“Rx” for the Latest SCOTUS Decision on Obamacare

Jul 23, 2015

For the second time in three years, the Supreme Court of the United States (SCOTUS) has weighed in on key aspects of the 2010 Obamacare law.  In this latest case, the Court has determined that regardless of whether or not a state has set up a State Exchange, which was a key element of the original Obamacare concept, uninsured citizens can now obtain subsidized care (http://goo.gl/yDJ0fZ).  This will occur either through the current 16 states that have their own State Exchanges, or through the federal government via HealthCare.gov (https://www.healthcare.gov/)

From a policy standpoint, this is a huge win for the Obama Administration.  It means, in the short term, the about 6.5 million Americans who are currently receiving their health insurance via HealthCare.gov in states without State Exchanges – will continue to receive it. 

Longer term, this Obamacare decision could well be the end of major SCOTUS challenges to the new law.

But from a broader business viewpoint, where does this latest decision leave the American Rx industry?  Here are a few top of mind thoughts…

The Increasing Power of the Federal Government in Rx Purchasing

Certainly one of the more interesting aspects of this ruling would seem to be the logical conclusion that now that the federal government has a SCOTUS-approved capacity to provide healthcare, nationwide.  In effect, the decision creates the feds as a “big dog” in healthcare insurance with about 41% of the American insurance market under its wing (http://goo.gl/g0N0vG).

Given this, and the fact the healthcare prices will continue to rise, what is there to stop the Administration from gradually, or perhaps quickly, asserting that one simple way to control these spiraling public healthcare costs is to establish price controls and access restrictions on prescription drugs?  As it stands now, Rx’s are increasing their prices at about 11% a year clip (http://goo.gl/cigQlm).  What will happen to these prices under the now universally available HealthCare.gov

We shall see…

Will State Exchanges Continue?

Right now, the 16 existing State Exchanges are just beginning to understand the policy and financial ramifications of the new law (http://goo.gl/v4BnPa).  A couple of these states, Hawaii (http://goo.gl/KaLJe7) and Washington State (http://goo.gl/y79PVY ), are currently struggling with  overhead issues that may cause them to shut down their State Exchanges, while several others are experiencing other serious problems as they attempt to manage their programs (http://goo.gl/luDkE5 ). 

Following this ruling, you have to ask yourself, why in the world would any of these states continue to deal with the administrative hassle and financial pressures associated with running a State Exchange when they can now just throw it all over on HealthCare.gov?  Good question. 

And if that were to happen, what can the Rx industry anticipate from the former State Exchange programs that end up in HealthCare.gov?  Well…as stated above, that probably presents some interesting prospective pricing and access issues going forward.

What Happens to Medicaid Expansion?

Under Obamacare, millions more Americans can now access Medicaid, which includes access to pharmaceutical care.  The states continue to be responsible for a substantial percentage of these expanded Medicaid costs (http://goo.gl/awRqf5) which could end up being very expensive.  However, the argument has been made that this newly expanded access to Medicaid will actually lower state costs since the impact of uncompensated care will drop substantially (http://goo.gl/DE0X7U). 

Indeed, the President has now said with this latest SCOTUS challenge decided, there’s no reason for all of the other 34 states to adopt this apparently cost effective Medicaid Expansion (http://goo.gl/DjhnHY).

That may be, but one angle of the law that no one seems to have anticipated is the impact of Rx innovation and the additional costs that those discoveries can drive. 

For example, the revolution in Hep C care, a major health issue among Medicaid patients, is “busting” the Medicaid Rx budgets in numerous states.  The result?  The states are struggling to control these unforeseen Rx advances in any way they can and some of these solutions to the impact of Rx innovation already seem a bit odd.  

For example, in California, the arrival of the Rx’s Sovaldi and Harvoni have caused the state government to place an additional $300 million dollars in funding into the state’s 2015/2016 Medicaid program, “MediCal” (http://goo.gl/tXhfqV).  That’s a huge number, but a number that is more interesting when you consider that’s the same amount that California has allotted for spending on its state parks and the state’s important drought relief program. 

