Congress Set to Return for Healthcare, ACA Showdown 

Published September 2, 2025 – By Tatiana Brown Johnson, Senior Vice President, Healthcare Policy, Laura Hobbs, Senior Vice President, Healthcare Policy and Monet Stanford, Senior Vice President, Healthcare Policy, and Ryan Visnovec, Washington Analysis Research Assistant

Congress Returns: Healthcare Policy in Focus

With Congress back on September 2nd, investors will be watching the September 30th government funding deadline. For healthcare, three market-relevant questions dominate:

1. Will Congress extend the enhanced ACA premium tax credits (EPTCs) set to expire on Dec. 31, 2025?
2. Will it waive the Statutory PAYGO to avert a 4% across-the-board Medicare cut?
3. Will it delay FY2026 Medicaid Disproportionate Share Hospital (DSH) payment reductions?

Our View: EPTCs Likely Renewed – Out of Consensus

Despite broad skepticism from ACA Marketplace insurers [UnitedHealthcare (UNH), Elevance (ELV), CVS/Aetna (CVS), Centene (CNC), Humana (HUM), and Oscar (OSCR)], we assign a 65% probability that EPTCs are extended, with adjusted eligibility and/or timeline, as part of a healthcare “grand bargain.” The political calculus is most acute in Republican-leaning, non-expansion states, where failure to act could heighten voter risk. Should EPTCs lapse without action by February 2026, we see potential for a rebranded version, likely tied to a Republican-led initiative, to advance before the PY2027 open enrollment period (Nov. 1, 2026). While proximity to the Nov. 4, 2026, midterms may blunt voter impact, a summer 2026 extension could provide Republicans a campaign policy win.

Countdown to Expirations: Key Healthcare Programs in Play

• Multiple healthcare extenders, including community health center funding, the teaching health center graduate medical education (GME) program, and Medicare low-volume hospital payments, also expire Sept. 30, 2025. We expect these to be included in a short-term continuing resolution (CR) until December, as well as in a year-end package.
• Congress is also expected to revisit provisions excluded from the One Big Beautiful Bill (OBBB), including the SUPPORT Act, which addresses substance use disorder programming, and PAHPA reauthorizations, which maintains funding for national security risks pertaining to healthcare and Medicare telehealth flexibility extensions.
• Policy riders removed during OBBB negotiations under the Senate Byrd rule may re-emerge, notably pharmacy benefit manager (PBM) reform, targeted Medicare/Medicaid adjustments, and possibly a narrowed site-neutral payment policy as a budget offset.
• Broader Medicaid reforms beyond OBBB remain a low probability.

“Grand Bargain” on EPTCs: The Bull and Bear Cases

The Bull Case

• Clearing the Decks – If a Republican-led Congress reaches a government funding deal with Democrats that incorporates their key healthcare priorities, it would effectively “clear the decks” of bipartisan items. This would reduce near-term policy overhang for healthcare investors, while also setting the stage for 2026, when narrower congressional margins and the midterm cycle are likely to make healthcare debates more partisan and less predictable.
• A “Glide Down Path” – A more likely path for extending the EPTCs is a ‘glide down’ approach, where credit amounts are gradually reduced over time or eligibility criteria are tightened. This approach maintains broad marketplace support while reducing federal outlays, balancing political priorities and minimizing near-term disruption for insurers and beneficiaries.
• Expiration of EPTCs Impact to Red States – As of 2024, “56% of Affordable Care Act (ACA) Marketplace enrollees reside in congressional districts represented by Republicans, and 76% of enrollees live in states carried by President Trump in the 2024 election,” according to KFF.
• It’s All Politics – Historically, midterm elections tend to favor the party opposite the sitting President. Issue dynamics also play a role: Democrats generally perform better in elections where healthcare dominates the agenda, while Republicans tend to benefit when economic concerns are front and center

The Bear Case

• EPTCs Weren’t Part of ACA’s original design – Instead, they were first enacted under the American Rescue Plan Act) and later extended by the Inflation Reduction Act. This distinction could allow Republicans to frame them as a temporary COVID-era policy, i.e. “Biden COVID Credits”, rather than a permanent ACA feature, providing political cover for their expiration.
• EPTCs Lead to “Fraud, Waste, and Abuse” – Leading Republican healthcare think tanks, including the Paragon Health Institute, oppose extending EPTCs, citing concerns over fraud, waste, and abuse, as illustrated by recent Department of Justice litigation against several ACA brokers.
• Exorbitant Cost – Extension of the EPTCs will likely cost between $33-40B a year; while we expect modification of the EPTCs if passed, the initial sticker shock could be off putting for some fiscal hawks.
• It’s All Politics, AKA “Let It All Blow Up” – If a deal acceptable to Democrats is not reached, they could leverage the expiration of EPTCs and the effects of the OBBB as an alternative campaign issue, shifting the narrative from “No Trump” to tangible healthcare impacts that resonate with voters.
• All or Nothing – Congress faces two potential paths for the upcoming government funding decision: 1) it can pass a clean funding package that covers only the bare minimum required to keep the government operating, or 2) it can approve a more inclusive package that incorporates a broader set of priorities for congressional leadership. In our view, Democrats may be less inclined for assist in passing a government funding package that does not include EPTCs.

