The First Day of Obamacare: Is US Pharma Ready?

For more than three years, the US pharmaceutical industry has known that today would arrive. So this is it. The first day that eligible U.S. citizens can sign up for Obamacare - and enjoy the prospect of prescription drug insurance, effective January 1^st, 2014.

I have spent the last week surveying many Rx colleagues on their attitudes towards the startup, their preparation for the event, and their overall outlook on what the launch of Obamacare will mean to their companies.  I have kept all of these observations at the 30,000 foot level, but even from this height, I think you’ll find several of the insights interesting and perhaps even provocative.

What’s the mood inside your firm regarding Obamacare?

From my conversations, I would have to say that the mood for the vast majority of the Rx industry is one of anxiety.  Generally, they say there is just too much uncertainty and no way to really plan for its implementation.  That said, there are those companies that feel quite confident in their Obamacare preparations and indicate they are ready to deal with whatever the new law throws at them.  Below are some key points on this issue of “mood”:

• Not one person that I spoke with has actually seen a formulary from any of the many participating insurance plans that will be offering pharmaceutical options to the public on Oct. 1st.  Many companies have probed the plans, but so far, none report any publicly available information on this essential aspect of those programs.  Several, however, did say due to their product mixes, they were confident that they will be included on several Obamacare formularies around the country.

• Most say, because of all the uncertainty, they just want to get past this first year of Obamacare.  This is because it’s clear that HHS will not be rolling out anything like full programming for 30 million new lives next year.  In fact, this past week, the agency announced a ‘soft launch’ of maybe 7 million for this first year, with some saying it will be more like one or two million sign ups.  So, if the program launches on those terms, several in the industry reported that they expect negligible to zero market impact from Obamacare in ‘14.  From their standpoint, they look forward to 2015 and successive years to see what the “real” Obamacare will look like.

• Beyond that, the administrative ‘ambiguity’ of Obamacare is said to be maddening.  Although everyone knows the program will eventually move forward, the fact that HHS’ rules, delays, and exemptions are constantly changing makes planning for product sales or marketing nearly impossible.  Many complain that the law’s essentially “political” nature is also skewing any kind of traditional market development strategy.  Several reps stated that it was just very difficult keeping up with “all the twists and turns” in the environment.  As one person put it, “Overall, I guess we won’t know what we don’t know … until we get there.”

What do we understand at this point?

Moving beyond all that we don’t understand, were there aspects of the program that these Rx industry professionals did understand?  Yes, there certainly were:

• First and foremost, several mentioned the clear and growing importance of ‘comparative effectiveness’ in all that they are doing. But while they are comfortable with the importance of Rx efficacy generally, I was told that they are also hearing many insurance offerings under Obamacare are emphasizing cost of care reductions over the quality of care, i.e., potentially the “comparative effectiveness” of Rx indications won’t matter.  They found this discouraging.  This immediate rush to the bottom of medical delivery cost was viewed as “chilling” from the Rx industry point of view.

• Given this, there is clear consensus that once Obamacare does get its act together, the “lower metal” formularies (Bronze, Silver) will rely heavily on generic offerings, with some estimating the generic formulary percentages could be as high as 90% for primary care products.  The fear expressed is that once these “skinny” formularies take hold, it’s hard to see how brand name innovator products will find their way into any level of formulary reimbursement, excepting perhaps the more expensive “platinum” programs which few feel Obamacare participants will utilize.

• Given responses like the above, it is also not surprising to hear that reportedly some insurance plans have made their first inquiries about the level of rebates that companies would be willing to offer for inclusion in their Obamacare program.  Apparently the rebates being probed were similar to those currently being accorded to commercial and Part D insurance offerings.

• Another point that was mentioned was that the old idea of “wholesale” selling of Rxs to “mass markets” is a thing of the past under the new law.  In the future, “retail” selling to “individuals” (those accessing the Obamacare exchanges) will be the way that sales success is achieved, and this is a dramatic change.

So structurally, companies do seem to have a general idea of how many essential aspects of Obamacare will work.

How have companies been preparing for this day?

So how have Rx companies prepared for today?  Several different strategies are being employed.

• In preface to passage of the law, most companies reported that they spent a lot of time actively protecting their therapeutic turf in the actual language and rules of the law. This, of course, is not surprising. 

• What is surprising is that more than a few firms reported that the intensity of their implementation planning really did not kick in until the Supreme Court decision was made last year in 2012. One Rx rep expressed lingering “corporate shock” at the Court’s determination that the law should stand, but that planning has proceeded since then.

• Most indicated that they have effectively set up 50 state monitors across the country.  Some are utilizing a combination of company lobbyists, product managers, and marketers working as teams to not only establish relationships with all 50 state & federal exchange insurance plan managers, but also to respond to various decisions the states and plans may make. Humorously, a few reported that at this point, most of these state outreaches were turning out to be little more than social calls - since nothing of substance on the question of Rxs has been decided.

The future of brand name Rx research and development under Obamacare?

At the end of each discussion, I asked what they thought would happen to Rx R&D after October 1st.  The range of response went from the hopefully optimistic –to the utterly grim.

• On the optimistic side, people spoke about how this new program could work out for industry “if” industry genuinely embraces comparative effectiveness and truly modifies its R&D efforts to generate only those comparator products that completely differentiate themselves from anything else that is currently on the market.  They stated they believe this approach could play into industry’s hand if it is robustly adopted.

• On the more middling ground, several pointed out that if a new drug breaks new ground, then the question boils down to pricing versus the volume of Obamacare patients who will actually utilize the product.  For these people, the fact that insurers were beginning to probe possible rebates was viewed as “fairly positive.”  They said their companies have found their way through the rebate thickets of commercial managed care and Part D programs and they saw no reason why they could not do the same with Obamacare.  Therefore, their position was that innovator drugs would have a place in the formularies of Obamacare, just as they do today on commercial and Part D formularies.

• On the down side, many indicated the long term outlook for future R&D was extremely negative.  In sum, they viewed the constant downward pressure on costs that they anticipate Obamacare will exert via insurers, ACOs and hospitals will “take the air out” of the argument for breakthrough Rxs.  They say no one at HHS or in the states will care if a new drug offers a substantial therapeutic advance - if it costs tens of thousands of dollars a year to administer.  Generally, from this point of view, the American innovator drug industry begins a precipitous slide into oblivion, starting October 1^st.

In sum then, a fairly clear dichotomy exists between those Rx firms expressing uncertainty and angst about Obamacare, versus those that are exuding tempered optimism.  This makes some sense at this point since understanding how Obamacare will play out is completely speculative and each firm is currently generating its own hoped for outcome.

About all we can really say with full certainty is that there is much to be watched and evaluated. At the same time, there is no denying that the government will unleash powerful, new sales and marketing forces that every company must manage.  So, regardless of where you and your firm stand on the new law, October 1^st is the point where the gates swing open, and the future of the American Rx industry meets the reality of Obamacare.

Is US Pharma ready for this?  We shall see.

Tom Norton is principal at NHD Smart Communications. He can be reached at tnorton@nhdcomm.com