These 2 innovators in the field of health could soon face a toll

Because the private sector is responsible for the distribution and administration of medical resources, healthcare companies receive a lot of political attention in the United States. care markets. However, there is a risk of government intervention when these markets remain inefficient for too long in relation to consumer needs.

The two companies I’m going to talk about today have made their names by bringing up innovative new solutions to a pair of dysfunctions in America’s healthcare system, directly helping people in the process. Despite their merits, they are both threatened by the prospect of new regulations that could reshape their markets overnight. On the other hand, there is a credible chance that such regulations could energize their businesses, so let’s take a closer look.

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Will GoodRx’s Margins Resist Prescription Drug Cost Reforms?

GoodRx Holdings (NASDAQ: GDRX) helps patients reduce their prescription drug costs by comparing prices and negotiating on their behalf with other stakeholders, taking a small fee from pharmacy benefit managers in the process. In doing so, the company is helping consumers mitigate the financial impact of high and rising drug prices. Of course, some lawmakers are also interested in achieving the same goal.

There have been several legislative attempts in recent years to curb rising drug prices, although none have succeeded in enacting sweeping reforms. And there is currently more than one bill in Congress that seeks to do just that. A bill in the United States Senate, S.909, would require an annual review of brand name drugs to assess their price in the United States relative to other developed countries. If the price of a drug is found to be excessive, the manufacturer would lose its exclusivity rights and regulators would expedite the review of corresponding generic drugs and biosimilars.

If the bill passes, it could take GoodRx’s breath away and force a reassessment of its core business model, as it would with many other healthcare stocks. After all, people have the most incentive to use the service to lower their costs when those costs are high. And the company might find it difficult to continue onboarding new users and growing revenue if US drugmakers are effectively forced to price their drugs to be competitive internationally rather than just to the States- United.

The flip side is that the legislation is not about the cost the customer pays at the pharmacy, but rather the price set by the manufacturers. This is a significant problem because it means that GoodRx could still help people find the lowest prices among drugstores.

And GoodRx always makes money when people buy generic drugs as well. So if the legislation means that some previously unaffordable drugs end up losing their exclusivity and being replaced by newly marketed generics, it could even earn more money than before.

Medicare changes could be a boon for Clover Health

Health Clover (NASDAQ: CLOV) is another way to cut costs for consumers, offering Medicare Advantage plans less expensive than its competitors.

There are a few legislative issues at stake that could be huge for Clover investors. The first is contained in the budget proposal, which is currently in Congress. The proposal provides for an extension of Medicare coverage to include vision care, hearing care and dental benefits. Currently, many seniors are only covered for these things through their private Medicare Advantage plan, like the one offered by Clover.

If the legislation is passed, it will remove a big incentive for consumers to sign up for the company’s Advantage plans, as some of the additional coverage will become much cheaper, if not free. And the company could end up spending more money to earn its income by contracting directly with Medicare if it is forced to cover more services. This could well be an existential crisis for Clover Health, if not for another provision of the proposal.

While things can change a lot before they are enacted, it currently looks like the budget could also include lowering the age of eligibility for Medicare benefits to 60. This would have a very beneficial impact on Clover’s bottom line as it would dramatically increase their total addressable market. And young people tend to have fewer health problems, which would make them cheaper to insure, which would allow for higher margins.

Then there is the potential impact of legislation on drug prices. If high prescription costs are a major factor causing seniors to seek Medicare Advantage coverage for drugs that publicly available Medicare plans do not cover, the company could experience lower demand for its services. However, the reduction in drug costs could still work in its favor overall, as Clover would not need to pay that much to cover its existing customers.

So, while Clover faces some uncertainty with upcoming legislation, there are still plenty of reasons to be optimistic about its future.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

About John Tuttle

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