Master’s in Bioscience Enterprise 2009 - 2010

Strategic Implications of US Health Reform on Pharmaceutical Market Access

Muhammad Bilal Mahmood

June 2010

 

 

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Master’s in Bioscience Enterprise 2009 - 2010

Strategic Implications of US Health Reform on Pharmaceutical Market Access

Author: Muhammad Bilal Mahmood

King’s College University of Cambridge

Company Supervisor: Dr. Shrinivas Rao Mukku Double Helix Consulting

Academic Supervisor: Dr. Ken Seamon Date of Submission: 3 June 2010 Word count: 9,745 Permission is given for the following people to have access to this dissertation:

Available to all staff and students of the MBE programme YES Available only after consultation with Student/Company Available for viewing by persons bound by Confidentiality only

Student’s signature:

Signature on behalf of company: Double Helix Development London, UK

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Non-Confidential Abstract

The recent passage of US Health Reform presents a range of consequences for the

pharmaceutical industry. With broad improvements in patient coverage subsidized at

pharmaceutical cost, it is expected that the Reforms may impact pharmaceuticals

and their ability to achieve market access. The implications of such Reforms are

especially pertinent considering the development, pricing, and patient access stages

of market access affected. This study accordingly sought to more closely review the

Health Reform legislations and assess industry perspectives across multiple market

access stakeholder groups. In turn, it would be inferred that as the industry faces a

net neutral outcome over the long term, short-term implications will present revenues

and losses for various sectors of the market. Pharmaceuticals may face a series of

opportunities to enhance or mitigate their respective outcomes, and should

accordingly approach the effects of US Health Reform to ensure their market access.

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Acknowledgements

The author would like to acknowledge several people for their assistance and

support in pursuing this study on US Health Reform.

Foremost, the author would like to acknowledge his respective advisors for their

much appreciated mentorship. Thanks are due to Dr. Shrinivas Rao Mukku,

Consultant at Double Helix Consulting, for providing strategic direction and guidance

in conducting this study. Cambridge University Supervisor Dr. Ken Seamon is also

acknowledged for his mentorship in focusing this study’s business aspects into an

appropriate dissertation.

Additional thanks are due to those who assisted in the dissertation’s primary

research review. The author would like to acknowledge all those interview

respondents who graciously offered their time and expertise in assessing the Health

Reform legislation, and to those friends and family who provided general support.

The Gates Cambridge Trust is equally acknowledged for awarding its prestigious

scholarship and financially supporting this course of study.

Lastly, a special commendation is in order for President Barack Obama, whose

passage of US Health Reform has accordingly improved the lives of millions, and as

such made this dissertation a pertinent issue to address.

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Declaration

I confirm that the material in this dissertation is not copied, or a paraphrase or

abstract of any published work or material, unless it is clearly identified as such and

a full source reference given. I also confirm that this dissertation is the result of my

own work and includes nothing which is the outcome of work done in collaboration

except where specifically indicated in the text.

I further declare that my dissertation does not exceed the limit of length prescribed in

the Special Regulations of the MPhil examination for which I am a candidate. The

length of my dissertation is 9,745 words.

Signed,

Muhammad Bilal Mahmood

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Table of Contents

Title 1

Non-Confidential Abstract 2

Acknowledgements 3

Declaration 4

Table of Contents 5

Abbreviations 7

Glossary 8

Executive Summary 9

I. Introduction 10 1.1 Policy Implications of US Health Reform 10

1.2 Financial Implications of US Health Reform 11

1.3 Analysis Objectives for Pharmaceutical Market Access 11

II. Analysis Methodology 13

2.1 Secondary Research: Health Reform Review 13

2.1.1 Sources of Health Reform Policy 13

2.1.2 Assessment of Market Access Implications 14

2.2 Primary Research: Industry Perspectives 15

2.2.1 Market Access Stakeholder Groups 15

2.2.2 Interview Questionnaire & Assessment 16

III. Review of US Health Reform Policy 17

3.1 Policy Reforms for Pharmaceutical Development & Services 17

3.1.1 Comparative Effectiveness 18

3.1.2 Biosimilars Approval Pathway 19

3.1.3 Federal Fees 19

3.2 Policy Reforms for Pharmaceutical Reimbursement 20

3.2.1 Medicare Coverage Gap 21

3.2.2 Medicaid Coverage Expansion 22

3.2.3 Free Preventive Coverage 22

3.2.4 Mandated Rebates for Medicare & Medicaid 23

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3.2.5 Performance Based Revisions to Medicare 24

3.3 Policy Reforms for Pharmaceutical Patient Access 25

3.3.1 Health Insurance Reform 26

3.3.2 Health Insurance Exchanges 27

3.3.3 Individual Mandates & Patient Subsidies 28

IV. Market Access Implications of US Health Reform 29

4.1 Implications for Pharmaceutical Development & Services 29

4.1.1 Minimal Impact for Comparative Effectiveness 30

4.1.2 Mitigated Outcomes for Biologics 31

4.1.3 Company Losses to Federal Fees 32

4.2 Implications for Pharmaceutical Reimbursement 33

4.2.1 Gains to Closing the Medicare Coverage Gap 34

4.2.2 Mitigated Yields to Medicaid Expansion 36

4.2.3 Minimal Impact to Preventive & Performance Measures 37

4.3 Implications for Pharmaceutical Patient Access 39

4.3.1 Increase in Patient Access to Healthcare 39

4.3.2 Increase in Patient Utilization of Services 40

V. Conclusions & Market Access Recommendations 42

5.1 Overall Implications for Market Access 42

5.2 Strategic Recommendations 44

5.2.1 Strategies for Maintaining Development & Services 45

5.2.2 Strategies for Achieving Reimbursement 46

5.2.3 Strategies for Acquiring Patient Access 48

5.3 Conclusions & Recommendations 49

5.3.1 Major Conclusions 49

5.3.2 Industry Recommendations 50

VI. Bibliography 51 VII. Appendix 55

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Abbreviations

AHRQ Agency for Healthcare Research and Quality

AMP Average Manufacturing Price

CBO Congressional Budget Office

CDC Center for Disease Control and Prevention

CHIP Children’s Health Insurance Program

CPI Consumer Price Index

FDA Food and Drug Administration

FFS Fee For Service

GDP Gross Domestic Product

HI Health Insurance

HTA Health Technology Assessment

MA Medicare Advantage

NICE National Institute of Clinical Evidence

NIH National Institute of Health

PPACA Patient Protection And Affordable Care Act

QALY Quality Adjusted Life Year

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Glossary

Biologics: a class of complex and innovative drugs, produced through biological

means such as recombinant DNA technology

Biosimilars: non-innovator or generic formulations of biologic drugs, approved after

the reference biologic’s patent expiry for lower-priced competition

Comparative Effectiveness: research that compares the clinical outcomes of two

separate drugs, diagnostics, or therapies

Health Insurance Exchange: a State-run insurance marketplace, from which

individuals and businesses can purchase regulated private health insurance plans

Healthcare & Education Reconciliation Act: a piece of legislation signed into law

March 30, 2010 to bridge the differences between separate Health Reform proposals

passed by the United States Congress

Market Access: the ability of a pharmaceutical company to achieve adequate

pricing, reimbursement, & patient access while distributing its product to the market.

Medicaid: a State-run public health insurance program, monitored by the US

government, to provide coverage for low-income and disabled citizens

Medicare: a government-run public health insurance program that provides

coverage for elderly US citizens above the age of 65

Medicare Advantage: privately-run health insurance programs for the elderly that

are subsidized and regulated by the US government

Medicare Part D: a government regulated prescription drug plan for the elderly,

administered through private health insurance providers

Patient Protection & Affordable Care Act: the Health Reform legislation signed

into law by President Barack Obama on March 23, 2010 to improve healthcare

coverage and regulate the insurance market

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Executive Summary

The enactment of US Health Reform spells potential reprecussions for the $300

billion pharmaceutical market. With broad improvements in patient coverage

subsidized at pharmaceutical cost, it is expected that the Reforms may impact

pharmaceuticals and their ability to achieve market access. The respective stages of

development, pricing, and patient access, could even be affected. As such, an in-

depth assessment was warranted to review the relevant policy provisions and

assess those implications for pharmaceutical market access.

A holistic review of the legislation, and an assessment of industry perspectives,

appropriately inferred a range of consequences for different pharmaceutical sectors.

Reforms immediately affecting pharmaceutical development were found to increase

federal fees and biosimilars approvals, leaving mitigated losses to larger firms and

biotech companies. Other provisions for mandated rebates were seen to hurt

pharmaceutical pricing, though companies with heavier investment in public drug

formularies could be expected to recoup the immediate losses through future gains.

Broad provisions for expanded public and private insurance coverage may even

bring in future revenue as millions of formerly-uninsured patients gain access to

healthcare. The balance in short-term costs vs long-term gains would aptly indicate

a net netural otucome for the pharmaceutical industry, over the next 10 years.

This study recommends pharmaceuticals to consequently approach Health Reform

as an opportunity to reduce immediate losses and acquire future revenues. To

mitigate the immediate outcomes, firms may be seen to establish their own biosimilar

divisions and reduce funding for free pharmaceutical assistance programs. Such

strategies may even be complemented by increased revenue acquisition within

government-run insurance plans. And to effectively ensure paitent access, firms

may be pursuing increased public/private collaborations within the private health

insurance marketplace. Such strategies may afford adequate market access for

pharmaceuticals in the coming years, and ensure continued success in a post-Health

Reform market.

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I. Introduction

The recent passage of the United States Patient Protection & Affordable Care Act

(PPACA) accordingly presents potential implications for the pharmaceutical industry.

Representing the largest change to the US healthcare system since Medicare was

enacted in 1965, the Health Reform Bill will seek to regulate industry practices

towards improved patient outcomes [1]. Patients may see consequent improvements

in coverage and affordability, while pharmaceuticals may see repercussions to

industry sales and services. In concert, both sets of reforms present political and

financial discussion points with broad market access implications.1

1.1 Policy Implications of US Health Reform

The political implications for market access, in turn, present themselves through

three major policies, namely to expand patient coverage, improve affordability, and

regulate the health insurance market (see Figure 1.1 below).

Figure 1.1 Major Goals of US Health Reform

In due course, those citizens without access to healthcare will now receive increased

federal subsidies to expand their health insurance coverage. To improve

affordability, Health Reform will also enforce coverage mandates to progress risk-

pooling and cost-sharing regimes within the private market [1-2]. And with the

addition of State-run Insurance Exchanges, the uninsured will finally be able to

acquire affordable and regulated insurance plans [1, 3]. These sets of provisions will

                                                        1 Market access, for the purposes of this paper, will be defined as the ability of a pharmaceutical company to distribute its product to the market with adequate pricing, reimbursement, & patient access.

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collectively expand healthcare access to millions of uninsured Americans, and will

even present repercussions for pharmaceutical firms in the years to come [2].

1.2 Financial Implications of US Health Reform

By consequence, such policy reforms pose pertinent financial implications for the

industry. On the one hand, increasing patient access to healthcare may improve

future industry revenues in the $300 billion US pharmaceutical market [4]. Firms

may experience a rise in sales as patients gain access to pharmaceutical services,

as well as an increase in drug compliance as the market is better covered and

regulated. Conversely, pharmaceuticals could incur immediate costs towards

improving such outcomes. To finance the increased patient access to healthcare,

the industry may face increased fees and mandated rebates on drugs [1]. And in the

process of reforming the health insurance market, public pricing and reimbursement

of drugs may also be affected.

