Coverage Vs. Control

Pharmaceutical Executive

Pharmaceutical Executive, Pharmaceutical Executive-08-01-2009, Volume 0, Issue 0

Pressure to expand healthcare puts drug pricing, marketing, and innovation on the negotiating table.

The pharmaceutical industry faces a clear trade-off in the current healthcare reform debate. On one hand, expanded coverage for some 45 million Americans would greatly enlarge the pool of customers for drugs and medical products, and enhance compliance with prescribed treatments. On the other hand, higher rebates and regulatory modifications could open the door to price controls and erode revenues. Industry has offered up concessions to help pay the trillion-dollar cost of achieving universal coverage, with an eye to staving off even harsher curbs on revenues that could jeopardize innovation.

Jill Wechsler

While nothing comes easy in healthcare reform, devising ways to increase coverage is relatively uncomplicated. Congressional leaders have proposed broadening access to care by expanding Medicaid, requiring all individuals to obtain coverage, mandating that employers provide insurance or pay a penalty, reforming the insurance market to limit exclusions based on pre-existing conditions, and forming an insurance exchange that offers coverage options to the uninsured, including some kind of government-supported public plan.

That last item, in particular, has been a lightening rod for opponents of government involvement in healthcare. Pharma companies are alarmed over proposals authorizing government negotiation of prices for drugs covered by the public plan. While that's not as threatening as a full-scale repeal of the non-interference clause (which prevents federal negotiation of drug prices for Medicare Part D), it does open the door to a larger government role in pharma pricing. And even without a public plan, Congress is likely to establish some kind of federal health authority to make difficult decisions on payments and benefits, including medical product coverage, cost-effectiveness standards, and pricing decisions.

The Hunt for Savings

Devising a way to pay for the enormous cost of the program is even more difficult. The scope of that difficulty finally hit home in June when the Congressional Budget Office (CBO) issued a much-higher-than-expected cost estimate for reform legislation under development by the Senate Health, Education, Pensions and Labor (HELP) Committee. The draft proposal of that legislation would cost $1 trillion over the next decade, and extend coverage to only 16 million people. The Senate Finance Committee, facing an even higher $1.6 trillion CBO estimate for its proposal, went back to the drawing board to curb expenditures and identify more savings.

Meanwhile, House leaders rolled out a reform bill developed jointly by three committees: Education and Labor, Energy and Commerce, and Ways and Means. Democrats applauded its broad coverage and extensive benefits, and moved to pass the 1,000-plus-page measure as quickly as possible; Republicans predicted skyrocketing budget deficits, higher taxes, and government rationing of healthcare. Once again, CBO was the spoiler, testifying that little in the House legislation would curb federal spending on healthcare.

President Obama then went on the offensive, pressing hard for a reform bill with a $1 trillion, 10-year price tag that covers at least 75 percent of the uninsured. That proposal has expanded the hunt for every possible source of savings and revenue, putting pharma costs and coverage directly in the line of fire.

Last May, the Pharmaceutical Research and Manufacturers of America (PhRMA) joined a high-profile provider group that promised collectively to decrease the annual growth in healthcare outlays by 1.5 percent—a move calculated to save $2 trillion over 10 years. The group offered a list of "soft" savings strategies, including reducing unnecessary hospitalizations, promoting evidence-based best practices, managing chronic disease, and adopting health information technology.

Subsequently, PhRMA rolled out a plan to generate $80 billion in healthcare savings, starting with a striking proposal to give 50 percent discounts on drugs prescribed to Medicare patients who fall into the notorious Part D "doughnut hole." That proposal is attractive to reformers because it could save an estimated $25 billion off the cost of eliminating the coverage gap altogether. The discount plan was thus incorporated into the House bill's provision for phasing out the doughnut hole over 15 years. (Most biotech drugs are not affected because they are administered in hospitals or clinics, and thus covered under Medicare Part B. But as more biologics shift to outpatient use and gain coverage through Part D, the gap would become a greater hurdle.)

