The New U.S. Government's Plans for the Pharma/Healthcare Industry

Healthcare Proposal

The cornerstone of President-Elect Obama's healthcare reform is the expansion of health insurance coverage. The plan envisages providing "affordable" and "accessible" healthcare for all citizens through a series of reform proposals, some of which are listed below:

• National health insurance exchange: provides a range of private insurance options and a public plan based on benefits available to members of Congress that will allow individuals and small businesses to buy affordable health coverage.
• Healthcare tax credits: tax credits for small businesses to encourage uptake of affordable health insurance for employees.
• Pre-existing illness conditions: coverage of pre-existing disease conditions regardless of health status and provision of comprehensive benefits and fair premiums.
• Mandatory cover and allied subsidies: employer contributions from large businesses offering no coverage or payroll contributions from employees. Cover a portion of the catastrophic health costs in return for lower premiums for employees.
• Drug importation and generic drugs: allow "safe" drug importation from developing countries to ensure lower costs. Encouraging usage of generic drugs in public programmes.
• Drug price negotiations: the proposal calls for enabling programmes such as Medicare to negotiate with drug companies to gain the best possible price for prescription drugs and ensure savings. This practice is prohibited under the 2003 Medicare Prescription Drug Improvement and Modernisation Act.
• Health information technology and transparency norms: US$10 billion year for the next five years is to be invested in incorporating electronic health information systems. Hospitals and providers will be mandated to collect and report healthcare costs and quality of care, while health plans will be required to disclose the percentage of premiums attributed to patient care payments as opposed to administrative costs.

There are other related issues that will take the new President's attention:

FDA Restructuring

The overhaul of the U.S. Food and Drug Administration (FDA) is expected to attain Congressional endorsement early next year. President Obama's proposal emphasises delivery quality of pharmaceutical products and encourages generics, so the regulator will once again take centre stage. The agency has been riddled with concerns over increased time taken to establish drug quality, and there has been recent controversy after contaminated heparin caused a number of fatalities. Proposals to initiate drug reimportation from developing countries will increase the ambit of the FDA's operations, particularly in terms of ensuring quality and including foreign drug production site inspections. It is widely acknowledged that the agency is suffering from a lack of financial and human resources that will need to be addressed quickly in order to sustain the growth in its activities. Financial resources will need to be forthcoming from the new federal government.

Cost Savings and State Schemes

The uptake of generic drugs has soared in the past year in public drug programmes, mainly as a result of state governments seeking to cut costs. These state initiatives in programmes such as Medicaid will become more significant, as overall spending is expected to rise by 5% this year. Federal grants will rise accordingly, as states increasingly rely on federal support to raise capital due to difficulties caused by the credit crunch.

Pre-Emption Case

For the pharmaceutical industry, the federal language on pre-emption has offered some respite, as the Bush government has endorsed and effected this policy for a number of industries including pharmaceuticals. Pre-emption has formed the basis of many product liability lawsuits currently being heard in U.S. courts, where federal law pre-empts state law. This means a drug firm does not have liability where a plaintiff initiates a product liability lawsuit against a pharma firm in a state court, as its products are approved by the federal agency, the FDA. There is speculation that the new administration may seek to overturn this policy, which provides some protection for drug firms.

Outlook

Route of Action

The bold health plan of Barack Obama is not without obstacle, and success or failure will depend on which route of reform is implemented. Obama has not clearly stated his healthcare strategy, although he has outlined specific goals for reform. According to The Commonwealth Fund, policy changes could take a number of different forms, including: postponing healthcare reform until after the economy and the situation in Iraq are resolved; putting aside money for healthcare until actual reform is sure to be successful; taking small, incremental steps to complete the entire objective of outlined improvements; an initial legislative package which would lay out healthcare reform in sequential steps; or immediate activity to implement large and needed healthcare reform. Regardless of which route of action is undertaken by the new administration under Barack Obama, the public will need to be assured that the current burden of healthcare costs is being addressed. Moreover, if Obama chooses to set aside funds for later healthcare reform instead of taking immediate action, the American people may demand justification and significant explanation for this.

