Health Reform Challenges Biotech Industry - Pressures to reduce healthcare spending generates proposals to spur competition, cut costs. - BioPharm International

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Health Reform Challenges Biotech Industry
Pressures to reduce healthcare spending generates proposals to spur competition, cut costs.


BioPharm International
Volume 22, Issue 8


Jill Wechsler
Health reform is President Barack Obama's top domestic policy priority, and biopharmaceutical companies are keeping a sharp eye on policy proposals likely to affect research and development (R&D) and coverage. Manufacturers generally support initiatives to expand healthcare to the approximately 45 million Americans who are uninsured, partly because it will enlarge the customer base for prescription drugs and enhance compliance with prescribed treatments.

That said, the industry is leery of being hit with cost controls and regulatory changes designed to pay a chunk of the trillion-dollar cost of achieving universal coverage.

Policy makers propose to expand Medicaid and other local health programs; require that all individuals obtain coverage; mandate that employers "pay or play" (provide insurance to workers or pay a penalty); reform the insurance market to limit exclusions based on pre-existing conditions; and form insurance exchanges offering coverage options to the uninsured, possibly including a government-supported public plan.

Even with considerable controversy over these options, devising ways to pay the bill is much more difficult and painful. Reality hit in June when the Congressional Budget Office (CBO) issued a much higher-than-expected cost estimate for reform legislation under development in the Senate. A $1.6 billion 10-year CBO estimate sent analysts back to the drawing boards to curb expenditures and identify more savings and revenues.

A massive House reform bill developed jointly by the three committees with jurisdiction over healthcare—Education and Labor, Energy and Commerce, and Ways and Means— offers broad coverage and extensive benefits. Republicans, however, predict skyrocketing budget deficits, higher taxes, and government rationing of healthcare. Pressing hard for reform legislation this year, President Barack Obama signaled his willingness to sign a bill that costs $1 trillion over 10 years and covers at least 75% of the uninsured; a public plan option is possible, with limits to retain the current private insurance market.

MANUFACTURERS ANTE UP

Throughout the debate, pharmaceutical manufacturers have offered proposals for expanding access to medicines, with an eye to fending off greater threats to innovation and marketing. First came support for a broader State Children's Health Insurance Program. Then came proposals from a provider coalition to help decrease the annual growth in healthcare outlays by 1.5%—a move calculated to save $2 trillion over 10 years.

In June, the Pharmaceutical Research and Manufacturers of America (PhRMA) offered to reduce the out-of-pocket costs of seniors who hit the coverage gap of the Medicare Part D program. The plan offers 50% discounts to Medicare patients who fall into the notorious "doughnut hole." Although the discounts go directly to Medicare beneficiaries, the program was included in the House reform bill as a way to save some $25 billion off the cost of eliminating the doughnut hole altogether over a 15-year period.

Most biotech drugs are not affected because they are administered in hospitals or clinics and thus covered under Medicare Part B. But as more biologics shift to outpatient use and gain coverage through Part D, the coverage gap will become a greater concern for these costly therapies. The Biotechnology Industry Organization (BIO) raised concerns, though, that smaller biotech companies may find it difficult to absorb such hefty discounts on treatments primarily prescribed for elderly patients.

Another $20 billion could be raised over 10 years by boosting rebates on Medicaid drugs, according to Congressional analysts. This initiative involves increasing the basic rebate from the current 15.1 to 22.1%, extending rebates for new formulations of existing drugs, boosting rebates on generic drugs, and requiring manufacturers to pay rebates to states for drugs provided to Medicare-managed care plans.

Manufacturers hoped these increases would defuse support for a proposal from Energy & Commerce Committee Chairman Henry Waxman (D-CA) to impose additional rebates on Part D drugs for low-income seniors; Waxman wants to recoup the "windfall" gains manufacturers have enjoyed since Medicare shifted "dual eligible" seniors from Medicaid drug benefits to Part D. The House reform bill included this provision as a way to pay for some of the added cost of closing the doughnut hole over 15 years.

Reformers also anticipate saving money by establishing a legal pathway for the US Food and Drug Administration's approval of follow-on biologics (FOBs). CBO has calculated that an FOB program with a moderate exclusivity period, say around seven years, would generate about $7–10 billion over 10 years, a relatively low amount that excludes potential savings from generic forms of insulin because it's regulated as a drug, not a biologic. Savings would be less with the 12-year exclusivity provision approved by the Senate Health, Education, Labor, and Pensions (HELP) Committee last month. But even fairly modest savings are enough to spur negotiations to get an FOB measure into the reform legislation.

The hunt for billions in added revenues has opened the door to all kinds of additional fees and taxes. Democrats dropped proposals to curb the corporate tax deduction allowed for drug advertising. But House leaders propose to raise billions through a new surtax on wealthy individuals, as well as hefty fees on individuals and employers that fail to meet coverage mandates. Employers predict that the proposed coverage requirements are likely to reduce corporate-sponsored insurance, which would curb pharmacy benefits and drug utilization in the process.


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