Additional information is available upon request.  

Washington Analysis (“WA”) conducts economic, political, legislative, legal, and regulatory analysis. This document is for informational purposes only and provided on an as-is basis without any representation or warranty as to the accuracy, completeness, timeliness or availability of the information herein. This document is not intended to, and does not, constitute an offer or solicitation to buy and sell securities or advice to engage in any investment activity. Statements made herein are not directed to any particular investor or type of investor, and do not take into account any investor’s particular investment objectives, financial situations or needs. Securities, financial instruments or strategies mentioned herein may not be suitable for all investors. Before acting on any recommendation in this material, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. Washington Analysis disclaims all liability arising from reliance on this information for investment or other purposes. Directors and/or employees of Washington Analysis may own securities, options or other financial instruments of the issuers discussed herein, however analysts do not receive any compensation in exchange for any specific recommendation or view expressed herein.  © 2025, Washington Analysis LLC, a CFRA Business. All rights reserved. 

Drug Pricing Reform 2025: Key Policies and Market Impact Under Trump Administration

Published July 22, 2025 – By Laura Hobbs, Senior Vice President, Healthcare Policy and
Monet Stanford, Senior Vice President, Healthcare Policy

2025 Drug Pricing Reform Highlights

• In an effort to lower drug costs, Congress and the second Trump Administration are pursuing several drug pricing reforms including establishing a Most Favored Nation price, imposing tariffs, modifying average sales prices by flattening Bona Fide Services Fees (BSFS), aligning prices in the 340B Drug Pricing Program as well as increasing regulatory oversight of specific third-party administrators.
• For healthcare policy investors, these proposals are not new but further target specific incentives within the pharmaceutical supply chain without considering broad market access dynamics.
• We believe these proposals will likely disincentivize drug manufacturers to offer certain discounts across the pharmaceutical supply chain, ultimately, increasing rather than decreasing out-of-pocket costs for patients.

Trump Administration’s 2025 Drug Pricing Strategy Explained

In their first seven months, the 119th Congress and the second Trump Administration have announced several pursuits in drug pricing reform, including establishing a Most Favored Nation price, modifying Bona Fide Services Fees (BSFS), aligning prices in the 340B Drug Pricing Program (340B program) as well as increasing regulatory oversight of specific third-party administrators. With pharmaceutical tariffs looming, we expect the first signpost (the release of the direct subsidy in Medicare for plan year 2026) at the end of July to reveal whether health plans are (or are not) factoring in the Administration’s rhetoric.

For Healthcare Policy investors, we know these federal proposals are not new but further target specific incentives within the pharmaceutical supply chain, however in our view, without considering market access considerations unique to the United States. Without a nuanced approach, the Administration and Congress are seeking to establish a revised regulatory infrastructure that could create conflicting incentives that keep drug prices high for branded medicines. Moreover, Capitol Hill’s narrow focus on the out-of-pocket costs a small number of patients pay overshadows the problem of increasing health insurance premiums for the masses. We do not believe these reforms address bigger questions of healthcare affordability or sustainability for plans, employers or state and federal governments.

We believe the proposals suggested to date addressed fragmented segments across the pharmaceutical supply chain creating paradoxical incentives to drug manufacturers that, without adjusting the mechanism by which drugs are placed on formulary, will continue to result in high costs for patients. For investors, anticipating manufacturers’ responses to these changes will be essential to understand how price concessions or rebate offerings could adapt to the future state of drug reimbursement.

Most Favored Nation Pricing & International Drug Cost Pressures

Our base case remains that the Department of Health and Human Services (HHS), the Centers for Medicare and Medicaid (CMS) is likely to direct the Center for Medicare and Medicaid Innovation (CMMI) to implement a variation of the Most Favored Nation (MFN) in Medicare Part B for a set number of products. While further details have not been released, we continue to expect the MFN benchmark will be used to inform a ceiling for the maximum fair price (MFP) as part of the Medicare Drug Price Negotiation Program. Final negotiated prices for the second wave of selected drugs are due in September 2025, with price applicability slated for 2027. We remain skeptical that Congress will pass a variation of MFN reform for products in Medicare Part D, due to non-inference clause or in Medicaid, due to conflicts with the Medicaid Best Price requirement. 

Additionally, the Trump Administration does not need to look at external markets to lower pharmaceutical costs. They could propose extrapolating the Medicaid Best Price to Medicare or setting policies that would align reimbursement between the two programs. As many companies have been announcing their intent to increase their U.S. production footprint, the Administration’s desire to seek a better “deal” from a drug manufacturer may be driving the policy rather than a pricing formula resulting in lower costs for patients.

Medicare Drug Price Negotiations: Is MFN the Ceiling? 

