Health-Reform Controversies

Alittle more than a year ago, leaders of the pharmaceutical industry negotiated a deal to provide billions of dollars in discounts and fees designed to make drugs more affordable to Americans. In return, manufacturers anticipated a larger market for prescription medicines in a reformed national healthcare system, plus favorable policies governing research and development (R&D) and marketing— without explicit price controls.

Jill Wechsler

Now there's considerable uncertainty about how the Obama healthcare-reform program will be implemented, and how well the system will support biomedical innovation and new drug development. Federal courts are weighing the constitutionality of the Affordable Care Act (ACA), while reform critics in Congress are challenging specific policies and curbing funds needed to implement reform initiatives. Some states face serious budget problems and are looking to limit Medicaid programs, including drug benefits. The Obama administration's budget plan for 2012 offers extra funding for biomedical research and for FDA operations, but it's uncertain whether these proposals will survive the budget-cutting battle on Capitol Hill.

Killing the deal

The search for additional funds to pay for healthcare-reform initiatives and government health programs, moreover, is driving the Obama administration to ask Big Pharma to ante up even more. During the healthcare-reform debate of 2009, the Pharmaceutical Research and Manufacturers of America (PhRMA) agreed to pay higher Medicaid rebates and additional taxes, and to subsidize the cost of drugs prescribed to seniors caught in the "doughnut hole" of the Medicare drug benefit— all adding up to some $80 billion over 10 years. A primary gain for biomedical companies was the promise of substantial protection for innovator biotech therapies in the face of more aggressive generic competition.

The administration now proposes to jettison the biotech exclusivity deal and boost consumer access to generic drugs to help gain some of the $54 billion needed to support Medicare payments to physicians. Shrinking the exclusivity for innovator biologics from 12 to seven years and thus speeding less costly biosimilars to patients, according to Obama's 2012 budget plan, would save about $2.3 billion over 10 years. The Biotechnology Industry Organization (BIO) warned that such "questionable short-term budgetary savings" could jeopardize development of new breakthrough cures.

John Castellani, president of PhRMA, said in a press release that the proposal "flies in the face" of the administration's talk about supporting "innovation, biomedical research, jobs and US competitiveness." But US Health and Human Services (HHS) Secretary Kathleen Sebelius told the House Energy and Commerce (E&C) Committee last month that the administration now feels that a seven-year exclusivity period will permit innovator firms to realize an appropriate return on investment, while ensuring that new breakthrough medicines are widely available and affordable.

In Washington this month

Another administration proposal would end pay-for-delay deals between brand-name and generic drug makers that postpone when a new generic product comes to market. The Generic Pharmaceutical Association (GPhA) applauded the shorter biotech exclusivity period, but criticized the curb on settlements as "misguided." Castellani agreed with the generic-drug makers, noting that these "pro-consumer settlements" do not delay generic entry and often bring low-cost drugs to market sooner. Federal Trade Commission officials, however, have been pushing hard to curb such arrangements, which they insist are anti-competitive and costly to consumers. The numbers-crunchers predict that banning pay-for-delay deals will save the government $540 million next year and nearly $8.8 billion through 2021.

The generic-drug gains together provide only a small portion of the resources needed to finance the "doc fix." Most of the money would come from proposed reductions in federal payments to state Medicaid programs, stiffer scrutiny of certain Medicare reimbursement to insurers, and proposals to reduce Medicare fraud and abuse. The plan also proposes to increase tracking of high prescribers in Medicaid programs to reduce excessive drug utilization by states. And manufacturers would be hit with additional penalties if they fail to pay appropriate Medicaid drug rebates and to comply with rebate rules and FDA policies for listing drugs on databases. But these policies generate virtually no tangible savings, and it's questionable whether the squeeze on biotech exclusivity is worth the rather small budgetary gain to the government.

More oversight

Although pharmaceutical companies traditionally look to Republican allies in Congress to champion patent protection and product exclusivity, GOP leaders still are smarting over PhRMA's support for Obama's healtchare plan. As part of its investigation into HHS implementation of healthcare reform, House E&C Committee Chairman Fred Upton (R–MI) is looking hard at the "secret negotiations" between the White House and healthcare interest groups, including pharmaceutical companies, leading to enactment of the reform legislation. E&C Committee Republicans complained in a Feb. 18, 2011 letter to White House Aide Nancy-Ann DeParle (formerly head of the White House Office of Health Reform) that instead of the open and transparent debate on healthcare legislation that Obama had promised, deals were made behind closed doors with providers, drug companies, and others.

Upton and his colleagues are scrutinizing the HHS process for determining whether states and healthcare providers and payers should receive waivers from complying with specific ACA rules, a process they believe indicates widespread problems associated with implementing the reform law. The E&C Committee also wants to know more about HHS support for establishing state-based insurance exchanges and for developing new rules governing insurers, including standards for "essential benefits" that will shape medical and drug coverage [see sidebar, "Keeping drugs 'essential'"].

FDA operations and policies are also under scrutiny by GOP leaders. The E&C Health subcommittee held a hearing in February to examine whether FDA's slow process for approving more complex medical devices for market is harming US device makers. And Republicans once more are examining the three-year-old heparin crisis, complaining in a Feb. 23, 2011 letter to FDA Commissioner Margaret Hamburg that still no one knows the source of the adulteration nor the Chinese culprits—all while imports in pharmaceutical ingredients from that China are booming.