Such reforms have therefore drawn a variety of market access projections. Recent

forecasts by Eli Lilly and BMS have predicted a drop in firm-specific revenues by as

much as 1.6% in 2010 and 3% in 2011 [5-7]. Industry-wide estimates have predicted

a 4-7% loss in revenue over the next couple years, as well as a 5-8% gain in global

sales after 5 years [5, 8]. And considering the US represents over 40% of the global

market, preliminary reports have conferred a range of conflicting 10-year outcomes

from -$112 billion in losses to +$35 billion in profits— leaving the final outcome for

pharmaceutical market access relatively uncertain [4, 8-9].2

1.3 Analysis Objectives for Pharmaceutical Market Access

Appropriately, both the negative and positive financial outcomes of US Health

Reform warrant more in-depth analysis. With negative assessments emphasizing

the increased federal fees and mandated rebates, positive analyses must be

equivalently pursued to understand the true implications of expanding coverage to

the uninsured. It would hence be prudent to more closely define these policies, and

examine the severity of their consequences for market access.

                                                        2 Based on general assumptions, several preliminary reports have cited vastly inconsistent outcomes. A report from PricewaterhouseCoopers has cited a net $112 billion loss for Pharma as a result of US Health Reform, over 10 years. By contrast, a separate analysis from the RPM Report believed the outcome would present a positive $30 billion gain over 10 years. [8-9]

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This study will address such concerns through a selected review of the Patient

Protection and Affordable Care Act (PPACA). The forthcoming analysis will offer a

meticulous understanding of the Health Reform legislation and its potential

consequences for industry. Focus will be placed on those measures affecting

industry development, pricing and reimbursement, and patient access in their

relation to market access specifically. In turn, a nuanced explanation for the recent

market downcasts may be offered, as strategic recommendations for approaching

the positive and negative aspects of Reform may also be found.

This paper will accordingly carry on 3 main objectives:

First, to understand the specific policy proposals of the PPACA Act, as they

pertain to the pharmaceutical industry3

Second, to assess industry stakeholder perspectives on how US Health

Reform may affect market access for pharmaceuticals

And finally, to provide strategic recommendations on how pharmaceuticals

can best achieve Market Access after Health Reform

Analyzing these objectives will hopefully prove to be a prudent measure, especially

in understanding the changing interplay between the US healthcare system and the

pharmaceutical industry at large.

                                                        3 The Patient Protection Act contains numerous provisions affecting pharmaceuticals, medical devices, and small-biotech firms. However, this paper is exclusively focused on assessing the implications for pharmaceutical access, and hence the other industries will not be assessed.

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II. Analysis Methodology

To assess the implications of US Health Reform for pharmaceutical market access,

several stages of analysis were explored. An in-depth review of the healthcare

legislation was warranted to better understand the policy changes specific to

pharmaceuticals. Industry perspectives seemed equally important toward this aim,

thus providing a professional base of expertise to better explain the implications for

market access. Appropriately, a two-tiered research methodology was developed,

based on 1) a secondary research review of the Health Reform Bill, and 2) a primary

research review of industry perceptions.

2.1 Secondary Research: Health Reform Review

The secondary research review consisted of both an extensive literature search as

well as a market access assessment. The literature review was conducted so as to

summarize the appropriate policy provisions within the Health Reform Bill. A strict

assessment procedure was then developed to focus in on those aspects relevant to

market access. The two sets of reviews would in turn provide a platform for

assessing several pieces of Health Reform legislation.

2.1.1 Sources of Health Reform Policy

The principal source for Health Reform policy naturally lay within PPACA itself.

Divided into 10 Titles on topics ranging from insurance reform to incentives for

medical innovation, the Health Reform Bill was sifted through to assess its

considerable volume of provisions. The complete Reform package was

appropriately reviewed over a total of ~2500 pages, including amendments from the

Healthcare and Education Reconciliation Act of 2010.4

To aid in this process, summaries and analysis reports from additional secondary

sources were collected. A terse summary of the Bill was taken from the White

House website, providing an outline to better understand the healthcare legislation.

Section-by-section analyses of the Bill were also read through briefs on the

Democratic Policy Committee of the United States Senate, providing knowledge on

specific topics such as cost-containment and premium affordability. More in-depth                                                         4 The Healthcare & Education Reconciliation Act was a piece of legislation created to bridge the different Health Reform proposals passed in the United States Congress. Through the Act only made some minor amendments to PPACA, its provisions were noted in this paper and included for analysis.

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analyses were reviewed through the Kaiser Family Foundation that had posted

detailed summaries on the costs, financing, and revenue provisions of the Bill. All

together, the sets of secondary sources were utilized to summarize the Bill for the

forthcoming analysis.

2.1.2 Assessment of Market Access Implications

After the Health Reform policies were collected and summarized, an assessment

procedure was developed to identify those measures specific to pharmaceuticals.

Towards this aim, the Bill’s provisions were re-organized into clusters fitting the

different stages of pharmaceutical market access (see Figure 2.1 below).

Figure 2.1 Stages of Pharmaceutical Market Access

The respective stages of Development & Services, Pricing & Reimbursement, and

Patient Access were chosen for their significance to Health Reform. Within these

stages, policies were grouped into the relevant clusters, including:

Cluster 1 – Development & Services reforms affecting industry pipelines,

taxes, and drug approvals.

Cluster 2 – Pricing & Reimbursement reforms affecting the public and private

coverage for prescription drugs.

Cluster 3 – Patient Access reforms affecting patient affordability, choice, and

access to pharmaceutical services.

Re-organizing the Bill into these 3 clusters permitted for an easier assessment of

Health Reform provisions. The respective policies could now be scrutinized against

their respective stage of market access, and assessed based on equivalent

quantitative and qualitative measures. Quantitative analysis was conducted in due

course, using the aforementioned secondary sources’ estimates for specific costs

and revenues. Qualitative analysis then concluded the review process with specific

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assessments of pharmaceutical outcomes, complemented by personal scrutiny and

industry perspectives as well.

2.2 Primary Research: Industry Perspectives

The industry perspectives were sought to assist in critiquing the implications of

PPACA. Such professional insight was deemed necessary considering the

complicated and legal nature of the Bill, and hence a series of informational

interviews were used to gather industry expertise over specific market access

implications.

2.2.1 Market Access Stakeholder Groups

In gathering the industry perspectives, 15 informational interviews were conducted

across 4 market access stakeholder groups in the healthcare sector (see Figure 2.2

below).5

Figure 2.2 Market Access Stakeholder Groups

Each stakeholder group, including Pharma, Payers, Physicians, and Patients, was

interviewed for their respective expertise on a particular stage of market access.

From the Pharma sector, management and policy directors were targeted for their

insight into market access R&D timelines. Regional managers and clinical directors

were explicitly sought out for their perspective on Payers and Reimbursement

                                                        5 The 4 stakeholder groups were identified through the assistance of the pricing and reimbursement division within Double Helix Development, a London based market access consultancy firm.

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policies. Lastly, Physician and Patient groups within the hospital and advocacy

establishments were interviewed for their respective expertise in Patient Access.6

2.2.2 Interview Questionnaire & Assessment

To prepare for the interviews, two sets of documents were compiled. A 3-page

summary of the Health Reform Bill was first drafted based on data collected from the

secondary research review [see Summary in Appendix]. The summary was then

distributed to respondents before the interview, providing a brief background on

those sets of policies relevant to market access. Next, a questionnaire was created

to properly assess interview respondents’ quantitative and qualitative appraisals of

the Health Reform Bill [see Questionnaire in Appendix].

The drafted questionnaire was then used to consult the respective stakeholder

groups over 10 sets of major policy changes, in 30-minute phone interviews.7 For

each of the policy provisions, interview respondents were asked to rate whether they

felt the policy had a positive, negative, or no impact to market access. Their

answers were graded on a scale of -2 to 2, with a score of:

-2 = a Strong Negative Impact

-1 = a Moderate Negative Impact

0 = No Impact

1 = a Moderate Positive Impact

2 = a Strong Positive Impact.

Respondents were subsequently asked to explain the reasoning behind their

respective quantitative answers, and state whether they felt pharmaceuticals were

preparing appropriately. If they responded in kind, interviewees were asked what

strategies they might recommend for pharmaceuticals to meet the challenges of the

respective policy changes. The combined sets of questions were then used as a

basis for assessing the different implications of US Health Reform.

                                                        6 Of the 15 conducted interviews, seven were from the pharmaceutical sector, four were from the payers sphere, and four were taken from patients and physicians groups. 7 The 10 sets of policies were chosen from within PPACA for their relevance to pharmaceutical and/or market access. For a full list of the assessed provisions, see Section 3 below.

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III. Review of US Health Reform Policy

The completed primary and secondary research reviews provided insight into a key

set of provisions within the Health Reform legislation. Of those provisions relevant to

market access, it was apparent that 10 sets of major policy reforms needed detail.

These reforms were appropriately fitted using the described methodologies in

Section 2.1.2, and grouped into clusters associated with the Development, Pricing &

Reimbursement, and Patient Access stages of market access. The following

analysis will therefore explain the provisions within each cluster, describe any

associated costs, and define their effective dates of implementation.

3.1 Policy Reforms for Pharmaceutical Development & Services

The first cluster of reviewed reforms involved those policies targeting pharmaceutical

pipelines or services. Such policies were deemed important considering their

potential to impact medical research priorities and funding for future development

projects. Three major policy provisions were hence included, principally those with

implications for comparative effectiveness, biosimilars approval, and federal fees on

the pharmaceutical industry (see Figure 3.1 below).

Figure 3.1 Health Reform Provisions Affecting Development & Services

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3.1.1 Comparative Effectiveness

Of those policies affecting pharmaceutical development, the creation of a “Patient-

Centered Outcomes Research Institute” was found to be relevant [1]. Operating

within the US Agency for Healthcare & Research Quality (AHRQ), the $500 million

Institute was mandated under PPACA to act as an independent research center for

the assessment of comparative clinical effectiveness [2, 10].8 The non-profit Institute

will accordingly fund meta-analyses and independent clinical trials of existing drugs

and diagnostics. The collected data will then be provided to the public within 90

days of availability, so as to support public awareness of which medical therapies are

more effective, and assist healthcare providers in guiding medical research priorities

and coverage decisions (see Figure 3.2 below) [10].

Figure 3.2 Dissemination of Comparative Effectiveness Research

Within this broad framework, PPACA has also placed several limitations on the

Institute. No cost-effective calculations, such as QALYs for instance, will be

permitted in the Institute’s assessment procedures [11]. These assessments will also

not be allowed for use in explicitly denying or rationing care under Medicare or

Medicaid, or to inhibit FDA approvals. The Institute’s findings will only be permitted

to serve as an input, amongst many, in informing coverage decisions; they cannot

serve as the sole reason for denying patient access to services [10, 11].

The Institute may thus play a limited role in indirectly affecting coverage decisions,

though this role is restricted to informing the public of comparative clinical outcomes

and not in explicitly mandating drug coverage or approval decisions.

                                                        8 The $500 million budget estimates are based on the Institute’s maximum available funding, at 5 years post-PPACA enactment [10].

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3.1.2 Biosimilars Approval Pathway

A measure found to actually impact approval pathways was the passage of

biosimilars legislation [1]. Effective immediately, the specific provisions have created

an FDA approval process for companies to produce generic or biosimilar versions of

biologic drugs [2].9 Firms can henceforth submit for a biological license application

(BLA) to gain market approval after a brand-name biologic has passed its patent

expiry [12]. Once submitted, the company will be required to provide analytical and

clinical data proving similarity in safety, potency, and mode of action to a reference

biologic. The first biosimilar to pass the approval process and prove

interchangeability with a reference biologic will be granted 1 year of data exclusivity.

Additional legislation within the Health Reform Bill, however, describes measures for

brand-name biologics as well [1]. PPACA has awarded pharmaceutical companies

12 years of data exclusivity on brand-name biologics from their date of approval—

limiting generics companies from accessing the manufacturer’s clinical test data for

some time [12]. And with an extra 6 months of exclusivity for products with a

completed set of pediatric studies, both sets of reforms effectively protect biologics

development from generics entry for over a decade after initial market approval.10

3.1.3 Federal Fees

The third reform implicated in affecting pharmaceutical development was a set of

defined federal fees [1]. Starting January 1, 2011, PPACA will impose $27 billion in

federal fees on the entire pharmaceutical industry, over 10 years. Annual industry

are estimated at [2, 13]:

$2.5 billion during 2011

$2.8 billion per year, from 2012 – 2013

$3.0 billion per year, from 2014 – 2016

$4.0 billion during 2017

$4.1 billion during 2018

and $2.8 billion per year, from 2019 – onward

                                                        9 Prior to PPACA’s enactment, generic versions of biologics were not permitted on the market. 10 This 12-year exclusivity is retroactive, meaning biologics that came on the market 10 years ago may have their test data accessed within 2 or more years [1]. 

