The Benefits and Challenges of Health Care Reform

The pharmaceutical industry aggressively supported efforts to pass health care reform, even pledging to trim drug costs by $80 billion.¹ In addition, it pumped millions of dollars into lobbying and ad campaigns to push the legislation to a successful conclusion, even joining with groups such as Families USA, which ironically spent years attacking drug makers in the early part of the decade.²

The pharmaceutical industry as well as those who manage the drug benefit will doubtlessly benefit from the legislation. But these industries may also face some challenges-especially long-term.

Expanded access to drugs. Along with providing coverage to more than 32 million persons who are currently uninsured, the legislation will close the gap in Medicare’s prescription drug coverage program, known as the doughnut hole. That’s a big improvement for patients and, frankly, a huge victory for the drug industry, which has faced years of criticism over the price of drugs. Soon the vast majority of Americans will have comprehensive prescription drug coverage, insulating them from the cost of drugs.

On the downside, Congress decided to cut $200 billion over 10 years from the private Medicare Advantage program that covers nearly 10 million seniors. It’s too early to know the full impact, but Medicare Advantage plans will cut back on services and many seniors may drop out of the program.

Reduced emphasis on importation. The long fight over importing drugs just to get lower prices is probably behind us. The pro-importation side took a big blow when Congress passed the Medicare prescription drug bill in 2003. And the new Patient Protection and Affordable Care Act will likely put the final nail in the coffin.

Intellectual property protections. It was a huge win for biologic drug makers, such as Amgen and Roche, that the reform legislation included a 12-year data exclusivity period. The legislation also creates a regulatory path for generic versions of biologics. These provisions should help ensure a dynamic and innovative industry for years to come-as long as politics don’t intercede.

Comparative effectiveness research. For 10 years, I sat on a medical school’s institutional review board, which monitored hundreds of research protocols, many sponsored by the government. These studies compared various medical devices, drugs, and other therapies. In other words, the government has been doing comparative effectiveness research for years.

If the new Patient-Centered Outcomes Research Institute stays focused on comparing various therapies and publishing good information, it may be fine. My fear is that it will morph into something like Great Britain’s National Institute for Health and Clinical Excellence (NICE), which essentially rations care by determining which drugs will be covered by the country’s health care system.

The challenge of price controls. Congress and state legislatures have looked on the drug industry as a cash cow, an unlimited pot of money politicians could siphon off for other purposes. The new legislation exacerbates that trend. For example, the legislation increases Medicaid rebates for most brand-name drugs and expands the Medicaid population to 133% of the poverty level. That means the rebate will apply to perhaps 15 million more people. And there is a new industry “fee” beginning in 2012; it expects to collect $4 billion in 2018 alone.¹

Democrats promised that the legislation would control health spending. Don’t bet on it. More people will be insulated from the cost of health-related goods and services, putting upward pressure on spending and prices.

Congress’s usual response to rising costs is to slap on price controls. That’s what it did to Medicare Part A in 1983 and Medicare Part B in 1992. And in my opinion, that’s what it will likely do to many, if not all, prescription drugs. That’s why I think commentator Fred Barnes³ got it right when he wrote in The Wall Street Journal that if the legislation passed, the health care reform battle won’t be over; it’s just beginning.

References:

References
1. Heavey S. Winners, losers in Obama healthcare revamp. Reuters. March 22, 2010. http://www.reuters.com/article/idUSN2324423020100323. Accessed March 28, 2010.
2. Frates C. PhRMA, Families USA launch ad campaigns. Politico. June 30, 2009. http://www.politico.com/news/stories/0609/24384.html. Accessed March 28, 2010.
3. Barnes F. The health-care wars are only beginning. Wall Street Journal. March 18, 2010. http://online.wsj.com/article/SB100014240527487047434045751 27540906168462.html. Accessed March 28, 2010.