Rebates and Reform

Aug 31, 2011


Jill Wechsler
The push has begun for new policies to "improve" the drug approval process as all sides gear up to reauthorize prescription drug user fees next year. There's much talk about spurring biopharmaceutical innovation, but industry fears that cost-cutting efforts by the Obama Administration and Congress will curb resources for the FDA and further squeeze drug reimbursement.

After a year of consultation with all parties, regulators and manufacturers reached agreement for renewing the Prescription Drug User Fee Act (PDUFA) this past spring, on track to transmit the plan to Congress next January. The current user fee program expires September 30, 2012, and a new program has to be in place before then for FDA to be able to continue collecting industry payments, which now support some 60 percent of the cost of assessing new drugs and biologics.

Fighting Rebates

One of the most contentious proposals is to impose price controls on Medicare drug benefits, here in the guise of rebates on Part D drugs, specifically those medicines consumed by low-income seniors who previously obtained drugs from state Medicaid programs that negotiate rebates with manufacturers. The shift of those "dual eligibles" to Part D plans eliminated some of those rebates, and industry critics led by Rep. Henry Waxman (D-Calif.) have been pressing to recoup this pharma "windfall" for several years.

The Congressional Budget Office (CBO) estimates that rebates on drugs for some 10 million seniors who receive low-income subsidies under Part D would save $112 billion over the next decade, or $10 billion a year. That's too big a number for the budget-cutters to ignore.

John Castellani, president of the Pharmaceutical Research and Manufactures of America (PhRMA), is fighting rebates with data showing that such a policy will prompt biopharmaceutical companies to shift operations—and US jobs—overseas. A Battelle study for PhRMA calculates that a $10 billion hit on industry revenues would kill 130,000 high-paying jobs—not good for reducing unemployment.


Down with IPAB
At a press briefing in July, Castellani explained how the biopharmaceutical industry has thrived in the US due to pro-innovation policies. Now the Europeans are offering incentives to get this industry back, while Singapore and other emerging economies have identified pharma as critical to their economies. Merck president Kenneth Frazier similarly observed in a Wall Street Journal op-ed (July 13) that the designation of the US as the "medicine chest to the world" will be undermined if the federal government imposes price controls on Part D and establishes the Independent Payment Advisory Board (IPAB; see sidebar).

The rebate plan, moreover, could destabilize Part D, which has been a huge success in cutting the cost of medicines for seniors during 2006 to 2010, according to another report for PhRMA by the IMS Institute for Healthcare Informatics. At the same time, CBO calculates that the total cost of Part D is 41 percent less than its initial estimates, partly because plans have negotiated hefty discounts from manufacturers. Most important, increased use of prescription drugs due to Part D significantly reduced Medicare spending on hospital and nursing home care, reports a separate study published in the Journal of the American Medical Association (July 27).