Healthcare reform to shape drug coverage, costs, and R&D

With healthcare-reform legislation moving forward, insurers, providers, and pharmaceutical companies are keeping a sharp eye on policy proposals likely to affect coverage, costs, and benefits. Various constituencies in the healthcare community are supporting initiatives that will increase access to healthcare and make the nation’s costly healthcare system more efficient and effective.

Expanding coverage to approximately 45 million Americans is not only a moral necessity, as President Barack Obama emphasizes. For drug benefit managers and pharmaceutical manufacturers, reform also promises to enlarge the pool of customers for drugs and medical products, and to enhance compliance with prescribed treatments. At the same time, many providers are apprehensive about possible cost controls and regulatory changes designed to help pay the trillion-dollar cost of achieving universal coverage.

Some congressional leaders propose to increase access to healthcare by expanding Medicaid; mandating that employers “play” (provide insurance to workers) or pay a penalty; reforming the insurance market to limit exclusions based on preexisting conditions; and forming an insurance exchange that will offer coverage options to the uninsured, including some kind of government-supported public plan. To pay the $1 trillion coverage bill, policy-makers are considering tax increases, Medicare and Medicaid savings, and policy changes designed to reduce healthcare expenditures. Several specific issues will affect drug coverage and costs and may pose challenges for future biomedical research and development.

New pathways
The debate over establishing a legal pathway for FDA approval of follow-on biologics (FOBs) illustrates the trade-off between protecting innovation and expanding access to needed medicines. Many brand-name firms now support authorization for biosimilars, along with sufficient market exclusivity for biotech manufacturers to recoup investment in R&D. The Congressional Budget Office (CBO) has calculated that an FOB program with a moderate exclusivity period of 7 years, for example, would result in savings to the federal government of approximately $7 billion to $10 billion over 10 years. The savings would be even less with the 12 years of exclusivity approved last month by House and Senate committees. Even this fairly modest savings estimate, though, is enough to spur negotiations to get an FOB measure into the final reform bill.

Reformers have also eyed additional proposals for increasing access to generic drugs, such as a ban on payments made by brand-name firms to generics companies to delay generic competition. Prohibiting pay-for-delay settlements, according to Federal Trade Commission chairman Jon Leibowitz, would save the federal government $12 billion over 10 years and yield even greater savings to consumers and states. Leibowitz also supports curbs on authorized generics, but evidence that these products may actually reduce drug prices may keep a provision banning authorized generics out of healthcare reform legislation.

Altering Part D
Policy-makers hope to reduce Medicare outlays by approximately $300 billion over 10 years through changes in reimbursement to doctors, hospitals, and other providers. Such moves also may alter the basis of the Medicare Part D drug benefit. The massive House reform bill proposes to eliminate the notorious “doughnut hole” in Medicare Part D. House Energy & Commerce Committee chairman Henry Waxman (D-Calif) wants to fund this costly change in part by imposing rebates on drugs prescribed to low-income seniors shifted from Medicaid drug benefits to Medicare Part D five years ago. “We’re simply going to ask the pharmaceutical companies to pay us back the money,” Waxman said at a June news conference to unveil the House healthcare reform plan. Some manufacturers fear that rebates on drugs for so-called dual eligibles will be very complicated to administer and thus will open the door to rebates on all drugs covered by Part D plans.

Additional funding would come from the pharmaceutical industry proposal to provide 50% discounts on medications prescribed to Medicare patients that fall into the Part D “doughnut hole.” Manufacturers offered this savings plan a few months ago to help seniors maintain treatment during the period in their claims year when they are fully responsible for pharmaceutical costs. Now Congress is incorporating that plan into reform legislation to take advantage of the estimated $25 billion in savings likely to result.

Many manufacturers also appear more willing to pay higher rebates on Medicaid drugs than to undermine Part D pricing. Policy-makers propose to save $20 billion over 10 years by boosting the basic Medicaid drug rebate from 15% to 22%, extending rebates for new formulations of existing drugs, hiking rebates on generic drugs, and requiring manufacturers to pay rebates to states for drugs provided to Medicare managed-care plans.

An important issue for drug companies is the proposal to establish a public plan option that has authority to bargain for prices of covered medications. Many insurers, payers, and providers oppose a government-run coverage option for fear it will eliminate private insurance altogether. Similarly, drug companies are concerned about proposals to authorize government negotiation of drug prices for therapies covered by the public plan. Congressional leaders will continue to fine-tune the public plan option to encourage employers to retain worker healthcare benefits, but it appears to some observers that current proposals are likely to undermine the existing system over the long run.

Even without a government healthcare plan, Congress is likely to establish some kind of federal health board with authority to make certain decisions on payments and benefits. This board is likely to have authority over medical product coverage, pricing, and cost-effectiveness standards.

Careful comparisons
A federal health board also could play a role in overseeing and coordinating more comparative effectiveness research (CER), which is intended to better inform treatment decisions and ensure appropriate use of medical products. There has been heated debate over the structure of a CER governing body and its authority; some members of Congress propose to position a CER agency within the Department of Health and Human Services, whereas others prefer an independent public-private entity. Recent reports from both the Institute of Medicine (IOM) and the Federal Coordinating Council for Comparative Effectiveness Research emphasize the importance of building some infrastructure to facilitate CER studies and disseminate their findings.

The real hot-button issue on Capitol Hill is how payers and insurers will use the resulting CER information. Democrats prefer to keep language on the use of CER fairly vague, whereas Republicans want explicit restrictions against using CER data to determine treatment and reimbursement for fear that such use would lead to healthcare rationing and government interference in medical decisions. The IOM report lists a number of CER priority research topics that seek evidence comparing the effectiveness and costs of prescription drugs to other treatments; those who consider cost-effectiveness a valid CER research subject are likely to view these proposals as reinforcement of their position.

Disclosure, deductions
Reform legislation also includes “sunshine” provisions requiring pharmaceutical companies to disclose virtually all payments to physicians and healthcare providers, including fees to clinical investigators. Although some drug companies have supported federal sunshine legislation, they want it to establish national standards and reporting requirements that preempt a growing number of state disclosure policies. That kind of trade-off may not occur, owing to the opposition of some congressional leaders to any federal preemption language involving drugs; the House bill proposes to permit states to continue disclosure policies that exceed congressional requirements.

President Obama wants to sign healthcare reform legislation this year and has signaled that he’ll accept a measure with a $1 trillion price tag over 10 years that covers at least 75% of the uninsured. Many of the details in reform legislation remain to be hammered out on Capitol Hill this fall, ultimately by a committee formed to reconcile differences between House and Senate bills. There is likely to be considerable horse-trading and maneuvering over health exchanges, public versus private plans, tax reforms, and price controls, with interested parties keeping a sharp eye on costs and coverage.