Revisiting Reform

Apr 01, 2011


Jill Wechsler
During the health reform debate of 2009, leaders of the pharmaceutical industry negotiated a deal with the White House to provide billions of dollars in discounts and fees that would make drugs more affordable to Americans. In return, industry anticipated a larger market for prescription medicines in an expanded national healthcare system, plus favorable policies governing R&D and marketing.

Now there's considerable uncertainty about how the Obama health reform program will be implemented, and how well the system will support biomedical innovation and new drug development. Federal courts are weighing the constitutionality of the Affordable Care Act (ACA), while Republicans challenge specific policies and curb funds needed to implement health initiatives. Many states face serious financial problems and look to limit Medicaid programs, including drug benefits. The Obama administration's budget plan for 2012 proposes added funds for biomedical research and for FDA operations, but it's doubtful that any spending increases will survive the budget-cutting battle on Capitol Hill.

Pharma companies also have to contend with the re-emergence of legislation to liberalize reimport of high-cost medicines from Canada, which has strong bipartisan support in the Senate. Stiff "Sunshine" disclosure requirements are in the works, and FDA user fees are going up.

Killing the Deal

Even worse for innovator firms are proposals in the administration's 2012 budget that aim to boost consumer access to generic drugs in order to gain some of the $54 billion needed to maintain Medicare payments to physicians. The pro-generic drug provisions together provide only a small portion of the money required to finance the Medicare "doctor fix," but the administration regards them as a viable way to cut healthcare outlays.

The administration proposes to jettison the deal in the ACA for bringing biosimilars to market by shrinking the exclusivity for innovator biologics from 12 years to seven years. That move, according to Obama's 2012 budget experts, would save about $2.3 billion over 10 years. It also undercuts the Obama administration's agreement with the Pharmaceutical Research and Manufacturers of America (PhRMA) to ante up the $80 billion over 10 years in the form of higher Medicaid rebates and additional taxes, plus subsidies on the cost of drugs prescribed to seniors caught in the "doughnut hole" of the Medicare drug benefit. In return, biopharmaceutical companies escaped federal price controls and gained stronger protection for innovator biotech therapies.

The Biotechnology Industry Organization cried that such "questionable short-term budgetary savings" would jeopardize development of breakthrough cures. PhRMA president John Castellani complained that the proposal "flies in the face" of the administration's talk about supporting "innovation, biomedical research, jobs, and US competitiveness." But Health and Human Services (HHS) Secretary Kathleen Sebelius told the House Energy and Commerce (E&C) Committee that the administration now feels that a seven-year exclusivity period will permit innovator firms to realize an appropriate return on investment, while ensuring that important new medicines are widely available and affordable.

The White House also wants to end pay-for-delay deals between brand-name and generic drug makers that affect when a new generic product comes to market. Even the Generic Pharmaceutical Association—which applauded the shorter biotech exclusivity period—joined innovator firms in criticizing the curb on settlements. Federal Trade Commission officials, however, have been pushing hard to end such arrangements, which they insist are anticompetitive and costly to consumers. And the numbers-crunchers predict that a ban on reverse settlements will save the government $540 million next year and nearly $8.8 billion through 2021.

Congressional action is needed to prohibit delay agreements, as the courts continue to rule in favor of brand-generic settlements. FTC officials suffered another setback last month when the Supreme Court decided not to review a lower court ruling that upheld a very prominent pay-for-delay case.