions of dollars in national debt over the last decade. And unfortunately, the news is that healthcare industry will get adversely impacted in many ways. However, the story this week has been mixed, some positive but not all positive.
00:05:01:17 Let me start with Medicare Advantage Program. For the first time in the last three years, we saw a positive reimbursement increase coming out of the final orders from CMS for calendar year 2026 rates. CMS has consistently ignored the collective voices of health insurers, who are experiencing a pretty significant increase in utilization of services.
00:05:23:09 Where CMS kept the year-over-year reimbursement rates flat to declining since 2023. However, the final orders released on April 7th earlier this week shows that CMS, for the first time in years, agrees with insurers and restated its forecast for both part A and part B,
00:05:43:02 agreeing the increase in utilization and acuity of patients that are what the insurers are experiencing post-pandemic. This has been a huge sigh of relief for those serving the Medicare Advantage population and taking care of seniors across the country.
00:05:57:08 We do still anticipate benefit pull-back, especially in light of the IRA and risk adjustment changes that are happening, going through Medicare Advantage program. However, the rate increase of over 2% was a huge sigh of relief for the industry.
00:06:11:08 Shifting gears to the Medicaid side, the story is not the same. Congress is currently targeting up to 880 billion reduction through the federal match rate and other spending cuts in the Medicaid program, leaving the states either to cover through increasing their contributions to the Medicaid program or to reduce the program itself.
00:06:33:09 There are only a few options left for the states to cover the program, in which they can opt for increased taxes for the populations in their state or reduced education budgets, neither of which will be well received during midterm elections. Hence, we do anticipate some cuts. No matter how you see it, healthcare faces significant exposure, prompting industry executives to actively lobby on capital to influence the outcomes.
00:07:01:07 The key question still remains, what are some of the most vulnerable areas of funding, and how might policy shifts reshape the healthcare landscape?
KELLY GRIFFIN:
00:07:10:05 And in addition to funding cuts, another driving force here shifting the marketplace are those workforce reductions, reorganizations I mentioned at the top. These are coming to various federal agencies, including FDA, HHS, more broadly, seeing cuts to the extent of 19% to 25%.
00:07:26:22 And what this does, it creates reduced capacity for oversight enforcement. We see fewer personnel at agencies like FDA and CDC. It may lead them to struggle to effectively monitor, enforce health regulations, potentially compromising public health standards. As a result, we're already seeing informal communication channels slow down or halted entirely,
00:07:45:09 and less information available for competitive analyses and pipeline decisions, which can broadly impact both the deals landscape and the former pipeline strategy decisions more broadly. Particularly problematic is going to be the loss of individuals with rather precise expertise in advanced or niche topics, including AI.
00:08:04:05 The impact there might be felt most likely from the med-tech industry, as they seek to advance products through the development stages.
GLENN HUNZINGER:
00:08:12:06 So, Phil, how do you break that down? And then I'd love to get your thoughts and then kick it over to Ruchita. But a lot said there. Maybe just distil that down to the impact for the folks here.
PHIL SCLAFANI:
00:08:22:03 Yeah, a lot of big important topics. Glenn and Kelly, totally agree with everything you said. And maybe think about it three-fold in a couple of buckets here. First, the reductions in key departments like CMS and FDA that just really have to catch up at some point with the pace of work. Right.
00:08:36:03 And that's something that will be felt across pharma payer and provider as potentially things like new drug approvals slow down, programs that were created or in pilot previously there to expand access could be canceled or terminated.
00:08:50:13 Some of the programs that the previous administration was working on around cell and gene therapy access and all those types of things, we either see cuts to the departments themselves or just simply, no people there to keep driving these types of things, and that kind of rolls into the second topic line. Or I think about the brain drain, right?
00:09:08:16 Just so many long-time veterans and experienced thought leaders being let go or deciding to leave now. So, take the ideology and politics out of it. I think that scale of change is just hard to absorb, right? People that have been there for years and decades. It's hard to take all that without some kind of disruption to those departments, as well as the broader healthcare system.