Managing the Economy

Obama could take advantage of the prospects offered by the economic crisis through his plans to initiate the beginnings of a national health insurance system.

A great deal of the debate over healthcare reform has revolved around trying to reduce prices in response to soaring costs. Previous policy makers attempted to constrict prices for medical professionals, institutions, and medicines, or even increase government subsidies to reduce the financial burden on American citizens. However, one of the major obstacles is that efforts to reduce prices may not be able to contend with the rate of cost growth. Moreover, it may not improve the problem of huge gaps in quality and efficiency. If Obama wants to reform healthcare, several different factors need to be addressed that take into account the range of stakeholders impacted by the economic crisis, from patients and doctors to the insurance and pharmaceutical industries. Most Americans are, first and foremost, seeking resolution on these two major issues: healthcare and the economy. Although cost growth for healthcare is inevitable, introducing measures to create affordable prices is feasible. However, there will need to be simultaneous efforts taken to ensure that the industry is content, wherein one of the largest challenges to reforming healthcare lies.

Implications for the Health Insurance Industry

While the above proposals profess a healthy change in the market, there is still some uncertainty over the rate at which these proposals will be implemented. Primarily, the new government will have to address the cost issue, whether in the form of higher grants to Medicaid, FDA restructuring, or healthcare delivery and insurance coverage. With expenditure hitting the upper ceiling, the nature of financial sourcing will be under scrutiny. Obama has sought to increase taxes among higher income households to satisfy this expenditure binge. However, with a tighter financial market, economic constraints, and a sustained recessionary climate, it will prove to be a difficult task to fill the state coffers. In this scenario, the proposals taking priority will see some change, and a slower implementation is expected.

Implications for the Pharmaceutical Industry

In terms of the impact on the pharmaceutical industry, there is a clear divide between the innovative and the generics drug makers. Innovative drug makers will be under increasing pressure in terms of drug pricing, safety, and efficacy. Product liability lawsuits are expected to increase if the Supreme Court case involving Wyeth and Diane Levine does not go in favour of drugmakers, initiating a definite change in policy from the new administration. For generic drugmakers, once the issue of drug quality is addressed, there will be wider opportunities for growth in this market, as plans to encourage wider usage of generics takes shape. Although the healthcare reforms set out by the Obama campaign are clear, they do not necessarily outline the steps that will be taken in order to achieve these goals. Therefore, it is difficult to determine at this stage what will be the impact on the industry. However, if Obama is able to achieve the healthcare reform objectives which he has laid out, it is likely that drugmakers will be forced to cooperate with representatives from the new, publicly financed system, to ensure that medicines are affordable and widely accessible. On a more positive note, his healthcare reform plans could potentially mean a more transparent pricing and reimbursement process in the United States. As pressure on employers to be more accountable mounts, drugmakers may be asked to negotiate with new groups of representatives within the U.S. healthcare system.

Implications for the Healthcare Industry

Is it About Quality?

Policy analysts contest that the most effective way to reform healthcare is to introduce policies which improve healthcare itself, such as preventing medical errors and avoiding unnecessary costs. Obama supports this notion, as cost savings included as part of his plan would come more from changes in healthcare delivery than reliance on new economic incentives. The implication is that if the quality of healthcare improves, savings will be made for both the federal government and the patients themselves.

One major challenge to the reforms Obama is suggesting, such as improvements to healthcare technology and disease management, is that they rely on other conditions being met. This could be doctors’ willingness to adopt new healthcare technology measures, or patients accepting new exercise and diet plans. In addition, reimbursement to providers may need to be based on achieving higher quality and avoiding unneeded costs instead of encouraging payment for more services, leading to opposition with other stakeholders in the healthcare system. The plan laid out by Obama asserts that new health technology implemented beside a reformed payment system for providers may help patients ultimately get better coordinated care, the ultimate goal of improving quality.

All in all, the forthcoming year will provide an indication of policy direction to be taken by the Barack Obama government for the pharmaceutical and healthcare market. But any major steps may not be visible before the administration is well into the mid-term.