The Big Reset - Pharmaceutical Executive


The Big Reset

Pharmaceutical Executive

The Healthcare Reform Epidemic

—Michael Russo, Bruckner Group
When the dust settles on the sound and fury of healthcare reform, the actual legislation should remain pretty painless for pharma—at least for a few years. At press time, PhRMA president and CEO Billy Tauzin, who negotiated the trade group's controversial $80 billion, 10-year "back-room deal," predicted that Congress would pass a bill in time for the president's State of the Union address in late January. "But first, the Democrats will do a lot more work in terms of closing the hole in the [Medicare] doughnut," he says. In order to prevent further compromises, the industry is reportedly willing to add $25 billion more in discounted drugs to close the hole.

Even so, the industry's decision to play ball has resulted in a winning record. The legislation preserves the status quo—flexible drug pricing—blocking consumers from importing drugs from Canada and the federal government from negotiating Medicare Part D prices. In the provision mandating FDA to establish a regulatory pathway for biosimilars, pharma scored 12 years of market exclusivity for innovator products.

Yet the bill's long term effects are likely to be transformative. By expanding and improving private insurance, the healthcare overhaul is likely to jack up drug sales. Some 31 million more Americans will have access, lifetime caps on insurance will be removed, copays may be more predictable, and coverage for vaccines and other products will be increased. According to some estimates, it will only take four new monthly prescriptions per year per newly insured life to cover the cost of the $80 billion deal.

But not all the math goes in pharma's favor. To pay for the $871 billion overhaul, the bill mandates a total of $480 billion cuts over a decade in Medicare payments to providers. Big Pharma price gouging, critics say, will be the likely first target, if only because reducing waste and inefficiency caused by hospitals, physicians, and consumers has so far proven politically unpopular. "I look at pharma's 80-plus percent margins and know that there is not another industry alive that depends so heavily on government purchasing," says Sherrill Neff. "That margin level is simply unsustainable."

In addition, PhRMA's deal with elected officials appears to have secured the industry a victory against price controls and other key issues without making its "protect innovation" case relevant to the public. Future concessions, if not reversals, seem certain. "By not promoting discussion of the central issues of healthcare reform, pharma missed the opportunity to show how drugs are cost-effective," says Aitken.

The healthcare reform bug is proving contagious in the EU, too, as budget deficits cause governments to "bend the curve" in spiraling spending, says Fabio Pammolli, professor of economics at the University of Florence, and a advisor to the WHO on pharma regulation. "Reforms will shift more of the cost burden from government to the private sector—employers and consumers," Pammolli says. As a two-tiered healthcare system emerges, degrading the time-honored social ethic of equal access for all, the public outcry will force governments to narrow the gap—and the easiest target to hit for more savings will be drug prices.

Pammolli also expects 2010 to feature a jump in pharma/payer pay-for-performance agreements, such as Celgene's recent offer to pay Britain's National Health Service (NHS) for its $6,000-a-month multiple myeloma drug, Revlimid, for patients who stay on it longer than two years.


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