March 23, 2010
In the long run, reforms mean less risk, lower rewards for pharmas
In broad strokes, the healthcare reform bill that the president signed this noon holds much the same promise for pharmas as an SSRI does for depression or bipolar patients: less high highs, less low lows, more certainty and stability. It's hardly a cure-all, and it will probably cause some unpleasant side effects, but on the whole, it will lend a steadying hand to an industry in crisis.
It looked very different just a few weeks ago, when news of Billy Tauzin's retirement from PhRMA was widely interpreted as a rebuke of his détente with the White House, but today, Tauzin's strategy looks smart. In exchange for its cooperation and $90 billion in cost-savings to Medicare, which will go mostly to close the Part D “donut hole,” PhRMA secured a seat at the table and a bill that's broadly favorable to the industry's interests.
For so sweeping a piece of legislation, it's pretty conservative, preserving the primacy of private enterprise in healthcare provision. But the bill, like the Medicare prescription drug benefit before it, draws government deeper into the business of regulating and paying for health services. In the long run, that means much greater downward pressure on branded drug pricing. It's the tradeoff for an expanded customer base – lower risks, lower rewards.
The legislation aims to extend health insurance coverage to 30 million Americans, and that means 30 million more people going in to see doctors and potentially leaving with prescriptions. It establishes a path to generic biosimilars – a nice long path that grants biologics manufacturers 12 years market exclusivity before they have to face a generic competitor. It enacts legislation mandating reporting of physician payments that the industry has signed off on.
Perhaps most importantly, it helps to address the larger access and affordability issues that have driven drug companies to new depths in public esteem over the past few years, in the process diminishing the industry's influence on healthcare policy and making it vulnerable to political point-scoring.
As Pfizer chief Jeff Kindler, a key healthcare reform proponent within the industry, put it in a 2009 speech: “A belief that our prices are too high, that we run misleading advertising, and that we care more about playing golf with doctors than about helping them understand our medicines — all of this has earned our industry a reputation near the bottom of all American institutions.”
Business, Kindler said, needs to win back the public's trust. “If we fail, then the real and legitimate anger that so many are feeling could lead to policy changes that could damage American competitiveness and put our country's long-term prosperity at risk,” he said.
Independent Payment Advisory Board
Now for the fair balance: while the industry was able to fend off provisions allowing importation of drugs and imposing direct government price controls, PhRMA failed to get prescription drugs exempted from the purview of an independent board that will have broad powers to impose cost controls on Medicare. The 15 Independent Payment Advisory Board members, appointed by the president, will recommend specific spending reductions, and their recommendations will become law unless Congress passes a bill making alternative cuts. In an otherwise laudatory release hailing passage of the bill through the House, PhRMA vowed to work with Congress “to address these concerns and to identify ways to contain medical costs without creating new barriers to quality healthcare.”
Closing the donut hole
The industry's other big concession was to agree to $90 billion in cost savings to Medicare, but that will come, for the most part, in the form of a fix for the Medicare prescription drug benefit that the industry pushed furiously for in 2003. The fix closes the “donut hole,” a coverage gap in the Medicare Part D prescription drug benefit by which participants spending between $2,830 and $4,550 suddenly lose coverage. Seniors who fall into the donut hole this year will receive a one-time $250 rebate. Next year, the drug industry-financed 50% discount kicks in and increases to 75% by 2020, with government making up the difference.
The legislation grants manufacturers of biologics 12 years data exclusivity and treats biosimilars not as generics but as essentially new drugs, requiring that would-be manufacturers perform clinical trials demonstrating safety and efficacy. That's a huge victory for pharmas, considering that biologics comprise many of the most expensive and highest-margin medicines today. It's a stinging defeat for Rep. Henry Waxman, who had sought to limit exclusivity to the five years afforded small molecule drugs, and, the industry would argue, a tacit acknowledgement that the costs of such drugs reflect the enormous costs and risks of developing them.
Physician Payments Sunshine Act
The legislation includes the Physician Payments Sunshine Act, authored by Sen. Herb Kohl, requiring that drug, device and biotech companies report gifts, compensation or other things with a value of more than $10, given to medical professionals and institutions. Companies are to begin recording payments in 2012 and must begin reporting in March 2013. Violators can be fined between $1,000 and $10,000 per slip-up, and $10,000 to $100,000 per incident for willful misreporting. Manufacturers must also submit separately to HHS information on drug samples disbursed. Many companies have indicated their support for the legislation, following negotiations with Sens. Chuck Grassley and Kohl, and are already reporting payments to physicians.