Reform to re-form

As we march toward the anniversary of the signing of Obama’s US Health Reform bill, NGP takes a look at the key plays that afforded pharma its big win in the biggest possible arena.

“We spend too much and get too little. We spend nearly $2 trillion on healthcare every year in America - the most in the world by far. Each year, we pay for 35 million hospital stays, 64 million surgeries, 900 million visits to doctors' offices, and 3.5 billion medical prescriptions.”

Whenever talks of the industry's future security arise, the conversation inevitably boils down to the same topics: drying pipelines, stagnant innovation levels, increasing costs and overly stringent regulations. Of course, in a world being force fed an exponentially increasing population, largely subscribing to a disposable lifestyle filled with little thought for generations to come, you could be forgiven for thinking that the industry really shouldn't be surprised about what's happened - not that they're at fault. And yet, it finds itself in a position that it saw coming but could do little about. With more complex models the only available avenues of interest, equating to longer timescales at far greater costs, the only way for pharma to progress is to dive head first into the melee and commence the unenviable task of making a buoyant industry sail once again. 

And so it was, back in March 2010, that the then newly-elected President Obama signed the most important pieces of paper the US population has held since 1960: the US Healthcare Reform bills. Largely seen as a victory for pharma, at the time many analysts characterized it as a "double-edged sword" for the industry. Indeed, the new law expected to expand health insurance coverage to more than 30 million uninsured Americans, but estimates indicated that more than 20 million would still be without anything remotely resembling the necessary, and needed, health insurance. Regardless, it was clear that a wealth of newly insured patients would provide the industry with phenomenal growth in the pool of US customers.

Indeed, Alan Fram of the Huffington Post, just after the announcement of the bill signing, even exclaimed: "Chalk one up for the pharmaceutical lobby" in relation to the industry's successful fending off of price curbs and other hefty restrictions. Now, depending on your perspective, you'll either fundamentally agree or disagree with the statements made over the following pages - but such is the nature of the beast when it comes to politics and pharmaceuticals.

Either way, pharmaceutical lobbyists had managed to win the new federal policies they coveted and set a trajectory for long-term industry growth. Privately, a handful have also stated that their biggest triumph was heading off Democrats led by Rep. Henry Waxman, who wanted even more money from the back pockets of pharma to finance the healthcare system's expansion. At the time, Ramsey Baghdadi, a Washington health policy analyst who projected a $30 billion, 10-year net gain for the industry, said: "Pharma came out of this better than anyone else. I don't see how they could have done much better."

A solid statement for anything but a simple win. Indeed, shortly after the Bill was passed, the Pharmaceutical Research and Manufacturers of America (PhRMA) gave their side of the story, saying: "The existing barriers to quality healthcare simply are not acceptable. Today's important and historic vote in the House will help to expand healthcare coverage and service tens of millions of Americans who are uninsured and often forced to forego needed medical treatments.

"Even as we support healthcare reform legislation, we continue to have concerns about a number of issues including the overly broad powers of a non-elected Independent Payment Advisory Board (IPAB), which could enact sweeping Medicare changes without actions by Congress and would not be subject to judicial or administrative review...Most importantly, we must also take steps in the years ahead to support critically needed innovation, ensuring future medical advancements and breakthroughs. Americans deserve no less. New, cutting-edge medicines have dramatically increased life expectancy rates all across our nation and allowed patients to live longer, healthier and more productive lives. We remain totally committed to seeing this progress continue, benefiting Americans for generations to come."

Of course, all focus should remain on the patients - both present and future - of America. But to understand just how important this 'win' truly is for the current face of pharma, perhaps it's best to selfishly examine the advantages now enabled to an industry that has been served with continued and deepening layers of worry and hurdles to progression over the past couple of years, and contrast it against it's nearest industry counterparts.

For starter, health insurers are without fail the biggest losers in the reform. Where drug company stocks, namely Pfizer, Merck and Novartis, rose by about eight percent at the start of September 2010, UnitedHealth, Wellpoint and Aetna swung a colossal 26 percent share drop from the likes of Big Pharma. Another slap to the face of insurers across the US, the bill also now puts them in a position where they're paying $6.7 billion a year in new taxes, distributed by their market share. But it's not just healthcare insurers who have found themselves lugging new weight on their shoulders; the medical-device industry, perhaps worst-off relative to it's size, has had to RSVP to a $4 billion-a-year hit. And, whilst their allies including John Kerry and Ben Nelson are likely to continue to scale back the tax somewhat, the hit certainly remains substantial.

