Obamacare and U.S. Pharma: Two Months In

So, we’ve experienced two months of Obamacare. How is the U.S. pharmaceutical industry doing with this new program?  I spent two weeks getting the opinions of several Rx representatives on their experience with Obamacare, as well as their thoughts on how it is impacting their marketing, sales, and R&D planning for 2014 and beyond.

As you can imagine, in the midst of the current chaos, there is no clear consensus of opinion on much of this.  A lot of this is due to differences in product offerings, R&D pipeline developments, and broad competitive issues that shade each company’s view.

But there are definitely some ‘thematics’ here, some very important ‘broad brush strokes’ that I think indicate very important trends. What follows is an attempt to encapsulate some of the uncertainty, the deep concern, and yes, occasionally, the anger that is being played out in pharmaceutical HQs around the nation.

Overall, how would I characterize the situation of Rx industry right now?  Put broadly, the U.S. pharma industry sees itself in the eye of the gathering Obamacare storm. It’s seen as quiet, today; but not for long.

Uncertainty
If there is one common theme that I heard from every person I spoke to, it is a pervasive sense of ‘uncertainty’.

One pharma exec suggested that the slow moving, constantly changing Obamacare regulations are completely undoing any cogent planning for current products.  Longer term, this individual said that uncertainty is also playing havoc with market planning for those R&D candidates that are about to enter the marketplace.

Another offered that, “What they’re doing to one of our most successful industries is a real disservice. By not giving the manufacturers clarity on just how much they need to change, it is creating a void of uncertainty.”   The exec pointed out that currently the industry exists in a “fog” and that really, ever since all of the healthcare reform activity began, it just seems to be getting foggier every day.

Another stated he sees many Rx employees asking, “What’s our strategy?”  But the problem, he points out, is that no one has enough solid information to be generating sound “strategy.”  Without that information, how can a strategy be generated?  From the brands?  From managed markets?  From the sales force?  What about the C-suite?  Two months into this situation, strategy for dealing with Obamacare is coming from nowhere because no one is certain about what is happening.

Transparency
And that leads us into the next broad thematic I heard: the very significant concern over the lack of “transparency”- pretty much across the entire new program.

Basically, no one, not the Rx industry, not the patient, not the doctor, not the pharmacist, not the insurers - no one in the chain of prescription drug delivery & utilization has been told specifically how this new program will work. It’s then not hard to see why everyone from the manufacturer to the patient is becoming more and more upset…Consider these ‘transparency’ comments:

“The President never laid this all out in a coherent, understandable way.  There are going to be lots more ‘shocks’ - even if you think the end product will be good.”

“I find this whole mess frustrating because it has the potential to obscure, and dangerously distract industry from its most important task-reinventing/innovating the Rx business model.”

“The entire IT mis-management episode points to a larger problem of accountability and bureaucracy going forward.”

“You can’t try to dramatically alter 17% of the economy … with a low level of transparency.”

“Even if you find your drug on an exchange formulary offering, they’re not telling you what your co-payments will be; or if there will be step edits that you will be required to go through before you can get to that desired drug; or what additional prior authorizations may be required…”

“The government just isn’t in the business of insurance.  Unfortunately, this has led to a situation in which government basically doesn’t know what it doesn’t know.”

What drugs will be covered?
Cutting to the chase, several drug reps said their biggest frustration continues to be lack of knowledge on reimbursement.  “I need to know which of my drugs are going to be covered, and I don’t,” was how one unhappy pharma sales exec put it.

So, given the chaos that Obamacare is currently experiencing, how is U.S. pharma planning to operate in 2014?  Interestingly, many I spoke to thought that most drug coverage for next year is not likely to change.  Why?  Because the current environmental disorder is just too extreme.  “I think the insurers will just default with a 2013-like program,” is how one Rx exec put it.

But several suggested that 2015, and beyond, will be another story altogether.

As one large pharma rep put it, “Over time, as plans look to save costs, Obamacare Rx benefits will become narrower.”  Changes could include Medicaid Rx coverage that eventually may resemble commercial coverage limitations.

For example, this source said, “I can see separate Medicaid Rx coverages:  One program for those on Medicaid prior to the implementation of Obamacare; another for those that come on with the new program.”  Presumably, in this case, formularies, copays, and access to products would also be different between these two classes of Medicaid patients, just as in the commercial market place.

What about from a macro finance perspective?  As one Rx consultant offered: “We have all these changes coming that will add lots of cost, but not much revenue.”  So how does Obamacare account for this shortfall?  Good question.  Does the President walk back his 2010 promises to the Rx industry and demand, say, Medicaid pricing, or even VA pricing for all of Obamacare pharmaceuticals to make up the difference?  And what would that do to formularies in the exchanges?

Finally, several of the Rx execs alluded to what they believe will happen when the new Obamacare patients attempt to obtain Rx drugs for the first time.  The reality of the “cost sharing” that these newly “covered” patients are going to experience, they suggest, will likely be “shocking” for many.  Possibly, some speculate, the reaction of the patients who discover these sky high copays will be similar to those who have had their health insurance policies cancelled - And that would be outrage.

The Way Forward?
So, after two months of all of the above, there is little that the American Rx industry can point to and say, “This is how this is going to go from here.”

Aside from a speculative IMS report issued on Nov. 19th that suggested if the present Obamacare sign-up trends continue across the country, US pharma will sustain a 30% dent in sales for 2017, there isn’t very much hard data to go on.

So, is there nothing more that we can discern here?  It seems not.  It’s all very nuanced.  Consider these observations from pharma execs:

“Not much Rx impact, so far, but, longer term, Rx coverage is not looking good.”

Another Rx marketing exec, talking about recent field activity in the midst of this chaos, said he is now experiencing customers this year who are rethinking the products that they will provide for next year.

He gave the example of one clinic that is lowering its concern for specific Rx efficacy – and is now more concerned about Rx efficiency.  That suggests, the person said, the clinic is now selecting those prescription drugs that can treat more patients “safely and effectively” without straining the clinic’s financial resources.

While he viewed this action as clearly a function of the short term 2013 financial realities for the clinic, he also saw this as the clinic preparing for the therapeutic future that Obamacare will drive.

And finally, several execs said they believe those with pre-existing conditions, who are now utilizing Obamacare Rx services, will overuse their access to prescription drugs.  “I assume this is a good thing for pharma, in terms of sales,” said one Rx consultant.  “But, clearly, this is bad for the insurance companies.”  And no doubt, he said, the insurance companies will react to this.

Two months in…
60 days into this vast socio/political experience, where is the U.S. pharmaceutical business in its relationship with Obamacare?

On a sympathetic level, I think we can still say that many in the business continue to be somewhat hopeful.  This is based on the belief that once the maelstrom of Obamacare miscues and non-functioning systems recedes, the essence of the plan, access for all to Rx prescription drugs, will ultimately be a good thing for industry.

But, on the more practical side, I also think most would agree that this “sympathetic” view is going to be a long time developing, if it ever does.

Instead, going back to the “storm” analogy, I think many would take the position that right now the “eye” of Obamacare is passing over the American pharmaceutical business.  Relatively speaking, especially for 2014, they would suggest that things are “calm”.

But as nearly everyone I spoke to acknowledged, once the Obamacare “eye” passes by, the full effects of the healthcare reform storm will be experienced.  And there will be a price, likely a terrible price, to be paid by the American pharmaceutical industry.

So what to do for now?  Frankly, given what we don’t know today, I am not sure there are any preparations that can be made for what is ahead.

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