S&P: Trump Administration Could Be a Net Negative for Health Care Industry

While many upcoming health care policies remain unclear, potential changes brought about by the Trump administration will be a net negative credit-wise for the industry, according to an S&P Global Ratings analyst. 

In a Dec. 2 article, analyst Arthur Wong named the top five developments S&P Global is watching: the Affordable Care Act, Medicare drug pricing negotiations in the Inflation Reduction Act (IRA), the Federal Trade Commission’s (FTC) tone on mergers and acquisitions (M&A) and tariffs, and HHS priorities. “We do not envision any rating changes due to the change in administration until it becomes clear what policies will be implemented and their time frame,” Wong wrote. “However, we see more downside than upside risk to ratings over the near term.” 

On the plus side, though, the FTC’s scrutiny of M&A is expected to “moderate” under the Trump administration, Wong said. This is a positive for an industry that must participate in M&A to remain competitive and exert greater pricing power in reimbursement negotiations, he noted. However, “populist mistrust of large companies potentially possessing too much pricing power, anger about pharmaceutical pricing, and escalating health care costs in general will mean scrutiny on the health care industry will likely remain heightened under a Republican administration,” Wong wrote. 

And given the competitive landscape, Wong tells AIS Health that health care M&A is unlikely to slow down significantly over the next few years. The inability to pursue acquisitions could have long-term negative consequences for competitive positions. That said, “concerns over rising health care costs may keep scrutiny heightened.  

Overall, while there may be challenges, the strategic importance of M&A for maintaining competitive positions suggests that activity will continue, albeit with careful navigation of regulatory landscapes, Wong says. “Some areas have received more scrutiny than others, such as private equity’s role in healthcare, and that may lead to a relative slowdown in activity, but overall, we believe M&A activity to grow in the sector.” 

A Kennedy-Led HHS Is a Wildcard 

Perhaps one of the biggest unknowns is how an HHS under Robert F. Kennedy Jr. would function if he were confirmed as its secretary. His “Make American Healthy Again” campaign is likely to focus on the food industry before turning its sights to health care, Wong predicted. The areas where Kennedy could shake up health care are more “nuanced,” Wong said, such as with vaccines.  

Kennedy’s anti-vaccine stance is unlikely to have a significant effect on policy, but as the head of HHS, this stance “could lead to fewer vaccine sales, including those for shingles, pneumonia, and RSV,” Wong wrote. “This could be problematic for GSK PLC, Merck, Pfizer, Sanofi, and AstraZeneca PLC, which rely on or are anticipating growth in U.S. vaccine sales for key products.” This could also spur manufacturers to spend less on developing new vaccines if they anticipate lower uptake, he added. 

“Key positions like the heads of FDA, CDC, CMS, and NIH could offer insights into the effects of a second Trump presidency and Kennedy-led HHS,” Wong tells AIS Health, a division of MMIT.  “While changes are expected, we foresee incremental rather than radical shifts in health care. As a potential result, we anticipate a slight negative credit impact on health care companies from possible health care agency appointments.” 

At a Nov. 8 postelection media briefing, KFF Vice President for Health Policy Larry Levitt said Kennedy’s HHS appointment could give rise to an era of “misinformation” from the government. “We turn to the government for reliable data, public health information, and scientific information, and there’s the potential now for the government to be not only not an effective source for health information, but in fact an accelerant for misinformation,” he said. 

Jennifer Kates, KFF’s senior vice president and director of the Global Health & HIV Policy Program, agreed, adding that the public can expect “a de‐emphasis or change in the view of what is considered evidence and how the CDC provides recommendations on public health measures.” 

Potential ACA, Medicaid, IRA Changes Are Negatives 

One big negative for the health care industry — particularly hospitals and health insurers — is the looming expiration of the enhanced ACA subsidies at the end of 2025. While it’s unlikely the Trump administration would try to repeal the ACA, Wong predicted it is all but certain the subsidies would be allowed to expire. Millions of people would be hit with a 79% average increase in premiums. “The [Congressional Budget Office] also estimates that the number of uninsured would grow by 4 million in 2026, following expiration of subsidies in 2025, with a loss of 3 million people that receive coverage through the marketplace,” he wrote. “A higher uninsured population would mean fewer people actively seeking health care services and higher bad debt expense, especially for safety-net providers and hospitals.” 

Cuts to Medicaid are also possible. With Trump having stated that Medicare, Social Security and defense cuts are not being considered, “the math is inescapable that Medicaid and ACA cuts will then be on the table” to help pay for tax cuts, Levitt said. Both Levitt and Wong noted that these Medicaid cuts could be in the form of block grants, reducing federal matching dollars for Medicaid expansion states and per capita caps. 

“Currently, Medicaid payments to providers are already low and it’s common for providers to lose money on their Medicaid business, with many providers not participating in the program,” Wong wrote. “Further cuts or restrictions to the program would be a negative development for the health care services industry.” 

“Aggressive” expansion of Medicare Advantage — which the Trump administration has suggested could be the default option — would be a credit negative for providers, Wong said, because MA plans are “more restrictive” than traditional Medicare and providers face administrative cost headwinds. 

And as for the IRA, “while the overall impact is unknown, it’s already a negative for pharmaceutical industry,” Wong wrote, largely due to the Medicare drug pricing negotiation provision. While the IRA, particularly the Part D Premium Stabilization Demonstration, is highly unpopular with Republicans in Congress, Trump campaigned on lower drugs costs and has supported Medicare drug negotiation. “However, the president-elect, with Republican control of Congress, could accelerate or expand the drug pricing provisions within the IRA, or add provisions that could be more onerous for the pharmaceutical industry,” Wong wrote. 

Levitt agreed that the administration is likely to keep the drug negotiation program, but it’s unclear how that would look. The administration would have “a fair amount of leeway…in terms of what other factors an administration might consider in negotiating drug prices,” he said. “So, a Trump administration could choose to negotiate less aggressively with drug companies, or conceivably more aggressively — we just don’t know.” 

This article was reprinted from AIS Health’s weekly publication Health Plan Weekly.