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The annual fees will be accordingly distributed between all pharmaceuticals

companies with more than $5 million in sales [1, 14].11 Each company’s annual fee

will be allocated by the Federal Fee Schedule described in Figure 3.3 below, and by

amounts proportional to their industry market share— presenting possible

implications for pharmaceutical bottom lines and development strategies.

Figure 3.3 Federal Fee Schedule for Pharmaceutical Companies

3.2 Policy Reforms for Pharmaceutical Reimbursement

The second cluster of market access reforms identified under PPACA included those

policies affecting pricing and reimbursement. These policies varied in their direct

application to pharmaceuticals, as some were found to have expansionary

implications while others had a potentially contractional impact. Of those policies

improving access to pharmaceuticals, a set of provisions were reviewed with

consequences for prescription drug reimbursement within Medicare and Medicaid,

as well as coverage of preventive services within public and private programs.

Policies found to have potential negative consequences for pharmaceutical pricing

included those affecting industry rebates for Medicare and Medicaid, as well as

performance-based revisions to public insurance funding. The five sets of policy

reforms will in turn provide an adequate base from which to assess the implications

for pharmaceutical reimbursement (see Figure 3.4 on the next page).

                                                        11 Market shares are to be determined according to the calculations outlined in Figure 3.4 above. Specifically, company market shares will be set as a certain percentage of their annual drug sales over the entire industry’s annual drug sales [1].

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Figure 3.4 Health Reform Provisions Affecting Pricing & Reimbursement

3.2.1 Medicare Coverage Gap

Of the five policies affecting pharmaceutical reimbursement, the closure of the

Medicare Part D Coverage Gap was found to be principally significant [1]. Through

PPACA, Medicare Part D will now remove all its limits on prescription drug coverage,

and effectively reimburse the elderly with 75% co-insurance across the board [15].

Hence, whereas patients formerly faced a Coverage Gap of $3,500, receiving no co-

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insurance for prescription drug expenditures of $2,700 - $6,100, they will now only

be required to pay 25% out-of-pocket [15-16].12

To appropriately finance this $3400 Coverage Gap, a gradual series of rebates and

discounts will be offered to qualifying patients. In 2010, the federal government will

provide Medicare beneficiaries in the Coverage Gap with a $250 rebate for

prescription drug coverage [2]. In 2011, the pharmaceutical industry will be required

to offer a 50% discount on all patient expenditures within the Gap as well (see

Section 3.2.4 for more details). The government will provide the remaining 25% in

federal subsidies starting in 2013, steadily closing the Coverage Gap to 75% co-

insurance by 2020, and thus increasing reimbursement for prescription drug

medications under Medicare Part D.

3.2.2 Medicaid Coverage Expansion

Another measure found within PPACA to potentially impact pharmaceutical

reimbursement was the broad expansion of Medicaid coverage [1]. Starting January

1, 2014, Health Reform will increase Medicaid and CHIP funding by over $370

billion, in effect providing coverage to all patients below 133% of the Federal Poverty

Level (FPL) [2, 17]. This will improve coverage to the destitute, as well as the

formerly uninsured women, children, and adults under the age of 65 who qualify for

Medicaid. Qualifying patients will appropriately gain access to benchmark benefit

packages that provide essential health benefits, including coverage for

pharmaceutical services.

3.2.3 Free Preventive Coverage

Indirect uptake of pharmaceutical services may also be affected through the

provision for preventive services reimbursement [1]. As stated, Health Reform will

mandate all insurance plans to eliminate patient deductible, co-pay, and cost-sharing

payments for preventive services [2]. Such provisions, in turn, have the potential to

affect chronic disease diagnosis and, effectively, pharmaceutical sales over the long

term. Free preventive coverage will thus be mandated under new private health

                                                        12 Before the passage of Health Reform, 3 payment tiers existed within the Medicare Part D program. After an initial $270 deductible, patients would only pay 25% co-insurance on drug expenditures below $2700. For payments above $2700 and below $6,100, patients were forced to pay completely out-of-pocket. For catastrophic expenditures above $6,100, however, patients would only pay a 5% co-insurance fee [15].

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insurance plans six months after enactment, and under Medicare and Medicaid after

January 1, 2011 [2]. By 2018, all existing health plans are expected to offer free

coverage for a series of preventive services (see Figure 3.5 below) [2, 18-20].

Figure 3.5 Covered Preventive Services13 [18-20]

Services covered under PPACA will accordingly include those screenings,

medications, and vaccinations recommended by the CDC and AHRQ’s Preventive

Services Task Force [18]. Clinical indications specifically affected may include:

breast cancer, cervical cancer, and gonorrhea screenings for women; sickle cell and

visual impairment testing for children; and HIV, type II diabetes, and lipid disorder

screening for adults [19]. Covered preventive medications will also be appropriated

for breast cancer therapy, folic acid supplementation, and Aspirin usage in

cardiovascular treatment [20]. Covered vaccinations will be approved for indications

such as Hepatitis B, HPV, and Tetanus [19]. All such preventive services with Grade

“A” or “B” recommendations will be afforded free coverage, the full list of which can

be found on the AHRQ’s Preventive Services Task Force website.

3.2.4 Mandated Rebates for Medicare & Medicaid

Aside from such provisions that may expand patient reimbursement however,

several policy reforms were also implicated in affecting the pricing of drugs. As

previously mentioned in Section 3.2.1, pharmaceuticals will have to provide a 50%

discount on all brand-name drugs purchased in the Medicare Part D Coverage Gap

[15]. Implemented beginning January 1, 2011, the measure is designed to improve

                                                        13 The provided list is not meant to be comprehensive survey of all covered preventive services. It contains only a selection of such services, a full list of which can be found on the AHRQ website.

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patient coverage and compliance, and is estimated by the CBO to cover over $30

billion in Medicare drug costs over 10 years [21].14

Even more, pharmaceuticals may face similar cuts under Medicaid coverage as well.

PPACA is requiring all pharmaceuticals to immediately increase rebates on brand-

name drugs purchased in Medicaid and Medicaid Managed Care programs [1].

Rebates on clotting-factor and pediatric-use drugs will accordingly increase from

15.1% to 17.1% of the drug’s average manufacturing price (AMP) [2, 22]. Non-

innovator and multiple-source drugs will comparatively face an increase in mandated

rebates, rising from 11% to 13% of the AMP. All other drug classes will face an

increase in rebates from 15.1% to 23.1% on the drug’s AMP— presenting a total of

$38 billion in pharmaceutical rebates, over 10 years [2, 22-24].

3.2.5 Performance-Based Revisions to Medicare

Potentially negative implications also arise through PPACA’s performance-based

revisions to public reimbursement models. These reforms are designated within

different spheres of Medicare to improve efficiency, though as a result may

necessitate cost-cutting measures with potential implications for pharmaceutical

market access (see Figure 3.6 below) [1, 24].

Figure 3.6 Estimated Cuts to Medicare Programs

The first such reform will be implemented in January 1, 2011, wherein Medicare

Advantage (MA) payments to private health insurance plans will be revised [2].

Payment regimes will be restructured such that MA payments are comparable to                                                         14 As explained in Section 3.2.1, the discounts will decrease patient-facing cost-sharing within the Coverage Gap, and accordingly increase compliance of expensive therapies.

  25 

average Medicare fee-for-service levels. The following year, performance-based

incentives will be awarded to 4 or 5 star MA plans, with such plans receiving [25]:

1.5% in bonus payments, in 2012

3% in bonus payments, in 2013

and 5% in bonus payments, from 2014 – onward

Lower-performing plans that spend less than 85% of collected patient premiums on

clinical services will, by contrast, face partial remittance payments beginning in 2014.

Overall, it is estimated that these measures will reduce waste within the Medicare

program by 14%, but as a result may also cut $203 billion in MA payments over 10

years, and possibly impact pharmaceutical coverage as well [24, 26].

Similarly, hospitals that provide pharmaceutical services may face a series of

performance-based cuts. Beginning October 1, 2012, PPACA will reduce federal

Medicare reimbursement to hospitals with excesses in preventable hospital re-

admissions [2]. In 2015, hospitals carrying a significant number of patients with

hospital-acquired conditions will also face a 1% decrease in Medicare payments. In

total, the measures will cut ~$9 billion in Medicare payments to poor-performing

hospitals [24].

The last measure found to possibly enforce cuts on reimbursement was the creation

of an Independent Payment Advisory Board within Medicare [1]. The Board, as

described by PPACA, will serve to assess Medicare spending and appropriately

reduce it if need be. Starting in April 2013, the Board will begin to review Medicare

expenditure against indexed CPI figures, and if expenditures are seen as exceeding

CPI levels, the Board will propose a series of Medicare spending cuts by January 15,

2014 [2]. A similar process would then be renewed in 2018 against average GDP

figures as well. In total, CBO estimates place the Advisory Board as effectively

reducing Medicare levels by ~$13 billion from 2015 to 2019, and presenting possible

cuts to healthcare and pharmaceutical reimbursement under public programs [24].

3.3 Policy Reforms for Pharmaceutical Patient Access

With pricing & reimbursement schemes covered, the last cluster of market access

reforms to be reviewed were those with implications for patient access to services.

  26 

Such reforms included those affecting health insurance regulations through private

and State markets, as well as mandates on individuals and businesses to purchase

coverage. The set of policies would in turn be seen to have likely implications for

pharmaceuticals, presenting possible effects to market access through

improvements in patient access to services (see Figure 3.7 below).

Figure 3.7 Health Reform Provisions Affecting Patient Access

3.3.1 Health Insurance Reform

At the forefront, the immediate implications for patient access to healthcare were

found in the form of increased health insurance regulations. PPACA will effectively

place new restrictions on private health insurance companies to mandate coverage

for patients under a variety of circumstances [1].

  27 

After September 23, 2010, insurance companies will consequently no longer be

allowed to drop policyholders when they get sick [2, 26]. Insurance providers will

also be prohibited from denying coverage to children due to a pre-existing condition,

and will actually be mandated to cover dependant children on their parent’s

insurance plans until the age of 26. By January 1, 2014, the prohibition on pre-

existing condition clauses will be extended to adult coverage, and additional limits on

individual and family deductible payments will be enforced in the small-group market

as well [2].

All of these reforms thus restrict insurance market abuses, as well as potentially

improve patient access to healthcare. Though not necessarily increasing the

number of insured, the provisions will improve coverage for a sizeable portion of

patients and necessitate impacts on healthcare/pharmaceutical utilization.

3.3.2 Health Insurance Exchanges

A reform designed to conceivably increase the number of insured patients was

instead found in the provision for Health Insurance Exchanges. The Exchanges, or

regulated insurance marketplaces for individuals and businesses to purchase

healthcare, will be founded under PPACA in two stages [1].

The first stage will involve the creation of a $5 billion Temporary High-Risk Insurance

Pool, 90 days after the passage of Health Reform [2]. The Pool will seek to provide

coverage for uninsured patients with pre-existing conditions, at affordable rates.

Cost-sharing within the Pool will be limited to $5,950 out-of-pocket for individuals,

and $11,900 per family.

By January 1, 2014, the temporary program will be effectively replaced by a set of

established Health Insurance Exchanges [2]. In contrast to the High Risk Pools,

individual States will regulate the federally funded Exchanges for the purpose of

enforcing insurance reforms described in Section 3.3.1 [27].15 Such regulations will

in theory improve transparency and competition between private insurers selling on

the Exchange, and possibly create more affordable plans for purchase. Uninsured

individuals and small businesses could thus purchase plans from the Exchanges for

                                                        15 While the Health Insurance Exchanges will operate under their respective State’s authority, they will still receive federal funding to enforce federally mandated regulations on insurance practices, premium rates, and transparency measures [1].

