Commentary: Healthcare Reform is Ruled Constitutional

What's next for biotech?
Jun 29, 2012

The main result of the Supreme Court decision upholding the Affordable Care Act (ACA) is that it ends all the rampant speculation and uncertainty about the future shape of the US healthcare system. Now healthcare providers, insurers, medical products makers, and government agencies can move forward with the complex process of establishing new programs and policies to expand coverage to millions of Americans. Patients can expect more coverage options and improved access to care, including prescription drugs.

The much-anticipated ruling produced an audible sigh of relief from the healthcare industry, even those parties that would have preferred to see much of the program disappear. For pharmaceutical and biotechnology companies, the decision means that FDA can continue to implement the new biosimilars program and that industry will continue to pay higher Medicaid rebates and provide discounts to Medicare patients who reach the Part D doughnut hole.

In return, some 33-million more people will gain help in paying for drugs and medical products over the next decade through health insurance exchanges and expanded state Medicaid programs. It is this anticipated market increase that prompted the pharmaceutical industry to support the Obama administration’s healthcare reform initiative three years ago and agree to provide more than $80 billion in fees and rebates to support the program. Pharmaceutical companies also have to pay hefty excise taxes, a requirement opposed by medical device makers, who are pushing for repeal of a $30-billion tax on their industry over the decade.

The court ruling “essentially results in status quo for the pharmaceutical industry,” observed attorney Christie Bloomquist of Hogan Lovells, formerly with AstraZeneca. She anticipates that the pace of  implementation will shift into high gear now that the path is open to establishing health insurance exchanges and other ACA policies.

Patient groups, including the National Health Council, the National Organization for Rare Disorders, the Arthritis Foundation, and the Catholic Health Association, cheered the ruling. They anticipate greater access to coverage and preventive care through the elimination of lifetime caps on coverage, an end to denial of coverage for pre-existing conditions and expanded coverage of high-cost drugs for Medicare patients. The decision also will encourage more comparative effectiveness research under the auspices of the Patient-Centered Outcomes Research Institute, which is authorized by the ACA.

Similarly, the American Medical Association and medical professionals of all stripes applauded the prospect of broader coverage and increased demand for medical care.

Yet pharmaceutical companies and some providers continue to press for eliminating the Independent Payment Advisory Board (IPAB), which they predict will lead to price controls. At a recent seminar on biomedical innovation sponsored by the Brookings Institution, Amgen chairman Kevin Shearer described IPAB as “a really bad idea” that could derail biotech product development. Jim Greenwood, president of the Biotechnology Industry Organization (BIO), said that IPAB “threatens patient access to needed cures and medical breakthroughs.”

Medicaid uncertainties
Although the High Court declared the individual mandate constitutional, it curbed the requirement that states expand Medicaid eligibility or face a loss of federal Medicaid funds. The Justices supported the program expansion, but limited the penalty for states that choose not to comply. States that decide not to expand eligibility would lose only the additional payments for broader coverage, and not all federal Medicaid funding. It’s not clear how states will respond to this more flexible option. Even if they decide on expansion, though, legal experts believe that the Medicaid decision has the potential of imposing more long-term limits on the growth of federal social welfare programs, and may end up having a significant impact on government initiatives and future court decisions.

In addition to deciding whether or not to expand Medicaid programs, states face the enormous task of establishing insurance exchanges, overhauling health IT systems and implementing a host of ACA provisions. A majority of states had put a hold on these activities pending the Supreme Court decision and now have to decide whether and how to move forward. HHS officials have been busy implementing multiple ACA policies and handing out grants to states and providers to support adoption, but much heavy lifting remains to be done before 2014.

Overall, the decision to uphold the constitutionality of the ACA is a major political victory for the Obama administration. In ruling that the individual mandate is a legal tax and that individuals can decide to pay the tax instead of purchasing health insurance, Chief Justice John Roberts took a step that will intrigue legal scholars and Supreme Court experts for years. In rejecting the Commerce Clause as the basis for expanding health coverage, though, the Roberts ruling may place significant limits on future federal government expansion. Roberts’ decision to side with the liberal wing of the court, and oppose his conservative allies, most likely will color relations on the court for the rest of his term.

The future of health care in the US now depends on who controls the White House and Congress after the November elections. Republicans have pledged to dismantle Obamacare if they win in November, and health reform will be a prime campaign issue; many Americans feel negative about the mandate and other reform provisions. Reform advocates won a major battle, but the war over healthcare continues.