How to Fight Medicare Reform

Now that the House of Representatives has made good on Democratic campaign promises to repeal the noninterference clause of the Medicare drug benefit and mandate the government to negotiate drug prices, industry attention is focused on the bill's chances of surviving a veto. But rather than sit back quietly while the industry is made a scapegoat for Medicare Part D's shortcomings, strategists are advising pharmaceutical leaders to move into action mode.

Pharma should publicize--gingerly, given its low ratings in most polls--what it's already doing to help beneficiaries. "There's a huge education role," said Ted Sweeney, a partner at PriceSpective, a pricing strategy firm. "[But] the industry can be easily miscast. There are benefits that the industry has brought to society that are hard to communicate."

In a recent bulletin on the H.R. 4 bill, PriceSpective urged the industry to expand its extensive patient-assistance programs and not be shy about promoting the fact. "It's not price by itself [that's behind H.R. 4]--pricing is a component," said Sweeney. "It's a question of access."

Which doesn't mean price should be ignored. The report proposes that pharma also expand programs that help ease budgetary pressures--such as capping annual costs for certain medicines (Genentech's strategy for Avastin), limiting patient co-pays (Amgen's strategy for Vectibix), or linking price decisions to quality of data (GlaxoSmithKline's strategy in Europe).

At the same time that PriceSpective urges action, it warns the drug industry not to appear too aggressive in lobbying against the bill because "this may feed further political impetus for even greater government restrictions in the future."

So far, groups like PhRMA and BIO have focused on countering calls for Medicare reform by promoting the drug benefit's success. Studies from Harris Interactive and the Kaiser Family Foundation show that plan options have increased this year and that most seniors (70 percent in one poll) say they're saving money under the program. Moreover, Medicare has managed to come in under budget and projections overjudged its cost by 10 percent.

"An overwhelming number of beneficiaries indicated that they were extremely satisfied with the program," said Peter Carlin, senior vice president at Market Strategies, a research and consulting firm that has been tracking beneficiaries' attitudes since 2004. "It's pretty clear that the one issue that came out of this is that beneficiaries are having problems with co-pays and cost-sharing."

He too advised pharma to focus on access--rather than get bogged down in the specifics of the legislation. "Industry needs to continue to hammer away at the [underlying] issues and not at the politics of the situation," he said, adding that it is unlikely that the bill will become law since the call for government price negotiations is based on a "specious argument."

Even if the current bill is tepid enough to get bipartisan support, it remains essentially toothless. With no national formulary in place, and a desire to give beneficiaries as many drug choices as possible, the government has little leverage to compel price cuts. "The government would really be impotent in its negotiating," Sweeney said. "You have to be able to walk away in order to be able to negotiate."

The real danger, however, is the slippery slope the legislation sets in place, he noted. "This is a step toward government intervention in the market," he said. "It's a longer-term risk: If you incur more government intervention, you risk more price controls."