  28 

potentially better cost-sharing schemes, and effectively provide a separate

marketplace for patients to access healthcare services (see Figure 3.8 below) [2].

Figure 3.8 Patient Access Through Health Insurance Exchanges

3.3.3 Individual Mandates & Patient Subsidies

The final assessed reforms impacting patient access were thus found in a series of

mandates and subsidies on patient coverage. These provisions would effectively

command all US citizens to acquire health insurance from January 1, 2014 onward

[2, 26]. In theory, requiring all individuals to purchase coverage would increase the

number of people in the insurance pool, improve risk-pooling, and hence reduce

cost-sharing for all patients.16 Tax penalties will be accordingly distributed to those

who do not purchase health insurance, in amounts ranging from $95 in 2014 to $695

in 2016 [2].

To assist those who still cannot purchase health insurance or qualify for

Medicare/Medicaid, PPACA will also institute ~$466 billion in federal subsidies and

tax-credits to purchase insurance on the Exchange [2, 24]. Distributed at the same

time the mandates are enforced, the subsidies will limit co-insurance to [2]:

6% for patients at 100-150% of the FPL

15% for patients at 150-200% of the FPL

27% for patients at 200-250% of the FPL

and 30% for patients at 250-400% of the FPL

Tax credits will be distributed to working families in a similar tiered fashion to limit

patient premiums in the Exchanges [2]. Combined, the patient subsidies, tax credits,

and mandates will increase the number of insured patients under State-regulated

Exchanges, and potentiate the impact for overall market access to pharmaceuticals.                                                        16 Theoretically, an insurance mandate would force healthy people to purchase insurance coverage, thereby decreasing the risk of the insurance pool and reducing risk-adjusted premium costs.

  29 

IV. Market Access Implications of US Health Reform

With the Patient Protection & Affordable Care Act appropriately summarized, the

potential consequences for market access are more evident. Policies concerning

pharmaceutical development may be seen as reforming comparative effectiveness

research and federal fees, leaving possible implications for industry market shares

and bottom lines. Other measures, such as Medicare/Medicaid expansions and

pharmaceutical rebate increases, may be found to affect pricing and reimbursement

regimes. Mandates on individual coverage and Health Insurance Exchanges may

even be implicated in increasing patient access to pharmaceutical services. In turn, it

can be seen that pharmaceuticals face a series of reforms with both positive and

negative implications— effects that could either benefit or hurt pharmaceuticals

overall.

To better understand this dynamic, the respective policy provisions of PPACA were

assessed in further detail below. Using the informational interviews described in

Section 2.2, industry perspectives from various stages of market access were

measured against the reviewed reforms [see Interview Responses in Appendix].

Insight from pharma, payers, patients, and physicians were used to assess the

consequences for industry revenues, costs, and profit margins. Overall implications

affecting pharmaceutical development, reimbursement, and patient access were

then finally defined, so as to ascertain the complete effects of US Health Reform on

pharmaceutical market access.

4.1 Implications for Pharmaceutical Development & Services

The first set of policies impacting pharmaceutical development were found to

possess moderate outcomes for market access. Analysis of industry perspectives

generally showed that the implications for development and services, while negative,

was still far better than the perceived expectations [28]. The exclusion of explicit

cost-effectiveness measures, price controls, and patent limitations was seen as a

mitigating factor to expected negative outcomes. Accordingly, the reforms affecting

comparative effectiveness, biosimilars, and federal fees only presented a moderately

negative impact to pharmaceuticals (see Figure 4.1 on the next page).

  30 

Figure 4.1 Industry Perceptions of Pharmaceutical Development & Services

4.1.1 Minimal Impact for Comparative Effectiveness

With respect to the issue of comparative effectiveness, the establishment of a

Patient-Centered Outcomes Research Institute presented a measured response.

Interviewees declared that as such an Institute may indirectly affect patient

decisions, less effective therapies could face reductions in sales volume as the

public becomes more aware of comparative clinical outcomes.17

These reductions, however, can be considered miniscule at best. Rough calculations

predict the Institute will cause a $600 million reduction in pharmaceutical sales over

10 years— hardly an issue compared to the yearly $300 billion pharmaceutical

intake [4, 29-30].18 The 12 interviewees who responded in the neutral to moderately

negative region (see P1 in Figure 4.1 above) explained that such a reduced impact

was due in part to the Institute’s limited scope. Though less effective therapies may

indeed face comparatively adverse outcomes, the Institute’s prohibition on cost-

effective measures and restrictions on mandating coverage significantly limit any

                                                        17 As explained in Section 3.1.1, the Institute still cannot mandate coverage for a specific therapy over another. It can only influence drug sales outcomes by disseminating comparative effectiveness data to healthcare providers, who would in turn use it to guide (not mandate) their coverage decisions. 18 Cost estimates are based on former comparative effectiveness studies. Using 2007 CBO estimates for a similar $600 million program, it was predicted that the Institute would reduce overall healthcare spending by $6 billion over 10 years, and hence reduce overall drug sales by $600 million (assuming prescription drugs make up 10% of total healthcare expenditure) [29-30].

  31 

such losses [9]. Additional budget limitations of $500 million over 5 years were also

seen as constraining the Institute’s impact to market access [8]. Interviewed Pharma

executives noted that comparative studies require at least 5 years of market data to

be useful, and hence any potential impact to pipeline or marketed drugs was muted

to years after market-approval. Firms may thus experience little overall impact to

their drug approval processes or bottom lines as a direct consequence to the

Comparative Effectiveness Institute.

4.1.2 Mitigated Outcomes for Biologics

Provisions for biosimilars presented more compelling consequences for

pharmaceutical market access. Industry assessments broadly indicated that the

entry of biosimilars into the market will negatively affect brand-name manufacturers

with investments in biologics, such as Amgen and Wyeth [31-32]. Pharma estimates

place the loss to industry at as much as $25 billion over 10 years— a significant

outcome considering annual biologics sales total $75 billion a year [33].

Interview respondents largely concurred with the revenue estimates, but also

clarified that the potential loss could have been far worse (see Figure 4.2 below).

Figure 4.2 Mitigating Factors to Biologics Losses

All 13 respondents who indicated either a moderately positive or negative response

(see P2 in Figure 4.1) explained that the data exclusivity afforded to biologics was

actually a mitigating factor.19 In comparison to the 5 years normally granted to

drugs, the 12 years of exclusivity awarded to biologics was seen as inhibiting

generics access to clinical data and frustrating their ability to prove medicinal

similarity [12, 34]. Reference biologics with longer patent lives such as Neulasta and

                                                        19 Though all thirteen respondents acknowledged the moderate negative outcomes of the legislation, five responses were designated as “moderate positive” because of their over-emphasis on the benefits to pharmaceutical companies.

  32 

Remicade will consequently enjoy an extended grace period before follow-on

versions can be made, though soon-to-expire biologics including Enbrel and

Neumega could still be affected in the short term [32]. Even so, stringent exclusivity

and FDA approval pathways effectively diminish any real biosimilars threat upon

market entry. Clinical Directors from the Payers sector estimated that the higher

manufacturing costs associated with complex biologics limit the ability to prove

medicinal similarity, and thus leave biosimilars with only a 20-30% reduction in

competitive pricing as opposed to a 70-80% discount afforded to small-molecule

generics [34]. Generic biosimilars may in turn only take 10-20% of the biologics

market in 10 years time— implicating the $25 billion in reduced revenue as more of a

mitigated, rather than an absolute, loss to the pharmaceutical sector [34].

4.1.3 Company Losses to Federal Fees

More unwelcome costs to the pharmaceutical sector may be apparent through the

provisions for incurred federal fees [1]. As aforementioned, the entire industry will

face an increasing set of federal fees from $2.5 billion in 2011 to $4.1 billion in 2018.

These fees will be divided between individual firms by their respective market share,

in turn determined by the Federal Fee Schedule described in Section 3.1.3, and

calculated further in Figure 4.3 below.20

Figure 4.3 Federal Fees by Company Market Share, 2011-2019 [1]

                                                        20 Calculated market shares were determined using the Fee Schedule in Section 3.1.3. Assuming a $300B pharmaceutical market, a company with $5M in sales would accordingly be fined over 10% of their annual sales to contribute roughly $0.05B x 0.10 / $300B = 0.000017% of the annual fees. Larger firms with > $400M in sales would be fined over 100% of their income, and thus pay at least $0.4B x 1 / $300B = 0.13% of the annual fees. [1]

  33 

Smaller companies with $5 - $125 million in sales will thus contribute between

0.00017% - 0.0042% of the annual industry fees, based on their calculated market

shares. Larger firms with > $400 million in sales will represent at least 0.13% of the

industry market shares, and incur a proportional amount to the annual industry fees

as well. Over a 10-year period, it is estimated that the entire industry will hence face

$27 billion in potential losses [2].

The interviewed response to such figures was naturally quite negative. Twelve

respondents indicated moderate to strong negative outcomes from the provision,

believing the fees would hurt industry bottom lines (see P3 in Figure 4.1). Pharma

executives were particularly worried, as the smaller profits could necessitate

economized re-investment in R&D and shrink clinical development pipelines for

reduced market access. Health Policy professionals explained that such outcomes

would still be at a moderated level, however, considering the company fees are to be

allocated by respective market shares. Early stage companies with < $5 million in

sales, or start-ups operating at a loss, will be appropriately spared from the fees as

they are allocated proportional to company sales revenue. Larger firms that bear the

brunt of the tax, sharing at minimum 0.13% of the industry fees, may even recoup

their losses through dominant pricing positions. Hence, though the overall $27 billion

fee to industry may be respectably significant, individual market access implications

will vary by company size and positioning.

4.2 Implications for Pharmaceutical Reimbursement

Policies affecting pricing and reimbursement were seen as having even more

profound implications for market access. In contrast to the nuanced responses

described in Section 4.1, industry assessments of Medicare and Medicaid coverage

were comparatively stronger and more concrete. Specific policies improving

coverage were met with blanket approval, while those mandating rebates were

perceived as hurting pharmaceuticals. And though respondents were relatively split

on which improvements would outweigh the negatives, preliminary analysis would

seem to indicate a generally positive effect for industry (see Figure 4.4 on the next

page).

  34 

Figure 4.4 Industry Perceptions of Pharmaceutical Reimbursement

4.2.1 Gains To Closing The Medicare Coverage Gap

Particularly positive results for market access were predicted to follow closure of the

Medicare Part D Coverage Gap. As outlined in Section 3.2.1, Health Reform will

gradually subsidize prescription drug coverage for those Medicare Part D patients

who hit the Coverage Gap from 2010 onwards [15, 35]. Instead of paying completely

out-of-pocket on expenditures of $2,700 - $6,100, these patients will now only pay

1/4 of the cost— effectively reducing the $3,100 gap in co-insurance coverage to

~25% by 2019 [15-16].

Industry response to the policy was accordingly favorable (see P1 in Figure 4.4

above). Fourteen respondents heralded the increase in coverage as a positive

measure to improve patient drug compliance amongst the elderly [35]. As

pharmaceutical reports cited a 20% drop in drug compliance as patients reach the

 

  35 

Coverage Gap, Payers and Physicians predicted a comparable percentage increase

in patient drug utilization as coverage is improved (see Figure 4.5 below) [35].

Figure 4.5 Expected Rise In Coverage Gap Drug Compliance, 2010-2019 [35]

With the consequent improvements in reimbursement effectively boosting market

access for Medicare-specific indications, PPIs and anti-diabetics such as Previcaid

and Avandia may benefit considerably through increased sales (see Figure 4.5

above). Even less price-sensitive treatments such as statins and angiotensin

receptors may see a slight upsurge in compliance. Rough calculations accordingly

predict an overall sales gain of ~$38 billion for the industry by 2019 [35-36].21

Additional assessments even predict a net profitable outcome for the industry.