Drug companies are also slated to provide another $20 billion over 10 years by giving higher rebates on Medicaid drugs. Legislators propose to increase the basic rebate from 15 percent to 22 percent, extend rebates to new formulations of existing therapies, boost rebates on generic drugs, and require manufacturers to pay rebates to states for drugs provided to Medicare managed care plans.

Pharma companies had hoped the discount plan and higher rebates would defuse support for a proposal by House Energy & Commerce chairman Henry Waxman (D-CA) to impose an additional rebate on Part D drugs prescribed to low-income beneficiaries. Waxman is seeking to recoup the "windfall" gains manufacturers have enjoyed since Medicare shifted "dual eligible" seniors from Medicaid drug benefits to Part D. The additional rebate in the House bill is intended, once again, to offset the high cost of closing the doughnut hole.

Win Some, Lose Some

In what would represent a win for pharma, Congress may support biotech innovation in establishing a legal pathway for FDA approval of follow-on biologics (FOBs). The Senate HELP committee has approved an FOB measure with 12 years' market exclusivity—close to the goal of brand-name firms. That guideline will yield less savings than CBO's estimate of $7 billion to $10 billion over 10 years for FOBs with seven years exclusivity, but even a modest savings will be enough to spur negotiations and likely get an FOB measure into the final reform bill.

At the same time, policymakers may seek to encourage generics use by banning payments from brand-name firms to generics companies in order to delay competition. According to Federal Trade Commission chairman Jon Leibowitz, a curb on pay-for-delay settlements would save the federal government $12 billion over 10 years, and yield even greater savings for consumers and states. Leibowitz further supports a ban on authorized generics, but evidence that these products may actually lower drug prices could keep that issue out of healthcare reform legislation.

Pharma companies have also deflected early proposals to curb the corporate tax deduction allowed for drug advertising. Industry may be disappointed, however, with "sunshine" provisions that require disclosure of virtually all payments made to physicians and healthcare providers. Manufacturers had hoped that federal sunshine legislation would establish a national standard and common reporting requirements that would pre-empt a growing number of state disclosure policies. But that kind of relief could be compromised by opposition from Waxman and others. In its current form, the House bill permits states to enforce their own disclosure policies that differ from federal rules.

Additional reforms promise improvements in healthcare, but no real savings in the near term. For example, there is wide-ranging support for comparative effectiveness research (CER) to better inform medical treatment and ensure appropriate use of medical products, but there has been considerable disagreement over how CER should be governed and how the data should be used. (See "Comparing Costs," above.)

Yet another tricky issue for Congress to address is drug reimportation. In July, the Senate approved language in a budget bill that permits US consumers to purchase drugs from Canada through the Internet. However, it remains to be seen if the policy will make it through the whole Congress; Senate leaders may move to include an import proposal from Sen. Byron Dorgan (D-ND) in final legislation, especially if FDA devises a strategy to enhance import safety.

The important details in reform legislation will be hammered out on Capitol Hill in coming months by a committee formed to reconcile differences between House and Senate bills. Such negotiations will involve considerable horse-trading and maneuvering over health exchanges, public plans, tax reforms, and price controls, with all parties keeping a sharp eye on costs and coverage.

Comparing Costs

The push for more government funding of comparative effectiveness research has generated heated debate on Capitol Hill over how payers and insurers will utilize the resulting information. Democrats prefer to keep language on CER applications vague, while Republicans want explicit restrictions against using CER data to determine treatment and reimbursement; the alternative, they warn, is one-size-fits-all prescribing and healthcare rationing.

There has also been considerable disagreement over the structure of a CER governing body, as well as its authority. Some members of Congress propose to position a CER agency within the Department of Health and Human Services, while others prefer an independent public–private entity. Recent reports from both the Institute of Medicine (IOM) and the Federal Coordinating Council for Comparative Effectiveness Research emphasize the importance of building infrastructure to facilitate CER studies and to disseminate their findings. The IOM report lists a number of CER priorities that seek evidence comparing the effectiveness and costs of prescription drugs to other treatments. These proposals bolster those who consider cost-effectiveness a valid CER research subject.

Jill Wechsler is Pharmaceutical Executive's Washington correspondent. She can be reached at jwechsler@advanstar.com