Costs and Benefits of Health Reform - Pharmaceutical Executive

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Costs and Benefits of Health Reform


Pharmaceutical Executive



Jill Wechsler
Last month, economists in the Department of Health and Human Services (HHS) reported a big slowdown in healthcare spending for 2010. Outlays rose only 3.9 percent to $2.6 trillion, largely because the recession and unemployment reduced healthcare coverage and prompted people to skip doctor visits. Spending on prescription drugs increased at a record low 1.2 percent to $259.1 billion, as utilization stagnated, more generics replaced old blockbusters, and fewer new drugs came on the market.

The Affordable Care Act (ACA) of 2010 is supposed to expand drug reimbursement and use by extending coverage to some 35 million uninsured and promoting preventive services, such as immunization. Equally important are a host of initiatives that promote quality care and risk-based reimbursement, beneficial to pharma marketers able to demonstrate that drug use can improve care and save money.

For 2010, though, spending on drugs by private insurers and consumers actually declined, according to analysts in the Office of the Actuary, Centers for Medicare and Medicaid Services (CMS), as reported in last month's issue of Health Affairs. Medicaid expenditures were notably flat, as higher manufacturer rebates, required by the ACA, reduced total retail drug sales.

Medicare was the only drug program that increased spending in 2010, up 9 percent largely because the government handed out $250 rebates to some 3 million Part D beneficiaries who reached the Medicare coverage gap.


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That won't be a factor for 2011, because the burden for closing the "donut hole" has shifted to industry, one of the many ACA provisions with a direct impact on pharma revenues and marketing. Manufacturers began offering discounts equal to 50 percent of the cost of drugs prescribed to seniors in the coverage gap. As of October 31, 2011, those discounts amounted to $1.5 billion for some 2.6 million seniors, primarily those using medicines to treat diabetes, high cholesterol, asthma, heart problems, and psychiatric conditions. HHS will provide added subsidies beginning in 2013 until beneficiaries have to pay only 25 percent of the cost of gap drugs in 2020.

The ACA also hits brand-name drug marketers with annual fees, which began at $2.5 billion for 2011 and will rise to $4.1 billion by 2018. The IRS issued rules in August 2011 and guidance in November 2011 for calculating each manufacturer's share of the total based on prior-year sales of brand drugs to Medicare, Medicaid, and other federal government health programs; firms with sales over $400 million a year pay the most.

Despite the high cost of the Part D discounts, richer coverage of "gap" medicines is expected to encourage seniors to continue to take prescribed drugs, instead of cutting back on treatment when they hit the donut hole. And better adherence to prescribed drug therapy is key to driving utilization and sales, provided that marketers can document value and benefits for payers.


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