00:09:27:22 There are programs that can't just suddenly stop or end. They need to be phased out. There have been long-term efforts that have spanned administrations to speed up review processes, to continue improving and enhancing patient safety, to finding new cures in oncology and rare diseases. And we'll ultimately see how those continue and who's there to run those types of programs.
00:09:49:15 And then lastly, I kind of worry a little bit about some of the pilot and innovative programs that could be cut or just seeing less of those starting up, because that's really where over time we see the next generation of policy come out of the CMS. And (Unintel Phrase __00:10:02) HHS overall, don't just put regulations out there. They pilot and see what works and expand nationally over time.
00:10:10:02 So, I think about access to reimbursement for cell and gene therapies, as I mentioned before, has been steadily growing as kind of the market figures those out that could be even slower over time, continuing to speed up drug approvals and enhance a lot of key pilot programs as kind of a future next wave. And I think we'll feel that a couple of generations out.
GLENN HUNZINGER:
00:10:27:02 And Ruchita, what are you seeing on the health services side?
RUCHITA KEWALRAMANI:
00:10:31:11 I, 100% see some very similar themes to what Kelly and Phil pointed out. So, as an example, in the last decade, there has been a major push in the industry based on some new policies and programs from CMS that the CMMI program, which is the innovation program tied to design, execution and measurement of some pretty innovative programs
00:10:53:07 such as the MSSP program, the Hospital Transparency Rule, and now the team program, all of which drove to more collaboration between payers and providers, a higher degree of data sharing between different parts of the industry, and a diminished state of these agencies could impact and impair the ability in driving forward innovation and bending the cost curve.
00:11:17:19 So, we stay pretty concerned about what will be the new state of these agencies and what would be top of agenda for them as they moved into their new states.
GLENN HUNZINGER:
00:11:28:11 Certainly a lot going on there. And certainly, the next topic there's a lot going on around tariffs. I think the word tariff has been said more times in the past couple of weeks than ever before, probably in history. Liberation Day certainly has set a path in a new direction, and the constant change is here.
00:11:48:02 And that uncertainty certainly driving some ups and downs in the market and with our industry, as we all know, the health industry and certainly on the pharma life science side, is a very global industry with supply chains that are global, tax, IP and otherwise that have sort of a global relationship to it.
00:12:07:08 And so these tariffs are super important when we think about critical medical supplies, critical drugs that save lives, and how this impact can certainly have an effect on the health industry and ultimately potentially have some downstream impact on employees on cuts in R&D and otherwise. But Kelly, maybe just set the scene for a little bit, and then we'll kind of kick it to film Ruchita to talk a little bit deeper.
KELLY GRIFFIN
00:12:32:12 Sure thing. I can start with the recap of where we are with the tariffs. So, at least as of April 11th, it's quite a fluid space. But as of today, the reciprocal tariffs, which were unveiled in early April, those have been on pause for 90 days. While both the baseline global tariffs and the tariffs on China specifically are in effect.
00:12:50:10 Now, pharmaceutical products continue to be exempt at the moment. But this doesn't mean they will dodge future round of tariffs. The latest comments coming out of the White House really suggest the exact opposite. What we expect is that future pharmaceutical tariffs will be based on production location of API, and we're suggesting manufacturers should be assessing the API origin across their supply chain and for medical device products and medical supplies more broadly,
00:13:13:09 these are not exempt. And we expect these are going to be based on the country of substantial transformation, not mere assembly. Given that, we're also keeping an eye on where the pharmaceutical tariffs might go in the future and what we're hearing from here in DC, there's a big push at the moment from those inside the Beltway for a phased-in approach
00:13:30:04 for upcoming pharmaceutical tariffs, given the time it takes to move manufacturing facilities, or potentially an exemption for at least generics given the small margins and the high dependence from our healthcare system. And the other complicating factor to consider here is, just as pharma may be contemplating moving facilities, changing vendors or shifting other aspects
00:13:49:11 of their supply chain in response to any impending tariffs, keep in mind this reduction in force and the reorg FDA, those could very well slow any administrative step in the process, such as facility registration etc. So, we should expect that as we see pharmaceutical tariffs potentially come in place, the process of shifting your supply chain might take a little bit longer than it had in the past.
