The Impact of Health Care Reform on the Pharmaceutical Industry

The Impact of Health Care Reform on the Pharmaceutical Industry
July 28 02:25 2011 Print This Article

Overview
Under the Affordable Care Act, President Obama signed into law the Patient Protection and Affordable Care Act (PPACA) on March 23, 2010. The PPACA proposes to extend healthcare to 32 million uninsured citizens under a health care system which will undergo a comprehensive reformation that will unfold over the next seven years. While most of the laws are expected to be in place beginning in 2014, it will still take time for companies to implement those laws.

The upside to this is the 32 million citizens expected to be covered under this plan represents a significant increase in business for pharmaceutical companies and manufacturers.A portion of the 2010 health care reform policy will include the formation of accountable-care organizations (ACOs) which will be instrumental to decisions made regarding who pays for health care and how much will be paid.

The primary purpose of ACOs is to influence hospitals, insurers and private physicians to work together to give better patient care at reasonably lower costs. This purpose has now expanded to include the pharmaceutical industry and other health care providers as well.

Expected Changes of Reformed Health Care and the Challenges it may present
Since the pharmaceutical industry already contends with FDA regulations as far as product approval is concerned and continued endorsement after approval, the additional regulations under the current evolving health care system will place them under greater scrutiny. Some of the expected changes are as follows:

1) Generic drugs will play a larger role not only because they’re less expensive, but also because under the new evaluation process of the American Recovery and Reinvestment Act of 2009 (ARRA – also signed into law by President Obama), generic drugs will replace the brand-name drugs that don’t demonstrate a proven clinical benefit. Additionally, newly-launched drug products will now have to meet higher value standards to prove their worth as a viable therapeutic option and to secure premium pricing. All of this is likely to result in lower sales of brand medications.

2) Beginning in 2011, an annual tax will be imposed on pharmaceutical manufacturers of branded drugs that could have a severe impact on research and development in the amount of grants and tax credits received.

3) After already spending in excess of $80 billion as a result of last years’ healthcare bill that became law, the pharmaceutical industry may be forced to spend even more because of the most recent cuts in Medicare and Medicaid.

There has been ample disagreement over the PPACA between Republicans and Democrats and the Republicans in both the House and the Senate have voted unanimously against it. Since, the main focus of this new law is cost containment, pharmaceutical companies should also expect the following:

  • The more expensive treatments and drug therapies are likely to be limited in favor of less expensive alternatives that will receive more substantial consideration.
  • Comparative effectiveness: This approach will no doubt affect which drugs are approved by the FDA on the formularies because in addition to the FDA, the effectiveness of drugs will also be evaluated under the ARRA.
  • Because it’s believed that too much exclusivity threatens access to affordable generic biologics, a proposed bill set to become law in 2012 requests that the current term of 12 years for market exclusivity for biologic drugs be reduced to seven years. The FTC is pushing for five years, the same limit of exclusivity now granted to conventional drugs.
  • After already spending in excess of $80 billion as a result of last years’ healthcare bill that became law, the pharmaceutical industry may be forced to spend even more because of the most recent cuts in Medicare and Medicaid.
Possible Solutions for the Pharmaceutical Industry
To compensate for loss of revenue, numerous pharmaceutical companies are relying on the benefits of mergers and acquisitions (M & As) to complement and strengthen their presence in the drug industry. Also, instead of spending the money it takes to develop drugs from their initial stages (which is time consuming as well as expensive), pharmaceutical companies are seeking what is called pipeline candidates who are companies that have bypassed the initial stages and are closer to producing the final product.In the past, the pharmaceutical industries relied heavily upon a sales force to market and sell their drugs. Sales representatives maximized their presence among physicians and used these opportunities to inform and educate medical professionals about the available drug products and their benefits.  At the end of each presentation, the sales rep distributed product samples. Using this method, millions of prescription drugs were sold rendering billions of dollars in sales.In recent years, however, this type of marketing method began to be viewed as questionable and the sales force began to lose credibility and respect in the eyes of various medical facilities.  They were also targeted as the reason for rising health costs and many of the larger companies have been charged billions of dollars in penalties by the government over their marketing techniques.  Because of these actions, pharmaceutical companies have been altering the size and nature of their sales forces. It has been suggested that the possibility of hiring experienced and seasoned sales representatives as opposed to college graduates (which is believed to be a major reason why the sales force began to lose its credibility), will make a tremendous difference in the current perception and help them to again increase sales of their products.

Conclusion
The bottom line is under the evolving healthcare system, there will be an intense scrutiny of the pharmaceutical businesses, their marketing activities and practices. The presence of more direct control from outside agencies means the pharmaceutical industry can no longer operate as though it’s still in an open market where more freedoms existed. Since the newly installed agencies will have more control over what drugs are approved, the industry will have to run comparative studies that are acclimated to the new regulations. Adjustments will have to be made that will allow the industry to survive within the new structure while at the same time, allow them to retain their integrity and financial stability.

However, this is an enormous reformation process that will take years to complete and during this time, there could be numerous delays and major revisions that would have significant effects on the final outcome. Therefore, it might be wise to stay in tune with the changes as they occur and introduce adjustments accordingly.

Adjustments will have to be made that will allow the industry to survive within the new structure while at the same time, allow them to retain their integrity and financial stability.  However, this is an enormous reformation process that will take years to complete and during this time, there could be numerous delays and major revisions that would have significant effects on the final outcome. Therefore, it might be wise to stay in tune with the changes as they occur and introduce adjustments accordingly.

Published by MedMarket Intelligence
July 19, 2011
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