Though pharmaceuticals will have to enforce 50% discounts on prescription drugs to

actually improve patient utilization, 8 respondents pointed out that the associated

costs may be moderated by the resultant gains (see P5 in Figure 4.4) [15]. As

Pharma will only have to pay $30 billion in discounts to improve drug utilization by

$38 billion, the industry may effectively stand to gain a net $8 billion in improved

market access through the closure of the Medicare Part D Coverage Gap [21].

                                                        21 Revenues were estimated over a set of assumptions. Given a 10-year Medicare Part D budget of $730 billion, it was assumed that $190 billion would be spent in the Coverage Gap (as ~26% of enrollees hit the Coverage Gap every year). Factoring in the 20% reduced revenue from patient non-compliance, it was estimated that closing the Gap would bring in $38 billion over 10 years. [35-36]

 

  36 

4.2.2 Mitigated Yields To Medicaid Expansion

Reforms to the Medicaid reimbursement structure present equally important

implications for market access. Bearing in mind Medicaid will be expanded to all

those below 133% of the FPL, the pharmaceutical industry may increase its sales as

16 million people gain coverage from 2014-2019 (see Figure 4.6 below) [2, 24]. 22

Figure 4.6 Medicaid Patients Covered Under Health Reform, 2010-2019 [24]

Interviewed Pharma executives explain this 16 million boon to industry as a

consequence of increased patient coverage necessitating increased access to

services. As the formerly uninsured gain insurance, patients will face co-insurance

regimes to reduce their out-of-pocket expenditures while increasing their

pharmaceutical uptake. Companies with heavy investment in anti-psychotic and

cholesterol-lowering drugs such as Zyprexa and Pravachol, would respectively stand

to gain the most as Medicaid’s low-income and disabled populations gain access to

such services. Other companies unfamiliar with the Medicaid formularies may stand

to benefit less from the increase in coverage, though preliminary calculations still

predict a $40.9 billion increase in overall industry revenues as Medicaid expands

over 10 years [24, 37].23

                                                        22 Due to the structuring of other Medicaid reforms, some patients will actually lose coverage from 2011-2013 (as can be seen in Figure 4.6 above). However after 2014, these losses in the patient pool should be recovered as Medicaid is expanded to all patients below 133% FPL. 23 The $40.9 billion in gained revenue was calculated by multiplying the number of Medicaid beneficiaries who gained and lost coverage from 2010 - 2019 (as seen in Figure 4.6 above) by the avg $489/person drug expenditure (given ~8% of the $6,120/person Medicaid expenditure is reported to be spent on drugs). [24, 37]

 

  37 

Though presenting a favorable outcome as such, these gains must again be

measured against their immediate losses. Respondents asserted that an immediate

increase in Medicaid rebates from 15.1% - 23.1% would add a negative outcome to

the Medicaid expansions (see P5 in Figure 4.4). And unlike the discounts described

in Section 4.2.1, many respondents felt Pharma would not be able to recoup their

losses. Pharma consultants explained that as the rebates were structured to reduce

the federal budget, not patient-facing costs, there would be no resultant patient-

facing discounts to improve pharmaceutical uptake as there was with the Medicare.24

Furthermore, as the anti-psychotics and statins covered by Medicaid tend to be in

price-elastic markets, companies will find it difficult to directly compensate for the

rebates through traditional price hikes in the private market. Medium to large size

firms with heavy dependence on such plans would accordingly be impacted the most

as the rebates detract from current revenue [8]. This would in turn explain the

immediate market downcasts reported by Eli Lilly and BMS as mentioned in Section

1.2, and also account for the associated $38 billion in costs reported in Section 3.2.4

[7, 24]. Hence in comparing this to the $40.9 billion in gained Medicaid revenue, it

would seem the immediately enforced rebates leave the pharmaceutical industry

with only a mitigated yield to later Medicaid expansions.

4.2.3 Minimal Impact To Preventive & Performance Based Measures

The remaining policy reforms to pricing and reimbursement present measurably less

significance for market access, with on overall neutral response from industry.

With regards to preventive services, respondents believed the elimination of co-pays

and co-insurance would present only a neutral to moderate outcome (see P3 in

Figure 4.4) [2]. Interviewees explained that as brand-name manufacturers wouldn’t

be directly covered, any potential impact to access was to come through indirect

utilization following covered preventive screenings (see Section 3.2.3 for list of

covered services) [18-20].25 Vaccine manufacturers such as Merck and GSK could

possibly benefit more with their direct investments in covered Hepatitis B and HPV

                                                        24 Due to the structuring of Medicaid, the rebates will not actually result in any patient-facing discounts. The rebates are designed to increase revenue for the government, not savings for the consumer. Hence with patient-facing costs essentially staying the same, the rebates will not increase patient utilization (any increase in Medicaid drug use will come from the coverage expansion to 133% FPL, not from the rebates) 25 Contrary to popular belief, preventive measures rarely leads to lifestyle changes. Interviewed Pharma consultants explained that increased diagnosis more often results in more medication use.

  38 

vaccines. Even still, any such benefit would only be experienced in the long term.

Interviewed Pharma consultants placed the increase in utilization at least 10 years

down the road, considering existing health plans won’t necessarily ensure coverage

till 2018. And factoring in the time needed for preventive measures to actually

impact patient decisions, the effective impact may be modest at best.

Similarly, the performance-based provisions affecting Medicare coverage presented

overall neutral results. Though such measures were found to cut over $225 billion

through Medicare Advantage and an Independent Payment Advisory Board,

respondents expressed a range of perspectives on their actual implications for

market access (see Figure 4.7 below) [1, 24].

Figure 4.7 Industry Perspectives on Performance-Based Reforms

From a positive perspective, some Patients and Physicians noted that the

performance-based measures might force stricter efficiency standards upon

hospitals and thus improve caretaker performance. Pharmaceuticals may in turn see

better hospital compliance with prescription drug coverage and improve their market

access. On the negative end, however, five respondents cited concern with the

broad authority of the Independent Payment Advisory Board to potentially cut such

prescription drug coverage (see P4 in Figure 4.4). These respondents feared the

Board might institute HTA-like measures to cut Medicare Part D, and consequently

hurt pharmaceutical uptake [38].26 Still, other interviewees were quick

                                                        26 Fun Fact: the Independent Payment Advisory Board is the same controversial measure criticized by Vice-Presidential candidate Sarah Palin as a “Death Panel”. [38]

 

  39 

to clarify that as the Board’s actual authority is to be defined in 2014, Pharma has

much time to lobby and plan against such measures. The seven majority

respondents (see P4 in Figure 4.4) hence contended that any potential cuts to lower-

performing plans would simply be balanced by the bonuses to better ones, leaving

performance-based policy reforms with a net neutral outcome for market access.

4.3 Implications for Pharmaceutical Patient Access

The last set of assessed reforms present more compelling outcomes for market

access. These reforms include HI Exchanges as well as Insurance Mandates—

provisions largely welcomed by the industry as a means to both increase patient

access as well as patient utilization of services (see Figure 4.8 below) [1-2].

Figure 4.8 Industry Perceptions of Pharmaceutical Patient Access

4.3.1 Increase in Patient Access to Healthcare

With respect to increasing patient access to services, all 15 respondents saw the

individual mandates as a positive measure to force patient coverage and boost

enrollment in the private market (see Figure 4.8 above). As mentioned in Section

3.3, patients will receive over $340 billion in federal subsidies and tax credits to

assist in purchasing private health insurance plans. The newly insured patients

would in turn gain the option of purchasing access to coverage through State-

regulated marketplaces, wherein patients can enter a diverse pool of patients from

2014 onward (see Figure 4.9 on the next page) [24].

 

  40 

Figure 4.9 Impact Of US Health Reform On The Private Market, 2010-2019 [24]

Within this regulated pool, respondents noted that insurance reforms described in

Section 3.3.1 would be enforced to prohibit pre-existing condition clauses, and thus

allow patients with recurrent sicknesses to more easily access healthcare. Adding in

other formerly uninsured patients now mandated to purchase coverage, the total

inflow of patients was estimated at 24 million lives over 10 years (see Figure 4.9

above) [24]. And balancing this respective increase against the 8 million who may

lose insurance in the non-State regulated market, it is estimated that the State-

regulated Exchanges will absorb a net 16 million people by 2019 [24].

4.3.2 Increase in Patient Utilization of Services

This influx of people into the Exchanges in turn presents important outcomes for

insurance-pooling and consequent drug utilization. Pharma executives explained

that as a portion of the formerly uninsured are postulated to be younger than the

average populace,27 their addition into the Health Insurance Exchange will decrease

overall risk, improve risk-pooling, and thus reduce risk-adjusted heath insurance

premiums. Premium affordability may equivalently improve as insurance reforms

mentioned in Section 3.3.1 are enforced to expand transparency and competition

within the market. CBO estimates appropriately place the average premium

                                                        27 Interviewed Pharma executives called these formerly uninsured people “Young Invincibles,” as many of them do not purchase health insurance because they believe they don’t need it.

 

  41 

reduction at ~$700-1000/person within the Exchange, assuming 70% actuarially fair

pricing [39]. Industry estimates even register a 10% increase in pharmaceutical

utilization as such co-insurance and cost-sharing regimes are improved [40].

Accordingly, pharmaceutical utilization in the Exchanges was seen as benefiting a

range of companies involved. Though no particular class of drugs stands to benefit

exclusively within the Exchange, the influx of younger members and patients with

pre-existing conditions will bring in a patient population that spends less on overall

healthcare but much more on percentage drug expenditure [41]. These factors

considered, rough estimates place the overall pharmaceutical uptake in the

Exchange at ~$42 billion over 10 years; presenting a significant boost to patient

access to healthcare and market access overall [24, 41].28

                                                        28 The $42 billion in gained revenue was calculated by multiplying the number of people who gained and lost coverage in the private market from 2010 - 2019 (as seen in Figure 4.9) by an avg $475/person drug expenditure (calculated from reports that patients in the 18-44 age group spent ~17.6% of their $2,700/person healthcare expenditure on drugs). [24, 41]

  42 

V. Conclusions & Market Access Recommendations

Overall, it would seem that the Exchanges, in combination with the aforementioned

Reforms, spell a varying range of implications for different stages of market access.

5.1 Overall Implications for Market Access

As previously discussed, measures impacting the market acces stages of

development and services present a neutral to moderate outcome at best, especially

considering the mitigated potential of such provisions to actually affect industry

pipelines or market share. Reforms affecting reimbursement and access may be

seen with more significance, as increased coverage through public and private

programs will provide over 32 million new patients with access to pharmaceutical

services [24]. Industry response is even enthused by the latter outcome, predicting

moderate to strong implications for overall sales volume as Medicaid, Medicare, and

the State Exchanges are expanded (see E2 and E3 in Figure 5.1 below). Indeed,

interviewed respondents cited improvements in industry sales by as much as 7-15%

over the long run (as described in Sections 4.2.1 - 4.2.2 and Sections 4.3.1-4.3.2).

Figure 5.1 Industry Perceptions of Market Access

Nevertheless, these positive implications have to also be viewed in light of their

negative costs. Interviewed respondents were careful to note that many of the

improvements in Medicare and Medicaid coverage will require pharmaceuticals to

offer a series of discounts or rebates, effectively hurting their public pricing regimens

  43 

(see E1 in Figure 5.1). And though some Pharma and Payers executives foresaw

consequent price hikes in the private market to compensate, a majority of

respondents correctly noted the difficulty in doing so, especially considering the

increased competition and public oversight to follow US Health Reform.

Accordingly, the concert of negative prices with increased sales will leave some

companies to benefit, others to falter, but most to a neutral outcome. Based on

previously cited figures, biologics manufacturers will lose a modest share to

biosimilars that take $25 billion over the next 10 years [33]. Chronic-disease and

mental-health companies will benefit as Medicare and Medicaid drug expenditures

expand $38 - $40.9 billion respectively, though only certain firms will capture

significant profits [24, 35-37]. Companies with heavier investments in Medicare may

gain more considering the reduced $30 billion discounts, while medium to large-size

firms invested in Medicaid may lose under the higher $38 billion rebates [8, 21, 24].