PHIL SCLAFANI:
00:14:10:09 Yeah definitely agree, Kelly. I mean, we kind of went on a roller coaster this past week or so. We saw the reciprocal tariffs were announced and the pharma exemptions weren't mentioned. And then an hour later, we saw the fact sheet come out and pharma breathed a sigh of relief and we've kind of seesawed a bit since then.
00:14:24:23 We did see the Department of Commerce section 232 review for pharmaceutical tariff impact kick-off, and that has to be completed within 270 days. Certainly, could be completed earlier, but at least we have some timeline potentially around the 90-day pause up to the 270. And we're in a bit of a wait-and-see. And as you said, Kelly, expecting tariffs could come at some point
00:14:44:05 and seeing what shape that might take. Again, important to look sector by sector here for generic medical supplies. Many med-tech products that are already in some of these tariffs now. There simply isn't 20 to 25% margin to absorb that kind of change. And it's likely we'll see those manufacturers raise prices that they charge either directly or to their distributors and wholesalers.
00:15:06:20 Those distributors will raise prices to pharmacies and hospitals and labs, payers, PBMs, and ultimately employers will end up paying more for those drugs or supplies. And eventually it all kind of trickles down to patients and costs. So, what might not seem like a direct cost ultimately will make its way through if those tariffs do come in or continue on some of the med-tech products. For brand and specialty drugs, it definitely gets a little bit more complicated.
00:15:31:08 There are contractual agreements in place and price inflation penalties that limit how much a pharma company could respond in terms of price changes on branded specialty drugs. So, it's probably more about figuring out how to adapt sourcing strategies, as Kelly mentioned, where the API comes from and how their global supply chains look. Maybe some tactics and strategies around the first sale at import and transfer pricing.
00:15:55:02 Or we see some clients using foreign trade zones potentially, but certainly tricky there. It's not something where the cost will just directly be able to be passed down, as we see in many other sectors. Across the entire sector, we look at tariffs being imposed on Chinese and Indian goods, who are major suppliers of pharma, API, and other raw materials, and either directly where it's those APIs or indirectly, those costs increase will also work their way down through as their just cost of doing business continues to grow up.
00:16:23:00 We may see shifts and supply chains in the global models over time, Kelly mentioned. And those just can't happen overnight, where those raw materials and APIs come from and where they're finished and filled. And just building new production capacity takes time, especially in a very regulated industry. So, either way, assuming these tariffs do come to fruition or continue for the ones that are there, we're likely to see rising drug prices and supply costs,
00:16:46:04 certainly on certain products like generics and med-tech and eventually making its way through specialty biologics, biosimilars, even, and others. And that'll put cost pressure on supply chains and ultimately will be something that we feel in terms of drug costs and overall affordability across pharma, biotech payers, providers, and unfortunately ultimately down to the patient.
RUCHITA KEWALRAMANI:
00:17:07:01 I agree with Phil. The healthcare industry is highly globalized, relying on international supply chains for medicines and medical supplies. The industry has a heavy reliance on importing these goods from other nations, and any disruption in the supply chain and demand curve could disrupt the price equilibrium.
00:17:24:04 We saw this in the years post the pandemic, where there was a shortage of medical supplies that raised the prices of the supplies, resulting in a price negotiation spiral between insurers and providers. The healthcare providers simply do not have the margins, especially as 80% of them are mission-driven and faith-based organization
00:17:44:06 that do not meet a margin to absorb any kind of price increase and live at the brink of bankruptcy. Hence, we are concerned about the impact of tariffs leading to a price increase for payers through providers and ultimately for the consumers.
00:18:00:09 The unfortunate part of all of this is that the most vulnerable populations and systems that serve those that otherwise lack access to good healthcare are the ones that will get impacted the most.
00:18:13:04 All in all, the increase in funding cuts, decrease in agency footprints and new tariffs could all lead to major disruptions in coverage of services that are essential to life and well-being for everyone around and could highly impact the rural markets as well as the vulnerable populations.
