Big Changes Ahead for Biotech Manufacturers - To expand coverage amidst the economic crisis, Obama will be looking hard for ways to cut healthcare costs. - BioPharm International


Big Changes Ahead for Biotech Manufacturers
To expand coverage amidst the economic crisis, Obama will be looking hard for ways to cut healthcare costs.

BioPharm International
Volume 21, Issue 12

A first order of business for many Democrats is to simplify and centralize the Part D program. Biopharmaceutical manufacturers strongly supported the decentralized approach to Part D to avoid establishing a Medicare formulary that would set a coverage and cost model for the broader healthcare market. PDPs consequently have crafted drug coverage programs to fit federal standards as well as corporate business goals. Noticeable differences among PDP formulary preferences, copayments, and premiums have generated competition and cost variation, but also have confused seniors. A particular sore point is rising coinsurance for high-cost biotech therapies that fall into the fourth tier of many formulary structures.

Allowing direct price negotiations by the HHS secretary could cut manufacturer revenues by some $10 billion to $30 billion, according to the Boston Consulting Group. The amount could be even more if private insurers and pharmacy benefit managers demand the same low price set by Medicare. The real impact of direct government price negotiations is unclear, though. There isn't much room to negotiate lower prices for drugs that have no therapeutic alternatives or for therapies in those classes where Medicare requires coverage of all medicines. Manufacturers may be reluctant to accept a very low price that could extend to the broader market, but it will be difficult to refuse to sell a product to the huge Medicare population.

Another strategy for curbing Medicare drug outlays is to require manufacturers to pay rebates to CMS. This could start with reimbursement for drugs provided to dual-eligible seniors in PDPs, those low-income individuals who previously obtained drug coverage from state Medicaid plans.


Another cost-cutting strategy backed by both Democrats and Republicans is to liberalize re-importation of drugs from other countries. Obama makes the usual proviso that the drugs coming in must be safe and effective. But taking steps to ensure product quality appears to limit potential savings. Several state and local drug import programs have been dropped because of high costs and low consumer interest.

Moreover, recent scandals about contaminated heparin from China and manufacturing quality problems with generic drugs from India are making lawmakers hesitate about opening the gates too wide to less regulated imports. Obama advisers have acknowledged that enthusiasm for reimportation has waned since the heparin incident.

What may be more palatable is to make generic drugs more readily available to patients and payers. At the annual meeting of the Generic Pharmaceutical Association in September, Obama health policy adviser Dora Hughes said that eliminating barriers to generic drug use should be central to health reform efforts. Hughes voiced support for curbing reverse payment agreements and backed legislation that would allow the FDA to approve generic versions of biotechnology drugs. A market exclusivity period for brand-name biotech therapies, she noted, should be much shorter than the 14 years advocated by the biotechnology industry.

Although savings may be elusive from many of these cost-cutting policies, the reforms are likely to gain approval by Congress and support from the new administration. Political leaders believe that tightening up the rules will allow HHS to ratchet down outlays and curb waste and abuse. And the prospect of some $60 billion in savings is much too attractive for anyone to pass up in these tight-money times.

Jill Wechsler is BioPharm International's Washington editor, Chevy Chase, MD, 301.656.4634,

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