Six months after the passage of landmark health reform legislation, industry has completed its preliminary assessment of the
impact on drug revenues and margins. As we move toward full implementation of the law, price and access pressures will be
a particular challenge in the specialty care segment (defined as those products routinely prescribed by specialist physicians)
due to its relatively expensive procedure and pricing base as well as the pace of individual product cost increases—overall,
this makes the class a big target for payers.
The combination of increased Medicaid rebates, $340 billion in coverage, Medicaid managed care, donut hole liabilities, and
the industry tax are now largely understood. Individual companies have announced their revenue exposures from these changes
for 2010 (see chart).
Estimated impacts over the next two to three years are higher still (for example, $900 million in 2011 and another $800 million
in 2012 for Pfizer alone). More importantly, the outlines of several key pieces of the legislation are beginning to take shape,
including indications from FDA as to how follow-on biologics will be reviewed, PCORI (Patient Centered Outcomes Research Institute)
leadership appointments, and some insights as to where the CMS innovation projects might focus.
Where does that leave specialty care? Products and services in this segment can expect more scrutiny, and more than their
fair share of price pressure. The utilization of specialty tiers will become more widespread, and, as companies increase co-pay
support in the private plans, pharmacy benefit managers (PBMs) will inexorably increase the size of these copays. Most importantly,
the legislation creates a powerful Independent Medicare Payment Advisory Board (IPAB) that will have enormous influence over
future coverage decisions for the public plans.
PCORI has potential as an important player in shaping the access climate for specialty drugs. While it will not have the administrative
power to drive reimbursement like the UK National Institute for Health and Clinical Excellence (NICE), it will play a crucial
role in establishing a permanent institutional platform for using formal comparative effectiveness tools—if its recommendations
are credible with payers and the prescribing community.
The recent announcement of PCORI leaders is encouraging. It includes people with experience in conducting comparative effectiveness
research and broad representation from physicians and patients. Unlike its predecessor, it is not dominated by public sector
payers, and includes industry representatives. The Institute of Medicine recommendations for PCORI are encouraging as well.
They suggest taking a broad view—comparing surgical interventions to drugs, health system changes, etc., and not focusing
exclusively on drug-to-drug studies.
IPAB, the vehicle for cost controls, has extraordinary administrative power (its recommendations become law barring an act
of Congress) and unrealistic cost control targets (keeping Medicare inflation at CPI +1). Worse yet for the specialty care
business, primary care physicians are promised increased rates, while IPAB is prohibited by law from proposing cost controls
on hospital or long-term care facilities until 2020.
If we are going to achieve IPAB targets, increase payments to primary care physicians, and hold hospitals harmless, then where
do we find the resources to pay for the expansion of health insurance for 32 million people? One key customer group, specialist
physicians, appears vulnerable. Unlike hospitals and primary care physicians, there is nothing in the new legislation that
protects their status or income. Many such physicians rely heavily on income from specialty infusion drugs dispensed and administered