GLENN HUNZINGER:
00:18:31:24 I think everyone is focused on better access, better affordability and quality, and the affordability side, that's a super big focus across all of health. And while tariffs may not seem impactful, the downstream impact is certainly pretty large. The question we continue to get from everybody is just what are companies doing. And Phil kind of alluded to it. Supply chains are complicated.
00:18:56:16 It costs billions of dollars to build out plants, not to mention having certain skilled workforce. So, that's not a short-term decision to make. And so, companies are really going through the process right now evaluating impact, trying to figure out how do they apply the rules. Because ultimately, this could have a pretty significant downstream impact that ultimately affects the patient. So, a lot more to come. But I know everyone's sort of super focused on it here.
JENNY COLAPIETRO:
00:19:21:03 Exactly, Glenn, a lot of dynamics and evolution here on a daily basis. So, critically important to do that scenario planning and modeling. In addition to tariffs, another word that we hear pretty regularly is AI, right. And of course, the administration has also indicated a fundamental shift in U.S. AI policy. And at the same time, we know that we're seeing rapid adoption of AI in healthcare.
00:19:44:15 As we recently highlighted in one of our Next in Health series, we've seen everything from AI in healthcare, in R&D, to diagnostics to operational flows. Ruchita, curious how your perspective on how these two trends are intersecting and what you see are the risks and opportunities that they present for industry players right now?
RUCHITA KEWALRAMANI:
00:20:03:17 Absolutely. I think just maybe picking on the AI thread, AI brings nothing but good news to the industry that has otherwise seen labor shortages and seeks innovation in a pretty meaningful way. There are many ways in which AI could potentially revolutionize healthcare by improving diagnostics, personalizing treatment plans, streaming administrative processes,
00:20:25:06 and even carrying out tasks for healthcare workers that are severely burned out. We are seeing continued adoption and experimentation by our clients on new uses of AI, such as use of agentic AI to create care plans for the patients, use of AI scribes for physicians and nurses to complete medical charts, newly created cancer screening tools that can detect the disease early on and
00:20:52:11 save millions of lives, use of tools to catch billing errors, and many such creative ideas that will create an immense surplus for the industry. So, the brilliant minds who are otherwise spending time on menial tasks can focus on high-value initiatives. However, the use of privileged information in AI systems increases and raises ethical as well as legal concerns for the industry.
00:21:17:20 And there needs to be a properly planned initiative across those. Legal permissibility will require new regulations, amendments to existing laws to address emerging technologies and the use of those.
PHIL SCLAFANI:
00:21:30:24 Yeah, thanks for that overview, Ruchita, and agree things have certainly been fast, and I think probably for the last 15, 20 years of my career here, I've always believed healthcare moves at a little bit of a glacial pace. And both now with tariffs and the political landscape shifting so quickly and seeing the adoption of AI, I probably have to rethink that.
00:21:48:17 It's been super quick looking at what's happened in pharma biotech and maybe R&D as one example, we've already seen AI successfully deployed in areas like drug discovery to speed up and improve finding newer and better molecules for treatments being rapidly adopted in clinical trials to speed up recruitment and lower the cost of some of those clinical trials,
00:22:09:10 and a lot of other areas in both research, discovery and overall clinical programs. In manufacturing and supply chains, we see AI and GenAI transforming QMS and quality management and making global networks more efficient. Really cool capabilities on the manufacturing site floor to monitor the life span and usefulness of parts,
00:22:28:02 and all the submissions that have to go to the FDA around that. So, some really exciting stuff there on the R&D side and more coming on broader areas, including commercial, finance, even exciting areas like accounting and tax. I'm seeing a lot of AI and GenAI use cases.
00:22:43:23 Ruchita hit the nail on the head. This is all very new and moving really fast. So, those advances come with new challenges around responsible use of AI. Pharma payers, providers across the whole sector here are exploring the use of AI, and that's going to come with potential risks around HIPAA-protected information and patient data, other personal information, genomics data, demographic data.
