Challenge and Challenges - Pharmaceutical Executive


Challenge and Challenges

Pharmaceutical Executive

The first order of business for many Democrats is to simplify and centralize the Part D program. Pharmaceutical manufacturers lobbied for the competitive approach to avoid creating a central Medicare formulary that would provide a coverage and cost model for the broader healthcare market. Insurers thus have crafted plans with noticeable differences in formulary coverage, copayments, and premiums. And although the resulting variation has expanded choices and contained outlays, the program has also confused seniors and created disparities in beneficiary costs.

According to the Boston Consulting Group, allowing direct price negotiations by the HHS secretary could cut manufacturer revenues by some $10 billion to $30 billion, depending on whether insurers and pharmacy benefit managers demand the same low prices set by Medicare. But the real impact of direct government price negotiations is unclear. There isn't much room to negotiate lower prices for drugs that have no therapeutic alternatives, or for products in classes where Medicare requires coverage of all medicines. Manufacturers may be reluctant to accept a low price that would extend to the broader market, but it will be difficult to resist selling a chronic care therapy to the huge Medicare population.

Another strategy for curbing Medicare drug outlays is to require manufacturers to pay rebates to CMS. This could start with reimbursement for drugs provided to dual-eligible seniors enrolled in Part D plans, those low-income beneficiaries who previously obtained drug coverage from state Medicaid plans. Switching these patients to Medicare drug benefits has reduced pharma Medicaid rebates and raised manufacturer revenues. Congressional leaders would like to reverse that shift.

Imports and Generics

Democrats and Republicans alike have looked to reduce drug prices by making it easier to re-import drugs from other countries. Obama offers the usual caveat that the medicines coming in must be safe and effective. But taking steps to ensure product quality appears to limit potential savings. Several state and local drug import programs have been dropped because of high costs and low consumer interest, and extending drug coverage to seniors has removed a large pool of customers for reimport programs.

What may be more palatable for the new administration is to make generic drugs more readily available to patients and payers. At the annual meeting of the Generic Pharmaceutical Association in September, Obama health policy adviser Dora Hughes said that reducing barriers to generic drug use should be central to health reform efforts. Hughes voiced support for curbing reverse payment agreements, and backed legislation that would allow FDA to approve generic versions of biologics. But she said that the market exclusivity period for brand-name biotech therapies should be much shorter than the 14 years advocated by the biotechnology industry.

Although the savings from many of these cost-cutting policies may be elusive, they are likely to gain support on Capitol Hill and in the White House. Political leaders believe it's possible to ratchet down outlays to Big Pharma without undermining R&D, and the prospect of saving some $60 billion in the process is too attractive to pass up.

With Democrats extending their control in both houses of Congress, pharma is bracing for additional regulatory measures that may squeeze prices and operations even more. Industry anticipates bills to limit direct-to-consumer advertising and to require greater transparency in sales and marketing activities. A top Congressional priority is to expand FDA oversight of imported medical products and foods, a move that industry supports. But any FDA legislation will provide a vehicle for enacting additional drug safety and marketing measures.

Jill Wechsler is Pharmaceutical Executive's Washington correspondent. She can be reached at


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