HHS released a statement that the agency is taking “immediate steps” to implement MFN as “HHS Secretary Robert F. Kennedy Jr., and CMS Administrator Dr. Mehmet Oz, the Department has identified specific targets pharmaceutical manufacturers” to satisfy the intent of the EO. While details are limited, HHS expects brand manufacturers that do not have generic or biosimilar competition to offer the “lowest price of a set of economic peer countries” (i.e., US Lowest Price). Potentially, these products could be the same ones that were selected for drug negotiation by the Biden Administration in January 2025. Notably, there has been an increased focus on price verification during recent FDA CEO Listening Tours, through the US Customs and Border Protections Agency and as we observed, we see an industry shift towards direct-to-consumer purchasing.  

Broadly, we think pharma companies with outsized exposure to government programs, particularly those with products selected for negotiations under the Inflation Reduction Act, and/or with a large delta between U.S. and ex-U.S. pricing are at elevated risk. 

The 340B Problem: Duplicative Discounts and Medicare Participation  

Health Resources & Services Administration (HRSA) announced the first steps to align reimbursement with 340B prices on insulin and injectable epinephrine. Now, HRSA-funded health centers are required to offer these products to low-income patients at or below the price paid by the center through the 340B Drug Pricing Program (340B program) as part of the updated award terms. There is further speculation that HRSA could look to reduce or eliminate Medicare’s participation in the program following an earlier executive order this year. Additionally, it is expected that HRSA will move the 340 Program over to CMS, a signal future meaningful rulemaking in the program is likely.  

If Medicare is removed as a participant in the 340B program, the problem of duplicative discounts related to the IRA negotiated MFP would be resolved. Additionally, in the most recent Calendar Year 2026 Hospital Outpatient Prospective Payment System (OPPS) and Ambulatory Surgical Center Proposed Rule, CMS has proposed resuming a hospital acquisition survey to move forward with reducing physician reimbursement in the program. We believe that this survey is a signal that the second Trump Administration will reduce physician reimbursement in the program from Average Sales Price (ASP) + 6% to ASP – 22.5 %. This was previously attempted and blocked by the Supreme Court. We believe once this survey takes place, HHS will be able to make the changes it could not advance in the first Trump Administration.   

Pharmacy Benefit Manager Reform in 2025: What’s Likely and What’s Not 

Despite its widespread socialization, we do not expect meaningful pharmacy benefit manager (PBM) reform to pass as part of the 2025 year-end spending deal, nor HHS issue a PBM-specific rule. We do believe that within a 2025 year-end spending deal, the three provisions proposed in a 2024 continuing resolution (banning spread pricing in managed Medicaid, 100 percent rebate pass through to self-insured plans governed under Employee Retirement Income Security Act (ERISA) and delinking the list prices of drugs in Medicare Part D) remain the most likely policies to pass in 2025. At the state level, we believe additional states, beyond Arkansas’ recent pharmacy divesture bill, will enact aggressive reforms that will likely see litigation through until 2026.  

We believe PBMs have a modest probability of blocking implementation of an Arkansas’s law banning them from having affiliated pharmacies in the state or shipping drugs direct to consumers in the state, although the state’s opposition brief has not yet been released. The dormant commerce clause argument remains, in our view, the PBM industry’s optimal stance and is strengthened by the legislature adding a provision that exempted Walmart from the ban. If the industry is successful, states would be less likely to pursue similar legislation. If they were not, we would expect many states to pursue pharmacy divesting legislation in 2026. 

EU & UK Views on U.S. Pharmaceutical Tariffs 

For European-based investors, we believe 1) key issues to watch include scrutiny of drug costs, as well as alleviable (in our view) risks from price controls and cost-effectiveness assessments; and 2) AI-powered drug development, digital therapeutics, and real-world data applications will be key differentiators as regulatory frameworks evolve to support innovation. 

The UK may be a nimbler market to respond to supply chain and pricing as compared to the European Union, especially in light of the recent free-trade deal with India. Nevertheless, for UK-based manufacturers, this deal may undermine longer-term intellectual property (IP) concerns. Additionally, we see an opportunity for branded drug manufacturers through a revised 2024 Voluntary Scheme for Branded Medicines Pricing, Access and Growth (VPAG). Even if the percent change is minimal, it could be perceived as a better “deal” for industry as well as potentially fulfilling the UK government’s ambition to appease President Trump and secure a longer-term trade deal.   

We believe an announcement on pharmaceutical tariffs sometime in August/September and expect the market to lurch when tariffs are announced by the Administration.  

Will 2025 US Drug Pricing Reforms Lower Costs? 

As the Trump Administration’s drug pricing reforms unfold over the coming months, investors should closely monitor the release of Medicare direct subsidies at the end of July and September’s second wave of negotiated drug prices as key indicators of policy implementation and industry expectations. The US government’s fragmented approach to pharmaceutical supply chain reforms, appear to target specific cost drivers, creating conflicting incentives that may ultimately fail to deliver meaningful affordability improvements for patients or sustainability for payers. We believe successful reform largely depends on whether the Administration can move beyond piecemeal regulations to address the fundamental market access dynamics that drive pharmaceutical pricing across the entire healthcare ecosystem.

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