Meanwhile, back at the pharma ranch, Health Information Technology (HIT) companies got a boost from the stimulus package passed later in the year, containing about $20 billion in funding - no surprise considering the writing in of EMRs under Obama-care. Why is this important for US-based pharma? Well, EMRs equal more efficient practice and prescription on the doctor side, fundamentally meaning more efficient business and ultimately further profits for pharma in general. In the age of technology, combining healthcare and pharmaceuticals looks set to transform not just the doctor-patient dynamic, but also those between industries - a position pharma is pivotally well placed to exploit.

But this isn't something that sprung up on pharma firms out of the blue; they've know this day would come for some time and have worked hard to encourage its presence. Indeed, speaking back in February 2009, the then Chairman and CEO of Pfizer, Jeff Kindler, said on the subject of healthcare: "We spend too much and get too little. We spend nearly $2 trillion on healthcare every year in America - the most in the world by far. Each year, we pay for 35 million hospital stays, 64 million surgeries, 900 million visits to doctors' offices, and 3.5 billion medical prescriptions. The Congressional Budget Office says total US health spending could reach 25 percent of GDP about 15 years from now. That's up from 16 percent of GDP today and less than nine percent in 1980.

"In a strange way, there is good news here," he continues. "The system has gotten so bad and the need for reform so clear, that we just might have a unique opportunity to fix it. In fact, for the first time in decades, there is broad agreement across the political spectrum and the private sector on many elements of reform and on the urgency to act." What Kindler was referring to is what many pharma heads and industry experts have leant towards calling a "transition from sick-care to health-care".

In this context, it's not just in terms of finances where karma seems to have touched upon the industry - it might just have helped its public image too. Whilst most in the industry are aware of it, it's not largely a talked about subject for obvious reasons - but public perception hasn't been one of trust in years gone by, as conspiracy theorists and anti-corporate activists have done well to entice people to continue to assume that pharma relies solely on keeping people sick in order to maintain profits. Now, with Obama's health reform, the public - as a generalization - are beginning to see that it's not about that. It's about progressing the right medicines in the right context at the right time - and for the right prices. For the strap-line of "sick-care to health-care", pharma has once again found itself in a position to turn adversity into advantage.

But to ensure that it maintains its position, it'll have to realize that the health reform is a long-term blessing. Tijana Ignjatovic, a healthcare analyst with the global market analysis company Datamonitor, noted some serious clouds on the horizon of short-term benefits for the industry, stating that the discounts and rebates offered will raise industry fees to create a market dip; combine that with the current patent cliff worries, and potentially tens of billions of dollars could be wiped from company sales. But from 2015 onwards, according to Ignjatovic, those negative effects will likely be offset by an increase in the number of insured people, resulting in an upsurge in drug consumption.

Furthermore, the health reform legislation contains a provision that creates a pathway to enable to FHA to approve biosimilars - generic versions of biologic drugs. Unlike generic small molecule drugs, the complexity of biologic drugs makes it questionable whether a generic company could produce an identical biologic product. With the new healthcare law, drug makers are granted a 12-year exclusivity period on biologics before they face competition from generic alternatives - a significant win for the industry, since the administration was in favour of a seven year exclusivity period.

It's here that the seas of agreement divide into two, between generics and the rest of the industry. For the former, the health reform was largely a disappointment, as Kathleen Jaeger, President of the Generic Pharmaceutical Association, points out: "Real reform could have expanded access to affordable medicine to patients in need," keeping "affordable biogeneric medicines from patients for decades to come."

Regardless of the cases for and against the lobbyists and their outcomes, there is no denying that the pharmaceutical industry avoided many of the large potholes it was driving towards. The new laws don't allow government intervention or drug pricing for Medicare, importation of lower priced drugs from abroad, or give government authority to limit drug price increases. The final legislation also omits language that would have ended lucrative 'pay-for-delay' settlements in which a brand-originator pays a generic company to delay bringing a rival product containing the same active ingredient to market.

It is true that the real implications of the new healthcare reform may not be realized for some time, with Obama even stating that it could be up to four years before all reforms are fully implemented, but what is pivotal for the pharmaceutical industry is that they got what they wanted: security for the future. Yes, there is plenty of backlash at the sheer amount of money being offered by the industry into the reform; yes, there are many anti-pharmaceutical heads who still believe that drug makers profits have taken precedence over other, presumably more pressing issues. But considering the potential direction the reform could have taken pharma, there's no doubting that it's come out as one of the top players and set the standard for its next steps towards tackling future hurdles - with a little help from corporate karma, of course.