Health Policy Challenges for Obama Administration

The calm after the heated election battle this year has been brief due to pressure on policymakers to tackle overwhelming budget issues. With Republicans maintaining tight control over the House of Representatives but losing ground in the Senate, much depends on the ability of President Obama to engineer some kind of "fix" to the mounting deficit during the year-end "lame duck" Congressional session. Healthcare policy was a key point of dispute during the election campaign, marked by promises of better coverage and predictions of soaring costs by both candidates. Now, scheduled funding cuts and significant tax increases are expected to play a large role in shaping the reform program.

Jill Wechsler

The Obama victory ended prospects of wholesale repeal of the Affordable Care Act (ACA). House Republicans will continue to challenge various requirements of the healthcare legislation, but key provisions for pharmaceutical companies, such as rebates on drugs for seniors in the Part D coverage gap and authorization for biosimilars, are unlikely to change.

More broadly, the promised expansion of coverage to some 30 million previously uninsured Americans will move forward, although with consumers paying higher premiums and cost-sharing to cover ever-rising healthcare costs. That sets the stage for significant growth in the market for brand-name drugs. The Department of Health and Human Services (HHS) is working hard to meet a host of deadlines and timeframes for establishing exchanges, defining benefits, and expanding Medicaid, much of that involving states that have been reluctant to commit to these new programs in a period of political uncertainty.

Spending cuts ahead

The dark cloud looming over all these programs is the year-end "fiscal cliff," with nearly $500 billion in tax increases and spending cuts scheduled to begin Jan. 1, 2013 unless Congress acts. Executives at biopharmaceutical companies are watching closely at how tax and budget proposals will affect corporate tax rates and investment, as well as the specific funding for FDA, the National Institutes of Health (NIH), and other activities important to biomedical innovation and healthcare coverage.

All sides acknowledge the crucial need to reduce both public and private outlays for US healthcare, and drug prices and reimbursement are a prime target, particularly related to outlays for federal government health programs and Medicare Part D. House Democrats have pressed for added rebates on drugs purchased by Medicare drug plans for low-income "dual eligible" seniors, which could total more than $100 million over 10 years. There also are budget proposals on the table to reduce federal spending on drugs for federal government employees, as well as other government health programs.

The Obama victory offers some stability for FDA, as the agency continues to implement the FDA Safety & Innovation Act and struggles to find a middle ground between speeding untried new medicines to patients and protecting the public from undue risk and harm. Although there won't be a wholesale change in executive branch leadership, many top administration officials are likely to move on to other roles, and extensive cuts in the 2013 budget could undermine many FDA projects. An 8.2% cut in the FDA budget, as proposed under the sequester process, would reduce FDA's 2013 budget by $320 million and prompt the agency to lay off approximately 1000 employees, according to consultant Steven Grossman, publisher of FDA Matters. Even without such a severe, across-the-board cut, which could jeopardize FDA's ability to collect user fees from pharmaceutical and medical device makers, the FDA budget will remain vulnerable to pressures to reduce federal spending for some years to come.

Severe reductions in NIH funding, moreover, would jeopardize the pace of new drug and biotech discovery and support for clinical research that is key to spurring innovation needed to fill the depleted new drug pipeline. The biomedical research community is highlighting the importance of both FDA and NIH in protecting public health for patients at home and around the world.

Congress tackles compounding

Meanwhile, mounting deaths from contaminated steroid injectables made by a Massachusetts compounding pharmacy are focusing attention on the need for broader FDA legal authority in this and other areas. The need to reauthorize animal-drug user fees in 2013 is expected to provide a vehicle for legislation that would better secure the prescription drug supply chain and also address drug compounding oversight. (For more information on this subject, view "Compounding and FDA Regulation" on www.pharmtech.com/pharmtechtv.)

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The ongoing fungal meningitis outbreak had sickened more than 425 individuals and caused over 30 deaths, as of early November. Rep. Edward Markey (D-MA) has proposed legislation to enhance FDA oversight of compounding pharmacies, and lead House and Senate committees held hearings right after election day to address the response by FDA and state regulators and to analyze actions by the offending compounder, the New England Compounding Center (NECC). Markey's bill clarifies FDA's right to inspect and regulate large compounders that qualify as drug manufacturers. Small compounding pharmacies would continue to operate under state licensing, and FDA could issue waivers to operators responding to drug shortages and public health crises. Compounded drugs have to be labeled that they have not been tested for FDA safety and efficacy standards, and FDA has to publish a list of unsafe or ineffective drugs not suitable for compounding.

FDA regulation of compounders has been a thorny issue for decades, as previous efforts by the agency to impose stricter rules on compounders have been struck down by the courts. But the recent crisis has reopened the debate over the adequacy of state versus federal regulation of pharmacies and when compounding qualifies as drug manufacturing.

Efforts by FDA and Massachusetts regulators to shut down NECC and its sister company, Ameridose, highlight the links between drug shortages and compounding. FDA Commissioner Margaret Hamburg noted that the agency is working hard to minimize shortages in important Ameridose products used in surgery and to prevent congestive heart failure. Yet, former FDA official Scott Gottlieb also commented that too-tight FDA regulations have led to shortages of low-cost injectable drugs, prompting hospitals and patients to seek alternatives from compounders. Too-low reimbursement for generic injectables also may limit pharmaceutical industry interest in producing these therapies, leading to shortages and greater reliance on compounders.

KV Pharma weighed in that the NECC case illustrates FDA's error in permitting compounders to continue to produce hydroxyprogesterone to prevent premature births after approving KV's Makena. State health agencies and insurers have been opting for the less costly compounded version, but now may shift to the KV product to avoid exposure to possibly unsafe compounded medicines.

There will be further debate over how much added legal authority FDA needs to deal with compounders. Some agency critics complained that FDA did not make full use of its existing legal authority to regulate NECC following initial unsatisfactory inspections. Republicans generally oppose giving the agency stronger legal powers, and compounding pharmacies claim they are sufficiently regulated by state licensing boards. Pharmacists object to the Markey bill for imposing too-broad FDA regulation of compounding that could block patient access to needed medicines and further overtax FDA. It's a cost-versus-safety issue, and a challenge to find a compromise that passes muster.

Jill Wechsler is Pharmaceutical Technology's Washington editor, 7715 Rocton Ave., Chevy Chase, MD 20815, tel. 301.656.4634, jwechsler@advanstar.com. Read Jill's blogs at PharmTech.com/wechsler