Similar firms will incur $27 billion in federal fees or $0.6 billion in comparative

outcomes, but will still rake in $42 billion in State Exchange revenues to balance

their overall costs [2, 24, 29-30, 41]. Adding in the relatively neutral significance of

preventive performance-based measures, it would seem most of the immediate

costs are actually balanced by their future revenues— leaving the net neutral impact

of US Health Reform on the Pharma Industry at +$0.3 billion (see Figure 5.2 below).

Figure 5.2 Industry Costs and Revenues Under Health Reform, 2010-2019

 

  44 

5.2 Strategic Recommendations

With a budget neutral outcome over the long term, it would seem the pharmaceutical

industry as a whole has little to worry from US Health Reform. In contrast to the

preliminary reports mentioned in Section 1.2, the positive and negative analyses of

this Health Reform study largely seem to cancel one another out. Nevertheless, the

industry should still make sure to pay attention to the range in Health Reform

implications, as specific policies present immediate costs that may only be balanced

by future revenues over the next 10 years (see Figure 5.3 below).

Figure 5.3 Range of Implications for Pharmaceutical Market Access

These implications in turn may benefit different companies in the short and long

term, and if inappropriately approached could leave a market of “Winners & Losers.”

Consequently, it would be prudent for companies to follow a set of recommendations

in approaching the market access outcomes of US Health Reform, and capture or

mitigate any potential revenues or losses.

 

  45 

5.2.1 Strategies for Maintaining Development and Services

To accordingly ensure mitigated losses to market access, a series of strategies are

recommended for pipeline development and services (see Figure 5.4 below).

Figure 5.4 Strategic Recommendations for Pharmaceutical Development

The issue of $27 billion in industry fees should be broadly noted first, though to

varying degrees by different companies. Small to medium size companies should be

comparatively better off as firms with < $125 million in sales will be asked to

contribute only 0 - 0.0042% of the total industry fees (see Section 4.1.3 for details)

[1]. Larger companies with > $400 million in sales will however have to pitch in to at

least 0.13% of the industry fees, and should hence take greater precaution.

Recommended mitigating strategies include broadening the company’s scope or

pursuing additional clinical indications in the global market. This will allow firms with

strong US investment, such as Eli Lilly and BMS, to mitigate the outcome to their

bottom lines [42]. Extreme measures would however not be recommended, as the

impact of such fees may still be mitigated through the revenue gained from future

Medicare and Medicaid expansions (see Section 5.2.2 for more info).

Similarly, preparations for the Comparative Effectiveness Institute should be taken in

moderation. Given the Institute may only reduce sales by ~$600 million over the

next 10 years, the financial impact to each company may be of little note [29-30].

Nevertheless, the use of comparative studies is still recommended, if not because of

the Institute but more so because of the changing competitive landscape. Indirect

implications of Health Insurance Exchanges and increased government oversight will

increase the competition within the private markets, and thus necessitate

comparative effective assessments to guide patient choice. Though the

assessments will not serve as mandates for patient coverage, Payers organizations

  46 

may still use them to differentiate between less effective outcomes within

increasingly competitive pools. Pharmaceuticals should hence work with Payers

groups to provide their own comparative research, so as to improve their chances of

making minimum health packages and achieving adequate reimbursement [8].

The issue of biosimilars should take more precedence still, as the new legislations

may cost brand-name manufacturers over $25 billion in biologics revenue over 10

years [33]. Pharma and biotech firms are hence advised to follow a set of

recommendations to mitigate their losses and pursue future assets. Firstly, firms

should leverage the awarded data exclusivity clauses to diversify their product

portfolios with follow-on biologics. As biologics are already more complex and

expensive to manufacture, the extended 12 years in exclusivity should buy time for

biologics manufacturers to establish their own biosimilar divisions and compete on

the generics market. Companies with impending patent expiries such as Amgen and

Wyeth would accordingly be able to mitigate their biologics losses and maintain their

market shares. Firms with later patent expiries, such as Johnson & Johnson, can

further benefit by using the awarded exclusivity to consolidate existing biologics into

additional clinical indications, or to acquire other competitor biologics with later

patent expiries. Such strategies will appreciably impact a firm’s loss to biosimilars

entry, and allow them to maintain an effective hold on 80-90% of the market [34].

5.2.2 Strategies for Achieving Reimbursement

In addition to mitigating such losses, Health Reform also presents opportunities for

expanding industry sales through pricing & reimbursement strategies (Figure 5.5).

Figure 5.5 Strategic Recommendations for Pricing & Reimbursement

 

  47 

The largest sales potential will arise from the closure of the Medicare Part D

Coverage Gap, wherein drug manufacturers will see an overall $38 billion increase in

utilization as $30 billion in patient discounts are enforced over 10 years [21, 35-36].

To appropriately guarantee that the discounts lead to increased utilization,

pharmaceuticals are recommended to work with federal and Medicare formularies to

ensure their discounts are applied to the purchased drugs. Once this is confirmed,

companies such as Novartis and GSK that have increased investments in PPIs, anti-

diabetics, and other Medicare drugs should expect to see improved compliance in

the Coverage Gap (see Section 4.2.1 for list of affected drugs) [35]. These efficient

investment strategies should in turn lead to increased profits, especially over the

mandated discounts.

Likewise, companies seeking to benefit from the expansions in Medicaid coverage

need to both mitigate the impacts of the associated rebates as well as seek the

appropriate investments in Medicaid drugs. To compensate for the $38 billion

increase in rebates, it would be advised for medium to large-size firms to reduce

their funding for pharmaceutical assistance programs that provide free drug

coverage for needy populations [24]. As these low-income and disabled people will

likely gain coverage when Medicaid expands in 2014, the need for such private

programs can be mitigated to cut losses. And as 16 million patients do gain

coverage, companies will see an increase of $40.9 billion in Medicaid anti-psychotic

and chronic medications for further compensation [24, 37]. Companies already

invested in these drugs, such as Eli Lilly and BMS, are recommended to prepare for

the increase in sales accordingly to enhance their chances of capturing future

revenue; though other companies would be advised to not follow suit unless they are

already familiar with the complex and restrictive Medicaid formularies, and are able

to avoid any unnecessary entry costs.

Companies are also advised to not devote too many resources in preparing for the

preventive and performance-based measures outlined in Sections 3.2.3 and 3.2.5.

At best, the institution of free preventive services may benefit vaccine manufacturers

such as Merck and GSK that already invest in the covered Hepatitis B and HPV

vaccines. But as a majority of health insurance plans aren’t expected to approve

coverage until 2018, and the effects of increased utilization aren’t expected till even

later, the effective increase may not necessarily warrant any current preparation.

  48 

Similarly, most of the performance-based cuts to public insurance funding should not

warrant much action, considering their likely budget neutral impact to patients and

pharmaceutical access. The only performance-based measure worthy of foresight is

the creation of the Independent Payment Advisory Board. As the Board may have

the authority to possibly cut Medicare drug coverage if need by 2014, it would be

prudent for medium to large-size companies with heavy government sales to closely

follow the policies instituted by the Board as they are formulated over time. Doing so

will mitigate the impact of any potential cuts in public reimbursement, and

strategically position companies to maintain their reimbursed formularies.

5.2.3 Strategies for Acquiring Patient Access

The final set of reforms present recommendations for improving access to patients

through the State-regulated Exchanges (see Figure 5.6 below).

Figure 5.6 Strategic Recommendations for Patient Access

As the Exchanges are expected to bring in roughly 16 million people into the private

health insurance market over 10 years, the $42 billion in potential drug sales is a

promising opportunity for the industry [24, 41]. But as the regulated Exchanges also

present a new and competitive market, companies will have to pursue key public-

private partnerships to ensure their drugs are on the covered formularies. Firms

should thus communicate with public institutions as minimum benefit packages are

being formulated, and accordingly work to ensure that their drugs are reimbursed.

Once drugs are covered, pharmaceutical firms will need to further increase targeted

marketing to a broad array of consumers to ensure proper uptake. The competitive

nature of the Exchange market will thus present greater strategic opportunities for

increased revenue potential, if properly approached.

  49 

5.3 Conclusions & Recommendations

In conclusion, it can now be seen that the Patient Protection and Affordable Care Act

presents a series of reforms that affect different aspects of pharmaceutical market

access to varying degrees. Implications for the development and service stages of

market access are neutral to moderately negative, and as such only require short-

term strategies for possible mitigation. Pricing and reimbursement reforms carry

some of the more significant propositions for pharmaceuticals, and thus require

immediate action to mitigate the current costs and acquire future revenues. Lastly,

provisions improving access to services present an equally significant outcome for

market access, as firms seeking to strategically absorb the influx of newly insured

patients stand to improve their market access considerably. Overall, the broad

aspects of reform will be neutral for the industry as a whole, though individual

companies may stand to benefit if guided by the recommended strategies.

5.3.1 Major Conclusions

It follows that the overall conclusions of this study are that:

1. US Health Reform presents 10 major policy reforms for pharmaceutical

market access

2. The relevant policy provisions affect 3 stages of market access, namely

development & services, pricing & reimbursement, and patient access

3. Policies affecting development & services include comparative effectiveness,

biosimilars, and federal fees, and all present mitigated losses to

pharmaceutical companies over the short term

4. Policies impacting pricing & reimbursement present short-term Medicaid

rebates and Medicare discounts, but are balanced by long term gains in

Medicaid and Medicare Part D expansions

5. Provisions increasing patient access though State-regulated Exchanges

provide additional long-term revenue for most pharmaceuticals

6. 10-year forecasts predict a slight reduction in prices, a $120.6 billion increase

in associated costs, a 32 million surge in insured patients, and an associated

$120.9 billion increase in revenues for the pharmaceutical industry

7. Health Reform presents an overall neutral impact to industry at + $0.3 billion,

though individual companies stand to benefit or falter to varying degrees

  50 

5.3.2 Industry Recommendations

In turn, recommendations for individual companies indicate that:

1. Medium to large-size firms should broaden their markets and continue to

pursue comparative effectiveness studies, so as to balance the increase in

federal fees in an increasingly competitive market

2. Medium to large-size firms with a high proportion of government sales should

reduce funding for Pharmaceutical Assistance Programs, so as to mitigate

the costs of increased Medicaid rebates

3. Firms with heavy investments in chronic and age-related drugs should

prepare for increased sales within the Medicare Part D Coverage Gap

4. Firms with focus in psychotic and chronic conditions should also prepare for

sales increases in Medicaid, but only if already invested in the program

5. Companies with heavy investments in Medicare should monitor the potential

reimbursement reforms from the Independent Payment Advisory Board

6. All firms should pursue public-private partnerships to ensure coverage in the

State Exchange, and increase targeted advertising to reach new patient and

consumer bases

  51 

VI. Bibliography

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Congress, 2nd Session. 5 Jan, 2010.

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Foundation. 26 Mar, 2010.

3. Hass, Christopher. “President Obama Reiterates Support for Public Option and

Health Insurance Exchange.” Organizing for America. 3 Jun, 2009.

<http://my.barackobama.com/page/community/post/obamaforamerica/gGGGpK>

4. Anderson, Tim, et al. “Assessment of the Opportunities for Pharmaceutical

Manufacturers in Emerging Markets.” Journal of Managed Care Pharmacy. 15:5.

June, 2009. 396-402.

5. Hobson, Katherine. “Pharma Sales Set to Grow 5%-8%; Overhaul Effects

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<http://blogs.wsj.com/health/2010/04/20/pharma-sales-set-to-grow-5-8-overhaul-

effects-unclear/?utm_source=feedburner&utm_medium=feed&utm_campaign=

Feed:+wsj/health/feed+(WSJ.com:+Health+Blog>

6. Tirrell, Meg. “Lilly First-Quarter Profit Falls on Heath Overhaul.” Bloomberg

Businessweek. 19 April, 2010.