Keepings drugs "essential"

Unraveling the pieces

In addition to hauling administration officials up to Capitol Hill to explain their actions, Congress is moving forward with efforts to revise portions of the ACA, after failing in January to repeal the legislation. In the low-hanging fruit department, Democrats and Republicans agree on the need to repeal the 1099 reporting policy, a burdensome rule that requires businesses to report to the IRS any expenditure over $600—a requirement that has little to do with healthcare. President Obama has signaled support for killing the program, but the challenge is to find the $22 billion or so needed over the next 10 years to offset potential revenue gains from the policy.

President Obama and Congressional leaders also are eyeing medical-liability reform as a way to reduce spending on unnecessary healthcare services incurred as a defense against malpractice charges. A bill recently approved by the House Judiciary Committee would cap noneconomic and punitive damages, limit the time for filing suits and curb attorneys' contingency fees. Such proposals face considerable opposition from lawyers and some patient advocates, yet Obama expressed interest in revising malpractice policy in his State of the Union speech and included $250 million in his 2012 budget plan to support grants to help states rewrite their malpractice laws and establish health courts. Reform could move forward if there's clear evidence that damage caps would save money by reducing defensive medicine and other costs.

But there's little bipartisan support for improving ACA implementation. President Obama recently voiced support for legislation that permits states to opt out of exchanges and the individual mandate, provided the state can devise alternative ways to cover more uninsured individuals. Although this action was considered a major concession by ACA supporters, Republicans labeled it a "fig leaf" that didn't increase local choices.

The battle continues over Republican efforts to limit federal spending overall. Policymakers avoided a government shutdown in early March by agreeing to a short-term fix on funding the federal government for the current (2011) fiscal year. But Republicans still demanded some $100 billion in cuts for this year, as well as curbs on many ACA provisions, including individual coverage requirements, medical-loss ratio rules, health insurance exchanges, and Medicaid expansion plans.

Critics also are looking to eliminate a number of entities established by ACA, but seen by Republicans as examples of a federal government over-reach into state and private sector activities. Although health prevention has broad appeal, Republicans want to dissolve the Prevention and Public Health Fund, which is supposed to dispense some $15 billion over 10 years to support state and local prevention and health initiatives. This prevention "slush fund," say Republicans, is excessive—and its resources could be tapped to offset the cost of repealing the 1099 IRS reporting requirement.

Republicans also don't see a need to spend $10 billion over 10 years to fund the Center for Medicare and Medicaid Innovation (CMMI), which was established by ACA to support research and testing of reimbursement and coverage approaches for Medicare and other health programs. There's also skepticism among Republicans about federal investment in comparative effectiveness research (CER), when private plans and local organizations have funded technology assessment on their own. Some Republicans would like to shutter the Patient-Centered Outcomes Research Institute (PCORI) and use its $500 million a year in appropriated funds for other purposes. Pharma companies generally support development of standards and policies for CER research, but probably won't expend much effort fighting to preserve PCORI.

There's not much good news for the pharmaceutical industry regarding the battle to repeal and revise healthcare reform. Manufacturers already are paying stiffer Medicaid rebates and absorbing 50% discounts on drugs for Medicare Part D beneficiaries caught in the coverage gap. The IRS is establishing rules for collecting some $2 to $3 billion in new industry taxes beginning this year, based on company sales of branded drugs. At the same time, more onerous legislation is on the table. Once again, there is bipartisan support for a Senate bill to permit reimportation of high-cost medicines from Canada. And Democrats want to eliminate tax deductions for direct-to-consumer advertising.

Funding FDA

Stiffer FDA user fees are on the horizon as well. The Obama administration has requested a $4.3 billion budget for the agency in 2012, a reasonable increase given the tight funding environment in Washington. But most of the gain would come from higher user fees on medical product manufacturers, and most of any added appropriations would fund a huge expansion in food safety oversight authorized by Congress, but without support from food industry fees.

Any extra money for FDA's Center for Drug Evaluation and Research is designated to support development of medical countermeasures and biosimilars, to expand monitoring of imported medical products, and to improve the safety of certain high-risk products such as vaccines and human tissue. New generic-drug user fees, which at long last appear to be moving toward reality, would improve the review of generic drugs, while other proposed fees would support more field inspections. There's a small amount of money earmarked for improving regulatory science at FDA, which would primarily complete work on a new laboratory complex for drugs and biologics at the agency's White Oak, Maryland campus. Without an extra $24 million to get the new laboratory operational, FDA would have a new facility with no equipment, and still have to pay rent on an old, obsolete laboratory.

FDA is negotiating with manufacturers on its next five-year plan for collecting fees from industry under by the Prescription Drug User Fee Act (PDUFA). Meanwhile, the agency wants drug and biotech firms to ante up some $850 million in PDUFA fees in 2012, up more than $275 million over 2010. About $600 million will fund drug oversight, and $125 million will support regulatory activities involving vaccines and other biologics. Combined with all the added costs imposed by healthcare reform, and apparent threats to expanding healthcare coverage to some 30 million uninsured Americans, manufacturers have to worry about the erosion of resources to support new drug development.

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