Revisiting Reform

During the health reform debate of 2009, leaders of the pharmaceutical industry negotiated a deal with the White House to provide billions of dollars in discounts and fees that would make drugs more affordable to Americans. In return, industry anticipated a larger market for prescription medicines in an expanded national healthcare system, plus favorable policies governing R&D and marketing.

Jill Wechsler

Now there's considerable uncertainty about how the Obama health reform program will be implemented, and how well the system will support biomedical innovation and new drug development. Federal courts are weighing the constitutionality of the Affordable Care Act (ACA), while Republicans challenge specific policies and curb funds needed to implement health initiatives. Many states face serious financial problems and look to limit Medicaid programs, including drug benefits. The Obama administration's budget plan for 2012 proposes added funds for biomedical research and for FDA operations, but it's doubtful that any spending increases will survive the budget-cutting battle on Capitol Hill.

Pharma companies also have to contend with the re-emergence of legislation to liberalize reimport of high-cost medicines from Canada, which has strong bipartisan support in the Senate. Stiff "Sunshine" disclosure requirements are in the works, and FDA user fees are going up.

Killing the Deal

Even worse for innovator firms are proposals in the administration's 2012 budget that aim to boost consumer access to generic drugs in order to gain some of the $54 billion needed to maintain Medicare payments to physicians. The pro-generic drug provisions together provide only a small portion of the money required to finance the Medicare "doctor fix," but the administration regards them as a viable way to cut healthcare outlays.

The administration proposes to jettison the deal in the ACA for bringing biosimilars to market by shrinking the exclusivity for innovator biologics from 12 years to seven years. That move, according to Obama's 2012 budget experts, would save about $2.3 billion over 10 years. It also undercuts the Obama administration's agreement with the Pharmaceutical Research and Manufacturers of America (PhRMA) to ante up the $80 billion over 10 years in the form of higher Medicaid rebates and additional taxes, plus subsidies on the cost of drugs prescribed to seniors caught in the "doughnut hole" of the Medicare drug benefit. In return, biopharmaceutical companies escaped federal price controls and gained stronger protection for innovator biotech therapies.

The Biotechnology Industry Organization cried that such "questionable short-term budgetary savings" would jeopardize development of breakthrough cures. PhRMA president John Castellani complained that the proposal "flies in the face" of the administration's talk about supporting "innovation, biomedical research, jobs, and US competitiveness." But Health and Human Services (HHS) Secretary Kathleen Sebelius told the House Energy and Commerce (E&C) Committee that the administration now feels that a seven-year exclusivity period will permit innovator firms to realize an appropriate return on investment, while ensuring that important new medicines are widely available and affordable.

The White House also wants to end pay-for-delay deals between brand-name and generic drug makers that affect when a new generic product comes to market. Even the Generic Pharmaceutical Association—which applauded the shorter biotech exclusivity period—joined innovator firms in criticizing the curb on settlements. Federal Trade Commission officials, however, have been pushing hard to end such arrangements, which they insist are anticompetitive and costly to consumers. And the numbers-crunchers predict that a ban on reverse settlements will save the government $540 million next year and nearly $8.8 billion through 2021.

Congressional action is needed to prohibit delay agreements, as the courts continue to rule in favor of brand-generic settlements. FTC officials suffered another setback last month when the Supreme Court decided not to review a lower court ruling that upheld a very prominent pay-for-delay case.

More Oversight

While pharma companies traditionally look to Republican allies in Congress to champion patent protection and product exclusivity issues, GOP leaders still are smarting over PhRMA's support for Obamacare. As part of its investigation into HHS implementation of health reform, House E&C Committee chairman Fred Upton (R-Mich.) is looking hard at the "secret negotiations" between the White House and healthcare interest groups, including pharmaceutical companies, leading up to enactment of the reform legislation.

Upton and his colleagues also are scrutinizing the HHS process for granting states and payers waivers from complying with specific ACA rules. The legislators want to know more about how HHS is devising new rules governing the health insurance market, including the process for developing standards for "essential benefits" that will shape medical and drug coverage (see sidebar).

Keeping Drugs "Essential"

FDA operations also are under scrutiny. The E&C Health subcommittee held a hearing in February to discuss whether FDA's too-slow process for approving more complex medical devices for market is harming the US device industry. And Republicans once more are probing the three-year-old heparin crisis, complaining to FDA commissioner Margaret Hamburg that still no one knows the source of the adulteration nor the Chinese culprits—while imports in pharmaceutical ingredients from China are booming.

In addition to hauling administration officials up to Capitol Hill to explain their actions, Congress is moving forward with efforts to revise portions of the ACA. In the "low-hanging fruit" department, both Democrats and Republicans want to repeal the 1099 reporting policy, a burdensome rule that requires businesses to report to the IRS any expenditure over $600. The trick is to find the $22 billion needed over 10 years to offset theoretical revenue gains from the policy.

Obama also supports revisions in medical liability policy, something that Republicans have long championed as a way to reduce "defensive" medicine. A House bill proposes to set caps on damages, limit the time for filing suits, and curb attorney's fees, but faces strong opposition from trial lawyers and some patient groups. Clear evidence that the policy would save money by reducing inappropriate care could help it move forward.

Eliminating Entities

That's where bipartisanship ends in the health reform arena. President Obama recently told the nation's governors that states may opt out of exchanges and the individual mandate—if they can devise alternative ways to cover more of the uninsured with comprehensive benefits, at no extra cost to Washington. While this was considered a major concession by the White House, Republicans labeled it a "fig leaf" that didn't really increase local choices.

Instead, Republicans want to eliminate new entities that they consider examples of federal government overreach into state and private sector activities. Republicans don't want to spend $10 billion over 10 years on the Center for Medicare and Medicaid Innovation, which supports research and testing of new reimbursement and coverage approaches for health programs. And there's even skepticism about federal investment in comparative effectiveness research and the need to spend $500 million a year in appropriated funds on the Patient-Centered Outcomes Research Institute.

The impasse on Capitol Hill over how to cut federal spending points to the need to tackle ever-rising healthcare costs, something that the ACA fails to accomplish. Policymakers recognize that eliminating a few programs will do little to bend the healthcare curve in the face of an aging population, rising obesity, and provider reluctance to shift away from pay-for-volume and towards new models that support prevention, coordinated care and risk assumption.

These trends are transforming drug markets, shifting the focus to long-term product efficacy, safety and costs, supported by core data collection and analysis. All aspects of drug development and marketing are under scrutiny, as seen in recent challenges to the billion-dollar estimates for bringing a new drug to market.

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