<http://www.businessweek.com/news/2010-04-19/lilly-first-quarter-profit-declines-

on-higher-costs-update1-.html>

7. Marcial, Gene. “Inside Wall Street: Even After Health Care Reform, Merck is

Looking Hale.” Daily Finance. 30 April, 2010.

<http://www.dailyfinance.com/story/investing/inside-wall-street-even-after-health-

care-reform-merck-is-look/19458982/>

8. “Health Reform: Prospering in a Post-Reform World.” PricewaterhouseCoopers:

Health Research Institute. May, 2010.

9. Baghdadi, Ramsey. “Health Care Reform a Done Deal: Pharma Bets on the Right

Horse.” The RPM Report. 22 Mar, 2010.

<http://therpmreport.com/Free/43a4038c-f5e9-4de8-b400-e80cda0a7ace.

aspx?utm_source=RPMel>

  52 

10. “Overview of the Patient-Centered Outcomes Research Institute.” Center for

Medical Technology Policy.

<http://www.cmtpnet.org/comparative-effectiveness/overview-of-the-patient-

centered-outcomes-research-institute>

11. “Focus on Health Reform: Explaining Health Reform- What is Comparative

Effectiveness Research?” Kaiser Family Foundation. Oct, 2009.

12. “Biologics Price Competition and Innovation Act.” United States Democratic

Policy Committee.

13. “Focus on Health Reform: Health Reform Implementation Timeline.” Kaiser

Family Foundation. 25 Mar, 2010.

14. “The Patient Protection and Affordable Care Act as Passed: Section-by-Section

Analysis.” United States Democratic Policy Committee.

15. “Focus on Health Reform: Explaining Health Reform- Key Changes to the

Medicare Part D Drug Benefit Coverage Gap.” Kaiser Family Foundation. Mar,

2010.

 16. Joyce, Brian and Lau, Denys. "Medicare Part D Prescription Drug Benefit: An

Update." Buehler Center on Aging, Health & Society Newsletter. 22:2. Winter

2009 

 17. “Focus on Health Reform: Assessing Congressional Budget Office Estimates of

the Cost and Coverage Implications of Health Reform Proposals.” Kaiser Family

Foundation. Nov, 2009.

18. Walker, Emily. “What’s in the Healthcare Reform Law.” MedPage Today. 1 Apr,

2010. <http://www.medpagetoday.com/Washington-Watch/Reform/19351>

19. “The Guide to Clinical Preventive Services 2009: Recommendations of the US

Preventive Services Task Force.” Agency for Healthcare Research and Quality.

Aug, 2009.

20. “US Preventive Services Task Force.” Agency for Healthcare Research and

Quality.” <http://www.ahrq.gov/clinic/uspstfix.htm>

  53 

21. Fram, Alan. “Big Pharma Wins Big with Health Care Reform Bill.” Healthcare-

Now! 29 Mar, 2010. <http://www.healthcare-now.org/big-pharma-wins-big-with-

health-care-reform-bill/>

22. Hearne, Jean. “CRS Report for Congress: Prescription Drug Coverage Under

Medicaid.” Congressional Research Service. 6 Feb, 2008.

23. “Focus on Health Reform: Explaining Health Care Reform – How Might a Reform

Plan Be Financed?” Kaiser Family Foundation. July, 2009.

24. Elmendorf, Douglas. “CBO Letter to Nancy Pelosi.” Congressional Budget Office.

18, Mar 2010.

25. “Focus on Health Reform: Explaining Health Care Reform – Key Changes in the

Medicare Advantage Program.” Kaiser Family Foundation. May, 2010.

26. “Putting Americans in Control of their Health Care.” Whitehouse.gov.

<http://www.whitehouse.gov/health-care-meeting/proposal>

27. “Focus on Health Reform: Explaining Health Care Reform- What are Health

Insurance Exchanges?” Kaiser Family Foundation. May, 2009.

28. Rubenstein, Sarah. “Drug Markers Talk Up Comparative Effectiveness, Sort Of.”

Wall Street Journal. 14 Apr, 2009. <http://blogs.wsj.com/health/2009/04/14/drug-

makers-talk-up-comparative-effectiveness-sort-of/>

 29. Orszag, Peter. “CBO Letter to Pete Stark.” Congressional Budget Office. 5 Sep,

2007.

30. “Prescription Drug Trends.” Kaiser Family Foundation. Sep, 2008. 

 31. “Form 10-Q for Amgen Inc: Quarterly Report.” Yahoo Finance. 7 May, 2010.

<http://biz.yahoo.com/e/100507/amgn10-q.html>  

 32. Brower, Amanda. “Biotech Business: ‘Generic’ Biotech Products: Are the

Floodgates Open? At Whose Expense?” Biotechnology Healthcare. Aug, 2006.

22-23 

   

  54 

33. Edlin, Mari. “Savings from Biosimilars Won’t Compare to Today’s Generics.”

Managed Healthcare Executive. 1 Apr, 2010.

<http://managedhealthcareexecutive.modernmedicine.com/mhe/Pharmacy+Strat

egy/Savings-from-biosimilars-wont-compare-to-todays-

ge/ArticleStandard/Article/detail/663846>

 34. Iskowirz, Marc. “Biosimilars Mean Competition, Not Marketing Oblivion, For

Biologic Brands.” Medical Marketing & Media. 23 Mar, 2010.

<http://www.mmm-online.com/biosimilars-mean-competition-not-marketing-

oblivion-for-biologic-brands/article/166344/>

35. Hoadley, Jack, et al. “The Medicare Part D Coverage Gap: Costs and

Consequences in 2007.” Kaiser Family Foundation. Aug, 2008.

36. “2009 Annual Report of the Boards of Trustees of the Federal Hospital Insurance

and Federal Supplementary Medical Insurance Trust Funds.” Center for Medicare

& Medicaid Services. 12 May, 2009.

37. “2008 Actuarial Report on the Financial Outlook for Medicaid.” Department of

Health & Human Services.” 17 Oct, 2008.

38. Sullivan, Sean. “US Health Care Reform: A Work in Progress.” Eur J Health

Econ. 11. 27 Feb, 2010. 117-118.

39. Gruber, Jonathan. “The House Proposal Lowers Non-Group Premiums.” MIT. 2

Nov, 2009.

40. O’Leary, Kevin. “Summary of the New National Health Reform Law.” IMS

Consulting. 29 Mar, 2010.

41. Alazraki, Melly. “Costs of Prescriptions and Doctor Visits Double in a Decade.”

Daily Finance. 13 Dec, 2009. <http://www.dailyfinance.com/story/for-consumers-

costs-of-prescriptions-and-doctor-visits-have-sky/19275252/>

42. Jack, Andrew. “Drugmakers Fear Price of US Health Reform.” Financial Times.

20 May, 2010. <http://www.ft.com/cms/s/0/71c84832-639d-11df-a32b-

00144feab49a.html>

 

  55 

VII. Appendix

7.1 Interviewee Health Reform Summary

The following Summary of the Health Reform Bill was prepared to provide interview

respondents with adequate background on the legislation before their scheduled

informational interviews.

Policies Directly Affecting Pharmaceuticals

Health Reform Policy Implementation

#1: 12-year data exclusivity afforded to brand-name biologics Immediate, 2010

#2: FDA approval pathway created for biosimilars, with 1-year data exclusivity afforded to first generics company to produce biosimilar

Immediate, 2010

#3: Federal funding approved for the establishment of a non-profit institute assessing comparative/clinical effectiveness of therapies

Immediate, 2010

#4: Pharma must offer a 23.1% rebate (up from 15.1%) on brand-name drugs purchased through Medicaid

Immediate, 2010

#5: Up to $1 billion in 50% federal tax credits to small biotech firms Immediate, 2010

#6: Pharma must offer 50% discount on brand-name drugs purchased in the Medicare Part D coverage gap

January 1, 2011

#7: $27 Billion in Increased Federal Tax Fees on Pharma January 1, 2011

 

Policies Affecting the Health Insurance (HI) Industry

Health Reform Policy Implementation

#1: Establish process to review/approve HI premium increases in State-run HI Exchanges

Immediate, 2010

#2: Dependant children covered under parent’s HI plan, till age 26 September 23, 2010

#3: Prohibition of denying coverage due to acquired sickness September 23, 2010

#4: Enforcement of Medical Loss Ratios: where HI companies must offer patient rebates, if <85% of premiums spent on clinical services

Phase I: 2010 Phase II: January 1, 2011

#5: Prohibition of denying coverage due to pre-existing conditions Phase I: Sep 23, 2010 Phase II: January 1, 2014

#6: Elimination of all co-pays & cost-sharing for preventive services Phase I: Sep 23, 2010 Phase II: January 1, 2018

  56 

#7: Required limits on Deductibles set for the small-group market January 1, 2014

#8: $60 Billion in increased federal fees on HI companies January 1, 2014

#9: “Cadillac Tax”: 40% federal excise tax on high-premium plans January 1, 2018

 

Policies Affecting Hospitals & Physicians

Health Reform Policy Implementation

#1: Establishment of scholarship/grant programs to increase workforce supply of primary care physicians and nurses

2010 – 2016

#2: Provision of 5-year 10% Bonus payment to primary care physicians Jan 1, 2011 -Dec 31, 2015

#3: Establishment of performance-based Medicare standards for hospitals, physicians, and nursing staff pay

October 1, 2012

#4: $9 Billion reduction in Medicare payments to hospitals with high hospital-acquired conditions & preventable re-admissions

Phase I: October 1, 2012 Phase II: 2015

#5: Raise Medicaid primary care physician pay to Medicare levels January 1, 2014

#6: >$100 billion cut (75% reduction) in Disproportionate Share Hospital (DSH) Medicare payments to low-income serving hospitals

2014 – onward

 

Policies Affecting Patients & Businesses

Health Reform Policy Implementation

#1: Establishment of a temporary high risk insurance pool for uninsured patients with pre-existing conditions

Jun 21, 2010 – Jan 1, 2014

#2: Provision of $40 billion in HI tax-credits for small-businesses Phase I: 2010 – 2013 Phase II: 2014 – Onward

#3: Creation of Consumer Operated & Oriented Plans (Co-Ops) for the provision of non-profit health insurance

July 1, 2013

#4: Establishment of State-Run Health Insurance Exchanges for the uninsured and small business owners

January 1, 2014

#5: Over $410 billion in refundable tax-credits and cost-sharing subsidies to working families and patients

January 1, 2014

#6: HI Mandate on all US citizens to purchase Health Insurance January 1, 2014

  57 

 

Policies Affecting Medicare & Medicaid

Health Reform Policy Implementation

#1: Closure of the Medicare Part D Coverage Gap, ensuring 25% patient co-insurance across all Medicare drug expenditures

Immediate 2010 – 2020

#2: Reform Medicare Advantage (MA) Plan Structure to enforce performance-based measures, and cut > $203 billion in MA payments to private HI companies

Phase I: January 1, 2011 Phase II: January 1, 2012 Phase III: January 1, 2014

#3: Elimination of all co-pays & cost-sharing for preventive services January 1, 2011

#4: Establishment of an Independent Advisory Board to reduce Medicare spending

Phase I: April 2013 Phase II: January 15, 2014 Phase III: January 2018

#5: Expansion of Medicaid services to all patients below 133% FPL January 1, 2014

  58 

7.2 Interview Questionnaire The following Questionnaire was used to assess industry perspectives on US Health

Reform.

The first set of questions covered those policies directly impacting pharmaceutical

costs and access. The second set of questions assessed policies that affect hospital

/ patient access, which in turn may affect pharmaceutical revenues and access. The

last set of questions assessed the interviewee’s general understanding of the

Reform Bill.

Interviewed questions included both qualitative and quantitative discussions.

Quantitative questions were scored on a scale of -2 to 2, where -2 is strong negative,

0 is no impact, and 2 is strong positive perceptions.

