Us Healthcare Reform: A Double-edged Sword

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US healthcare reform: a double-edged sword

The US House of Representatives has passed legislation paving the way for major healthcare system reform designed to substantially decrease the number of individuals without health insurance. Despite its potential benefits, it believes that the reform is a mixed blessing for the pharmaceutical industry as cost-containment pressures are set to intensify in the long term. ( http://www.bharatbook.com/detail.asp?id=134206&rt=Pharmaceutical-Licensing-Overview.html )

The landmark bill will overhaul the US healthcare system, aiming to reduce the number of individuals without healthcare insurance, improve access to healthcare and curb escalating costs. The bill focuses on health insurance system reform, specifically: expanding Medicaid insurance coverage for the poor; implementing stricter rules for private health insurers; outlining the creation of an individual mandate to purchase insurance; and introducing health insurance premium subsidies. As a result of the legislation, it is expected that 32 million more Americans will receive healthcare insurance coverage over the ...
... next 10 years. However, whether the reform will manage to contain escalating healthcare costs is questionable.

With the introduction of a ban on refusal of insurance coverage for pre-existing conditions and removal of annual or lifetime coverage limits, the health insurance industry will be hit hardest by the reform. Its profitability is in jeopardy, despite the increasing number of customers. However, the exact impact on insurers will depend on how many healthy individuals purchase insurance coverage, thus reducing the over-representation of less healthy individuals in the risk pool. In addition, without a government-run public option competing with private insurers, and without controls on premiums, insurers may pass on the costs to their current customers, resulting in an increased cost burden for middle-income Americans. This may well prove to be an unpopular strategy given the current spotlight on extraordinary premium hikes, and could prompt the introduction of further restrictions on insurers.

For the pharmaceutical industry, the passing of the biggest US healthcare reform in 40 years is a double-edged sword. The industry will benefit from increased patient access to healthcare as a result of the reform and, moreover, will be grateful for some certainty in the future market outlook. Indeed, despite a gloomy outlook at the beginning of Obama's presidency, pharmaceutical firms will ultimately benefit from the reform thanks to early engagement in the negotiation process.

However, the reform represents a significant change in current practices, and it believes that there remain a number of potential short- and long-term dangers for pharmaceutical companies.

In order to pay for the reform, the industry will have to contribute higher fees and increased drug price discounts and rebates. In the short term, it is likely that the imposed 50% discount for Medicare Part D beneficiaries in the coverage gap (the 'donut hole') and increased Medicaid drug rebates, in addition to raised industry fees, will lead to a market dip. This could not come at a worse time for an industry facing patent expiries in 2011 that are set to wipe tens of billions of dollars off annual revenues.

These negative effects will be offset from 2015 as revenues begin to rise, driven mainly by the increase in the number of insured individuals and the resulting increase in drug consumption. An additional boost to sales volume will be derived from the expected increased drug consumption of Medicare Part D beneficiaries in the donut hole as the coverage gap is closed gradually from 2010 to 2020. With lower out-of-pocket costs, beneficiaries will be less likely to forego filling their prescription in addition to having less of an incentive to switch to generics once they reach the donut hole. Furthermore, the industry will benefit from the longer market exclusivity given to branded biologics, which are set to drive its future growth.

While this will be beneficial in the medium term, greater government participation in provision of healthcare will inevitably ensue. This will be unwelcome in both the pharmaceutical and health insurance industries. In addition, growing cost strains on both public and private payers will lead to increased negative pressures on the pharmaceutical industry in the US, decreasing the overall value growth of the market. It cannot be ruled out that unfavorable measures such as drug re-importation and Medicare Part D price negotiations may be introduced as healthcare costs start to bite, or may more likely be used to leverage greater compromises from the industry.

Generics providers will also question the benefits of the reform, despite the promise of higher sales volume from an increase in the number of insured individuals. Specifically, the 12 years of market exclusivity given to branded biologics (which is substantially longer than the usual five years given to small molecule drugs) will be a concern given the focus on biosimilars as major revenue drivers in the future.

The reform bill still faces one final hurdle. The Senate has to pass the reconciliation bill, containing amendments to the Senate bill made by the House of Representatives, and it is possible that Republicans may stall this process.

Should the bill be signed into law, it will become a piece of landmark healthcare legislation with massive implications for pharmaceutical companies and health insurers alike. However, the healthcare reform process still has a long way to go, and government agencies and state legislators are yet to determine many of the finer details.

Related research

Pharmaceutical Licensing Overview
http://www.bharatbook.com/detail.asp?id=134206&rt=Pharmaceutical-Licensing-Overview.html

Pharmaceutical Key Trends 2010
http://www.bharatbook.com/detail.asp?id=134235&rt=Pharmaceutical-Key-Trends-2010.html

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