Beyond the Hep C issue, you have to ask, what happens when the next wave of high tech, high cost cancer and multiple sclerosis Rx’s hit the market and state Medicaid agencies face the pressure of paying for these products under expanded coverage under Obamacare?

It’s hard to say at this point, but over the years, the states have resorted to very creative approaches to control increased Medicaid Rx costs.  Solutions have ranged all the way from “just say no”; to the draconian uses of prior authorization and step care, as well as other managed care stratagems; to limiting a prescription to just one full course of therapy…So, I would anticipate much the same will happen with Rx availability under any Obamacare Medicaid Expansion that may follow this decision. 

American Rx Pricing

This SCOTUS decision does come at a very interesting moment for American Rx pricing.  The hubbub over Hep C and cancer Rx pricing has succeeded in pulling the 1990’s scab off of the old “Let’s get Big PhRMA” wound.  The Rx industry is now sustaining regular calls for federal pricing investigations, mandatory relinquishing of Rx patent rights, and demands that private, independently directed “cost effectiveness evaluations” of cancer and other drugs should establish pricing floors for a company’s products (http://goo.gl/uBY8zv).

Mix in these publicly debated pricing developments with the likely expansion of HealthCare.gov control over Rx access, and you don’t have to be a genius to see which way the wind is blowing for the American Rx industry.

The Impact of Obamacare on the Private Market

Several have argued that, in fact, the broader Rx healthcare revolution is not taking place in the Obamacare public sector…but rather it’s occurring in the private sector where private exchanges have revolutionized multiple aspects of the healthcare, including access to prescription drugs.

I would not quibble with that, especially when you consider all of the PBM/private corporation deals that have led to various levels of restricted drug care & access over the last five years (http://goo.gl/z4pocV).

However, you do have to wonder that as a result of this latest SCOTUS decision, that enables HealthCare.gov to be utilized everywhere, are we not, at long last, actually moving towards a true nationalized healthcare program in the United States?

And if that is in fact true, why would private companies, particularly those who are employing large numbers of minimum wage workers, continue to offer private insurance to their employees through their firms?  Why wouldn’t they simply determine that financially, it would make much more sense to direct employees into the less expensive HealthCare.gov and provide the employees with private grants for the purchase of basic HealthCare.gov services from the feds?

And if that trend were to pick up steam, where would the American pharmaceutical industry come out in all of this?  Probably, for the innovators, it would not be a very good place.  Consider this: If private employer insurance withers away, who will pay for US Rx innovation?

 Summary

So what’s the “Rx” for the U.S. pharmaceutical industry as a result of this latest SCOTUS decision on the 2010 Obamacare Act?

  1. First, and importantly, I think it’s pretty clear that despite Republican claims to the contrary, Obamacare is here to stay and the U.S. Rx industry must deal with that fact.
  2. I also believe the true significance in the Court’s determination is that HealthCare.gov can now legally take the place of State Exchanges.  In essence, the State’s controlling position in the earlier SCOTUS Obamacare decision now seems to have been thrown into the trash can.
  3. The above fact suggests that the gradual and eventual fading away of the State Exchanges will occur, while the evolution of HealthCare.gov, in time, may well lead to a bona fide U.S. National Healthcare program.
  4. If I am correct on this last point, I also see a revolution in private healthcare ahead.  The trend will be to move employees away from private health insurance, and create ways to induce employees into the public Obamacare programs.  Financially, for the private firms, it’s a no brainer.
  5. And if all of this is in fact true, I can see no way that the vibrant US innovator Rx business will not soon come under significant pricing and access pressure…and all that may portend for the future of the American drug industry.

Tom Norton is principal at NHD Smart Communications. He can be reached at [email protected]

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