00:23:06:21 We've already seen a lot of concerns around just 23 and me, and what may happen there. AI's potentially on a larger scale at even more information genomic, personal or otherwise, in some of these models. And really no singular framework to work around. So, more to come as we continue to see AI advance in rapid pace, reducing cost, improving efficiency and margins, but also important to manage responsible use over time.
KELLY GRIFFIN:
00:23:31:08 And I'd probably add the regulatory side of these things. As AI rapidly advances, the Trump administration has laid the foundation for a deregulatory approach to AI at the federal level, and this has created a lot of space for innovation. Yet at the same time, we also are seeing increased activity of oversight coming from state legislatures.
00:23:48:04 For example, California has passed several AI laws regulating both payers’ and providers’ use of AI, and Colorado is right behind them, with laws that focus on the use of AI for high-risk, consequential decisions.
00:24:00:05 And on top of that, we've already seen implementation deadlines come through for the EU AI act. These go into effect and regulate based on risk levels that AI use. So, this does mean the organizations, as we're innovating, we’ll need to continue to be strategic with what geographic area they put in deploying AI and continue to carefully monitor additional state-level regulations as they emerge.
00:24:23:03 Plus, this also means that developing internal AI governance policies that align with each organization's business model, be all the more critical as the regulatory landscape evolves.
GLENN HUNZINGER:
00:24:33:01 All right, team, certainly a lot going on here. And maybe we'll get some last-minute takeaways from the team before we wrap. So, maybe Kelly, over to you and then we'll go to Phil and Ruchita.
KELLY GRIFFIN:
00:24:42:09 Sure. Over the years, folks may have become desensitized by proposed policy changes that never quite came to fruition. I'd flagged at the moment, we're really in a new environment where momentum is strong, and these proposed changes are coming at the industry from many different angles.
00:24:57:05 So, it's well worth pausing to map out not only where the risks truly lie, but also where opportunities for differentiation exists and how you see this much potential change, even a little preparation can allow organization to capitalize on new opportunities as they arise.
PHIL SCLAFANI:
00:25:11:22 Yeah. I mean, I think what stands out for me is these are not at all small changes and not at all the incrementalism we're used to seeing. The break things and move fast approach that the administration is taking is doing exactly what it says, and that might be okay or lesser risk in a start-up tech company of 50 people.
00:25:28:23 But with 300 million people here in the US, it's certainly something that we need to look at as the scale of disruption happens, and that I think everybody within each sector is doing their work now to be prepared for these types of disruptions and should be ready to act swiftly as we see things moving at this really fast pace.
RUCHITA KEWALRAMANI:
00:25:45:18 I agree, and just to add sort of my own words to this, right, like there is no doubt in my mind that healthcare requires policy changes. But what is clear is that they also require careful consideration to drive the industry forward, not backward. The last 100 days have been a roller-coaster ride. However, the jury is still out on what will ultimately stick and turn into real policy change.
00:26:09:16 We need a strategic solution here, not a fast solution, is all I have to say.
GLENN HUNZINGER:
00:26:14:22 And listen, as we sort of maybe bring this to a close, I know the entire health industry is focused on sort of the affordability and to recognize that costs need to come out of the system. And I think everyone's sort of super-focused on that. It is clear, and we mentioned it a long time ago in our Next In series, that companies are going to have to build new capabilities, the agility here to operate around the changing landscape.
00:26:41:15 I think the good news is companies are getting used to that. There's no doubt that change is the only constant. And I think as we move forward, operating more efficiently to drive costs out ultimately will be the end game that everyone's focused on. So, I look forward to that. Continuing evolution in health, rising to the occasion to address the most important health needs out there.
JENNY COLAPIETRO:
00:27:03:23 Thanks everyone, and I'm sure we'll be talking again very soon. And we invite our listeners to subscribe to stay informed on the latest regulatory developments and insights from PwC's Health Policy and Intelligence Institute. And to follow us on social media.
00:27:18:05 For more on these topics and other health industry insights driven by policy, innovation and care delivery changes, please subscribe to our podcast at pwc.com/U.S./Next-in-Health podcast. Until next time, this has been Next in Health.
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