Budget Crunch, Political Battles Shape Policy Agenda for Year

Pressure to approve new user fees opens the door to action on drug shortages, prices, and regulation.
Jan 01, 2012
Volume 25, Issue 1

Jill Wechsler
Election-year politics will play a role in a range of legislative and policy developments affecting drug development, manufacturing, and reimbursement in the coming year. Efforts to reduce government spending on healthcare are prompting all parties to search for opportunities to do more with less. Although FDA received a slight increase in its 2012 budget, limited resources throughout the public and private sectors are likely to undercut efforts to advance biomedical research and expand public health programs. These developments will drive manufacturers to look overseas for less costly and more efficient opportunities to expand R&D, production, and sales. As the campaign for the White House and control of Congress heats up, pharmaceutical and biotech companies will need to keep a sharp eye on how new policy proposals may affect product development, drug regulation, and the debate over reauthorization of the Prescription Drug User Fee Act (PDUFA).


Manufacturers backed Obamacare two years ago as a way to expand the market for prescription drugs, including a growing number of pricey biotech therapies. In return, industry agreed to pay hefty new fees as well as higher rebates on Medicaid drugs, and to subsidize the cost of drugs sold to seniors caught in the "doughnut hole" of the Medicare prescription drug program. The worst-case scenario for manufacturers now would be to eliminate the market reforms and insurance exchanges designed to expand enrollment in health plans, while retaining provisions that cut revenues and raise costs for industry.

The 800-pound gorilla in the room is the looming Supreme Court decision on the constitutionality of the Obama healthcare reform legislation. While the Justices ponder the weighty legal issues, the US Department of Health and Human Services (HHS) will continue to implement the multitude of policies and programs established by that law. The administration's working assumption is that the Affordable Care Act (ACA)—or much of it—will remain in place. Many states are moving ahead with efforts to expand health IT systems and to establish processes for determining insurance eligibility and coverage. But a Republican takeover of the White House in November 2012 would bring considerable changes in health-related programs.

Whatever the legal and political outcome, policymakers on all sides will be looking to cut payments to providers, to increase cost-sharing by patients, and to reduce benefits and services. Increased reliance on managed care plans and coordinated care programs, initiatives to reduce fraud and abuse, perennial proposals to reform the nation's medical liability system, and efforts to curb pharmacy expenditures will emerge as ways to save money without compromising care.


The drive for healthcare savings will continue to shine the spotlight on pharmaceutical pricing, reimbursement, and access. Policymakers increasingly will be looking for more convincing evidence of the value of new medicines and for new ways to reduce risk in determining coverage of new therapies. The Centers for Medicare and Medicaid Services (CMS), pharmacy benefits managers (PBMs), and other payers and insurers will question the value of high-cost therapies that appear to offer limited benefit. Payers and policymakers will face difficult questions about cost versus safety and efficacy, as seen in the debate over treatment of age-related macular degeneration with off-label use of the cancer drug Avastin (bevacizumab), instead of with its more costly formulation Lucentis (ranibizumab). Similarly, the controversy over the sharp price hike for preterm-birth treatment Makena (caproate) after it gained market control under FDA's policy for halting sales of unapproved drugs, indicates that prices perceived as excessive can override some drug-safety issues.

Payers will continue to look for more drug discounts and rebates, threatening to relegate pricey products to unfavorable positions on health plan formularies. Although the Medicare Part D drug benefit has provided seniors with access to affordable medicines, benefits may suffer as many plans boost co-pays and limit coverage for costly therapies. In Europe, government agencies such as the United Kingdom's National Institute for Health and Clinical Excellence (NICE) are opposing coverage of expensive products that lack sufficient added benefits.

Manufacturers are responding with risk-sharing programs that skew prices based on patient response to a new therapy. The claim by biopharmaceutical companies that effective treatment with expensive therapies can reduce overall healthcare costs will remain a hard-sell to the number-crunchers that regard pharmacy outlays as a discrete expenditure, rather than a way to save money.

Pressure to cut costs will drive support for the ACA provision that establishes a pathway for bringing biosimilars to market. FDA guidance on the scope of preclinical and clinical testing needed to document product comparability, if not interchangeability, will spur manufacturers of all stripes to move aggressively into the follow-on biologics field. For the program to be effective, policymakers will have to decide a number of thorny issues, including policies for names to identify these products, coding requirements for reimbursement, and rules governing patent challenges and protection.

Biosimilars are a big issue because payers anticipate hefty savings from these look-alike therapies, as has been the case with small molecules during the past 25 years. Generic drugs now account for about 80% of prescriptions in the US, and the proportion will rise further as more blockbuster brands such Pfizer's Lipitor (atorvastatin) go off patent. The wave of new generic drugs puts more pressure on FDA to speed up its process for approving new generic drugs for market. New user fees paid by generic drugmakers will help fund such efforts.

Efforts by Pfizer to retain a good portion of the Lipitor market by cutting its price and negotiating long-term deals with payers and PBMs have roiled the drug industry and pharmacy programs. These actions further spur industry critics to harp about brand-generic patent settlements that can delay when a generic comes to market and propose policies to curb those practices.

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