Policies directly affecting Pharmaceuticals

Policy: Health Reform is creating a publicly funded, non-profit Institute that will disseminate research on comparative/clinical effectiveness of drugs

Answer

Q1: Do you feel this Institute will impact drug sales? Yes / No

Q2: … And on a scale of -2 to 2, how do you expect drug sales to be impacted? Please explain your answer:

Notes:

-2 -1 0 1 2

Q3: Do you believe Pharma, or your firm, is preparing in any way to accommodate the implications of this Institute? If yes, how so?

Notes:

Yes / No

Policy: Health Reform is mandating that Pharma provide a 50% rebate on the AMP of drugs purchased in the Medicare Part D coverage gap, and a 23.1% rebate (up from 15.1%) on the AMP of drugs purchased in Medicaid

Answer

Q1: Do you feel these rebates will impact Pharma revenue? Yes / No

Q2: … And on a scale of -2 to 2, how do you think the rebates will affect Pharma revenue? Please explain your answer:

Notes:

-2 -1 0 1 2

  59 

Q3: How do you feel Pharma, or your firm, is preparing for this? What strategies /changes do you see them implementing to compensate?

Notes:

Yes / No

Policy: There will be $27 billion in increased tax fees on the Pharma industry, over 10 years

Answer

Q1: Do you expect these taxes to impact Pharma profits? Yes / No

Q2: … And on a scale of -2 to 2, how do you expect the taxes to impact Pharma profits? Please explain your answer:

Notes:

-2 -1 0 1 2

Q3: How do you feel Pharma, or your firm, is preparing for this? What strategies /changes do you see them implementing to compensate?

Notes:

Policy: There is now an FDA approval pathway set for Biosimilars, with a 12-year market exclusivity clause awarded for Biologics

Answer

Q1: Do you expect this to impact Market Access for Pharmaceutical? Yes / No

Q2: … And on a scale of -2 to 2, how much do expect this to impact Market Access for Pharmaceuticals? Please explain your answer:

Notes:

-2 -1 0 1 2

Q3: Is Pharma Preparing for Biosimilars? If Yes, how so?

Notes:

Yes / No

Policies affecting Patients / Hospital Access

Question: Many reforms are increasing the # of patients covered under HI (through no-pre existing condition clauses, etc) and improving patient access to healthcare (through State Exchanges)

Answer

Q1: Do you expect the reforms to impact Pharma Access to patients Yes / No

Q2: … And on a scale of -2 to 2, how do you expect this reform to impact Market Access for Pharma? Please explain your answer:

Notes:

-2 -1 0 1 2

  60 

Q3: Does Pharma expect to gain revenue from these new patients? How so?

Notes:

If yes, then will this future increase in patients/customers compensate Pharma for its increase in taxes and mandated rebates? Explain:

Notes:

Yes / No

Yes / No

Q4: Do you believe Pharma, or your firm, is preparing in any way to accommodate the increase in patients? If yes, how so (different marketing strategies, increasing sales/distribution forces, etc)?

Notes:

Yes / No

Question: New policies mandate all HI companies, and Medicare/Medicaid, to eliminate co-pays / co-insurance for preventive medicines

Answer

Q1: Do you expect this to impact Pharma revenues Yes / No

Q2: … And on a scale of -2 to 2, how do you expect free preventive medicine to impact Pharma revenues? Please explain:

Notes:

-2 -1 0 1 2

Q3: Which Pharma products do you think will be specifically affected? (vaccines, etc)

Notes:

Question: There are a series of performance-based revisions to Medicare funding structures, possibly resulting in over $200 billion in Medicare Advantage cuts to private HI plans

Answer

Q1: Do you expect this to impact Market Access for Pharma Yes / No

Q2: … And on a scale of -2 to 2, how do you expect these cuts to impact Market Access for Pharmaceuticals. Please explain:

Notes:

-2 -1 0 1 2

Q3: Do you believe Pharma, or your firm, is preparing in any way to accommodate the implications of these cuts? If yes, how so?

Notes:

Yes / No

  61 

Question: Health reform is expected to close the Medicare Donut Hole over 10 years, lowering patient co-insurance from 100% to 25% for drug expenditures between $2800 and $4500

Answer

Q1: Do you expect this to impact Pharma drug sales Yes / No

Q2: … And on a scale of -2 to 2, how do you expect this Medicare expansion to impact Drug sales. Please explain:

Notes:

-2 -1 0 1 2

Q3: Do you believe this gain in future access to patients compensates for the immediate 50% drug rebate? Please explain:

Notes:

Yes / No

Q4: Do you believe Pharma, or your firm, is preparing in any way to accommodate the increase in drug sales (marketing/distribution)? If yes, how so?

Notes:

Yes / No

Question: Reform is expected to expand Medicaid services to those below 133% of FPL, or 16 million people in 10 years

Answer

Q1: Do you expect this to impact Pharma drug sales /Access? Yes / No

Q2: … And on a scale of -2 to 2, how do you expect this Medicaid expansion to impact Drug sales. Please explain:

Notes:

-2 -1 0 1 2

Q4: Do you believe Pharma, or your firm, is preparing in any way to accommodate the increase in drug sales (marketing/distribution)? If yes, how so?

Notes:

Yes / No

Overall Discussion Questions

Question: Having discussed the specific implications of Health Reform, I wanted to ask some closing holistic questions.

Answer

#1: On a scale of -2 to 2, what kind of impact do you think Health reform will have, overall, on Pharma drug prices

-2 -1 0 1 2

#2: On a scale of -2 to 2, what kind of impact do you think Health reform will have, overall, on Pharma drug sales

-2 -1 0 1 2

  62 

#3: On a scale of -2 to 2, what kind of impact do you think Health reform will have, overall, on Market Access for Pharmaceuticals

-2 -1 0 1 2

Question: To close up, I just wanted to ask some questions to help me in future interviews

Answer

#1: Did you get a chance to read the Summary doc beforehand Yes / No

#2: If so, did you feel the Summary was comprehensive, and/or comparable to your understanding of the Bill

Yes / No

#3: Would you make any additions/corrections to the Summary?

Notes:

Yes / No

#4: Do you have any other comments / suggestions for my interview

Notes:

Yes / No

  63 

7.3 Interview Responses

The following tables list the responses offered by interviewed respondents.

Interview Question Number of Interview Responses Policy Provision Pharma (7 total) Payers (4 total)

Answer Impact Answer Impact

Yes No -2

-1 0 1 2

Yes

No

-2

-1 0 1 2

Pharma Development Comparative Effectiveness 1. Impact on Drug Sales 1 4 2 0 0 0 1 2 1 0 2. Is Pharma Preparing? 7 0 4 0 Increased Pharma taxes 1. Impact on Pharma profits 2 5 0 0 0 0 3 1 0 0 2. Is Pharma Preparing? 7 0 3 1 Biologics 1. Impact on Market Access 0 6 0 1 0 0 2 0 2 0 2. Is Pharma Preparing? 7 0 4 0 Reimbursement Close Medicare Donut Hole 1. Impact on Pharma sales 0 0 0 6 1 0 0 0 1 3 2. Improved sales balance rebates? 4 3 2 2 3. Is pharma preparing? 6 1 4 0 Expand Medicaid 1. Impact on drug sales 0 0 1 5 1 0 0 0 2 2 2. Is Pharma preparing 4 3 4 0 Free Preventive Services 1. Impact on Pharma revenue? 0 1 2 4 0 0 0 2 2 0 Medicare (Advantage) Cuts 1. Impact on market Access? 0 1 5 1 0 0 3 1 0 0 2. Is Pharma prepaing? 2 5 3 1 Medicare/Medicaid Drug Rebate 1. Impact Pharma Profit? 2 4 0 1 0 0 3 0 1 0 2. Is Pharma Preparing? 7 0 4 0 Patient Access Increase Patients Covered 1. Impact on Market Access? 0 0 0 6 1 0 0 0 1 3 2. HI mandate affect Revenue? 7 0 4 0 3. Will Revenue balance taxes? 5 2 3 1 4. Is Pharma preparing? 4 3 3 1 Overall 1. Overall Impact on lower Drug Prices 0 5 2 0 0 0 1 2 1 0 2. Overall Impact on higher Drug Sales 0 0 0 5 2 0 0 0 3 1 3. Overall Impact on improving Market Access

0 1 0 4 2 0 0 1 0 3

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Interview Question Number of Interview Responses Policy Provision Physicians (3 total) Patients (1 total)

Answer Impact Answer Impact

Yes

No -2

-1 0 1 2

Yes

No

-2

-1 0 1 2

Pharma Development Comparative Effectiveness 1. Impact on Drug Sales 1 1 1 0 0 0 1 0 0 0 2. Is Pharma Preparing? 3 0 1 0 Increased Pharma taxes 1. Impact on Pharma profits 0 1 2 0 0 1 0 0 0 0 2. Is Pharma Preparing? 2 1 1 0 Biologics 1. Impact on Market Access 0 0 1 2 0 0 0 1 0 0 2. Is Pharma Preparing? 3 0 0 1 Reimbursement Close Medicare Donut Hole 1. Impact on Pharma sales 0 0 1 2 0 0 0 0 0 1 2. Improved sales balance rebates? 2 1 0 1 3. Is pharma preparing? 2 1 1 0 Expand Medicaid 1. Impact on drug sales 0 0 0 1 2 0 0 0 0 1 2. Is Pharma preparing 3 0 1 0 Free Preventive Services 1. Impact on Pharma revenue? 0 0 1 2 0 0 0 1 0 0 Medicare (Advantage) Cuts 1. Impact on market Access? 1 0 1 1 0 0 0 0 1 0 2. Is Pharma prepaing? 1 2 1 0 Medicare/Medicaid Drug Rebate 1. Impact Pharma Profit? 1 0 2 0 0 0 1 0 0 0 2. Is Pharma Preparing? 3 0 1 0 Patient Access Increase Patients Covered 1. Impact on Market Access? 0 0 0 1 2 0 0 0 0 1 2. HI mandate affect Revenue? 3 0 1 0 3. Will Revenue balance taxes? 2 1 0 1 4. Is Pharma preparing? 2 1 1 0 Overall 1. Overall Impact on lower Drug Prices 0 1 1 1 0 0 1 0 0 0 2. Overall Impact on higher Drug Sales 0 0 0 2 1 0 0 0 0 1 3. Overall Impact on improving Market Access 0 0 0 1 2 0 0 0 0 1

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Interview Question Number of Interview Responses Policy Provision Total (20)

Answer Impact

Yes

No -2

-1 0 1 2

Pharma Development Comparative Effectiveness 1. Impact on Drug Sales 2 7 5 1 0 2. Is Pharma Preparing? 15 0 Increased Pharma taxes 1. Impact on Pharma profits 3 9 3 0 0 2. Is Pharma Preparing? 13 2 Biologics 1. Impact on Market Access 0 8 2 5 0 2. Is Pharma Preparing? 14 1 Reimbursement Close Medicare Donut Hole 1. Impact on Pharma sales 0 0 1 9 5 2. Improved sales balance rebates? 8 7 3. Is pharma preparing? 13 2 Expand Medicaid 1. Impact on drug sales 0 0 1 8 6 2. Is Pharma preparing 12 3 Free Preventive Services 1. Impact on Pharma revenue? 0 1 6 8 0 Medicare (Advantage) Cuts 1. Impact on market Access? 1 4 7 3 0 2. Is Pharma prepaing? 7 8 Medicare/Medicaid Drug Rebate 1. Impact Pharma Profit? 3 8 2 2 0 2. Is Pharma Preparing? 15 Patient Access Increase Patients Covered 1. Impact on Market Access? 0 0 0 8 7 2. HI mandate affect Revenue? 15 0 3. Will Revenue balance taxes? 10 5 4. Is Pharma preparing? 10 5 Overall 1. Overall Impact on lower Drug Prices 0 8 5 2 0 2. Overall Impact on higher Drug Sales 0 0 0 10 5 3. Overall Impact on improving Market Access 0 1 1 5 8