Health reform controversies pose new challenges for drug plans and healthcare providers

Key Points

There's growing uncertainty about how the Obama healthcare reform program will be implemented, and how proposed changes will affect biomedical product development and coverage of prescription drugs.

Federal courts are weighing the constitutionality of the Patient Protection and Affordable Care Act (PPACA), while reform critics in Congress are challenging specific policies and curbing funds needed to implement reform initiatives. The many states that face serious budget problems are looking to limit Medicaid programs, which may reduce coverage and drug benefits. The Obama administration's budget plan for 2012 seeks funds to implement reform programs, support biomedical research, and enhance FDA operations, but it's uncertain whether these proposals will survive the budget-cutting battle on Capitol Hill.

MORE OVERSIGHT

E&C Committee Chairman Fred Upton (R–Mich.) and his colleagues also are scrutinizing the process utilized by the Department of Health and Human Services (HHS) for determining whether states and health- care providers and payers should receive waivers from complying with specific ACA rules. The E&C Committee wants to know more about HHS support for establishing state-based insurance exchanges and for developing new rules governing insurers.

One concern for plans and providers is how new standards for "essential benefits" will shape costs and coverage. Just how comprehensive and detailed essential benefit categories are-or whether bare-bones packages will fly-will be decided by HHS Secretary Kathleen Sebelius, with help from an Institute of Medicine (IOM) blue-ribbon panel formed to analyze the options and report on its findings by September. Prescription drug coverage is listed in the ACA as one of 10 essential benefit categories, but there is room for different levels of coverage and co-pays, provided they conform to "typical" employer benefit packages.

Despite concerns that more generous coverage requirements may make policies too costly, a long list of providers and patient groups want their services and products covered. Pharmaceutical companies are leery of limits on reimbursement of more expensive medicines, and pharmacists want compensation for counseling on proper medication use.

SPECIFIC REFORMS

In addition to hauling administration officials up to Capitol Hill to explain their actions, Republican leaders are moving forward with efforts to revise portions of the PPACA, after failing in January to repeal the legislation as a whole. An easy change, supported by both Democrats and Republicans, is to drop the 1099 reporting policy, a burdensome rule that requires businesses to report to the IRS any expenditure more than $600. President Obama has signaled support for killing the program, but the trick is to find the $22 billion or so needed over 10 years to offset potential revenue gains from the policy.

The White House also backs medical liability reform as a way to reduce spending on unnecessary healthcare services incurred as a defense against malpractice charges. Proposals before Congress to establish caps on damages, limits on the timeframe for filing cases, and curbs on attorneys' fees face considerable opposition from trial lawyers and some patient advocates. Reform could move forward if there's clear evidence that damage caps would save money by reducing defensive medicine and other costs.

There's little bipartisan support, though, for making the PPACA more workable. Last month, President Obama announced support for legislation that permits states to opt out of exchanges and the individual mandate, provided the state can devise alternative ways to cover more of the uninsured. While this was considered a major concession by the White House, Republicans labeled it a "fig leaf" that didn't really increase local choices. It won't be easy for states to meet the criteria for adopting their own reform plans, but it opens the door to more flexibility in implementing change.

FUNDING SQUEEZE

Meanwhile, the battle continues over Republican efforts to limit federal spending for healthcare, along with other federal payers. In addition to cutting HHS funds needed to support the development of new policies and rules required by the health reform program, House leaders propose to eliminate a number of entities established by the PPACA that they consider examples of a federal government over-reach into state and private sector activities.

For example, Republicans talk about dissolving the new Prevention and Public Health Fund, which is supposed to dispense some $15 billion over 10 years to support state and local prevention and health initiatives. The critics also don't see a need to spend $10 billion over 10 years to fund the Center for Medicare and Medicaid Innovation (CMMI), which was established by PPACA to support research and testing of reimbursement and coverage approaches for Medicare and other health programs. And there's skepticism about federal investment in comparative effectiveness research (CER), when private plans and local organizations have funded technology assessment on their own. Some Republicans would like to shutter the Patient-Centered Outcomes Research Institute and use its $500 million a year in appropriated funds for other purposes.

PUSHING GENERICS

The search for additional funds to pay for healthcare reform initiatives and government health programs also supports faster access to follow-on versions of biotech therapies. The Obama 2012 budget proposal seeks about $54 billion to prevent a big cut in Medicare payments to physicians, a funding problem that has plagued Medicare for years. Most of the money needed to finance the "doc fix" would come from proposed reductions in federal payments to state Medicaid programs, stiffer scrutiny of Medicare Advantage payments, curbs on fraud and abuse, and improved tracking of high-prescribers to reduce excessive drug utilization by states.

In addition, the White House seeks to gain about $10 billion over 10 years by expanding patient access to generic drugs. One component of this plan is to shrink the exclusivity for innovator biologics authorized by PPACA from 12 to 7 years. Pharma and biotech companies expressed outrage, but the administration said this would speed less-costly bio-similars to patients and save about $2.3 billion over 10 years. Secretary Sebelius told the E&C Committee last month that the administration now feels that a 7-year exclusivity period will permit innovator firms to realize an appropriate return on investment, while ensuring that new breakthrough medicines are widely available and affordable.

Another proposal would end pay-for-delay deals between brand-name and generic drug makers. Federal Trade Commission officials have been pushing hard to curb such arrangements, which they insist are anti-competitive and costly to consumers, but both generic and brand-name drug makers claim these agreements actually save money and promote access to generics. The numbers-crunchers predict that banning pay-for-delay deals will save the government $540 million next year and nearly $8.8 million through 2021, and that could drive policy change.

Although the administration's budget plans for both the rest of this fiscal year and for 2012 seek small increases for the National Institutes of Health and for FDA, Republicans are looking for reductions in these and other areas. The Obama administration has requested a $4.3-billion budget for FDA in 2012. Most of the gain, however, would come from higher user fees on medical product manufacturers, and most of any added appropriations would fund a huge expansion in food safety oversight authorized by Congress.

Any extra money for the Center for Drug Evaluation and Research is designated to support development of medical countermeasures and biosimilars, to expand monitoring of imported medical products, and to improve the safety of certain high-risk products such as vaccines and human tissue. New generic drug user fees, which at long last appear to be moving toward reality, would improve the review of generic drugs, while other proposed fees would support more field inspections and some efforts to improve regulatory science at FDA.

The federal government has been operating without an approved budget for most of the 2011 fiscal year, which began last October. This situation thwarts efforts to alter existing programs and launch new initiatives. Republicans are determined to make major cuts in federal spending to reduce the ever-growing budget deficit; the White House acknowledges the need to reduce outlays but seeks a more targeted, gradual approach. It has become a controversial issue that may not be resolved before the 2012 elections.

Ms Wechsler is a Washington-based reporter specializing in federal and state healthcare issues.