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Avoiding healthcare reform is not the best option for the pharmaceutical industry.
Healthcare reform is coming. That is good, because our current system is chaotic, inefficient, and most importantly, leaves too many people unprotected. And yet, though I believe strongly in the need for universal coverage, I do worry that any reform will hurt the drug industry's ability to innovate.
Ian Morrison, however, has a different perspective. A self-described futurist who has studied healthcare systems around the world, Morrison outlined four potential paths for US healthcare reform in his keynote address at the PDA Annual Meeting in April. And although none of the four options is rosy for the industry, some are better than others.
In two of them, public insurance provides most coverage. In the first of these, which Morrison calls "Sliding toward Australia," we move away from employer-based coverage to a government system of basic care, supplemented by private coverage. However, if the poor economy continues through 2011 and early healthcare reform efforts stumble, Morrison says, we could see a second scenario in which new legislation opens up Medicare to 95% of the population, followed by massive cost cutting. For drug manufacturers, he says, this would be a "nuclear winter with little hope of spring."
In the other two possibilities, private insurance continues to predominate. The first is what he calls "the Obama boom." This scenario assumes that the stimulus plan works and we see GNP growth by early 2010. The resulting bipartisan healthcare package would be a variation of Massachusetts-style reform that adds a massive investment in healthcare IT, comparative effectiveness programs, and a phased-in mandate for individual coverage along with guarantees that insurance programs cover everyone. There would be no new public plan, and employer-based coverage would still be the norm.
The last scenario is what he calls "No we can't." The safety net would be increased for the most vulnerable, but there would be no significant coverage expansion. Essentially, this is the status quo.
So why is the status quo not the best option for the drug industry? The reason, Morrison says, is that it will become increasingly unsustainable. Out-of-pocket costs will continue to rise, and although most big employers will continue to offer health benefits, employees will bear a higher portion of the cost. Many small employers will abandon coverage. The number of uninsured will reach 60 million. As the pool of people able to pay declines, the growing pressure will lead to "ruthless cost management" in the industry to maintain margins. Thus, according to this analysis, the least of four evils in healthcare reform is the Obama administration's plan.
Assuming that scenario goes forward, I hope policy makers focus on reforming the healthcare system, rather than making superficial fixes like cutting drug prices. Too often, drug prices become a popular target because people focus on what they see: their out-of-pocket costs for prescriptions, even though drugs comprise about 10% of the overall cost of healthcare. Most people don't see the waste of poorly performing hospitals, the disproportionate expenditure on well-reimbursed medical procedures, or the 25–30% more we spend in healthcare administration compared to countries with a single-payer system.
All healthcare systems are an ugly compromise, Morrison says. I just hope that in our effort to find a better compromise than the one we have now, we don't decimate pharmaceutical innovation.