Impact of Healthcare Reforms on the Pharmaceutical Industry - Term Paper Example

?Impact of Healthcare Reforms on the Pharmaceutical Industry Introduction While the United s’ expenditure on patient care and healthcare insurance by 60% exceeds any of that in other developed countries within the OECD, the outcomes of life expectancy as well as infant mortality are oftentimes worse. Lack of healthcare insurance accounts for the annual number of 45, 000 U.S. citizens dying prematurely1. Even Americans who carry insurance often find it hard to pay out-of-pocket costs: more than 60% of 2007 financial bankruptcies were results of medical debts2. In this context, the healthcare reform law initiated by President Barack Obama is of historical significance given the historical failures to create a universal coverage under Roosevelt in 1934, Truman in 1945, Kennedy in 1962, and Clinton in 1993. Sponsors and supporters of the law hope that greater coverage lowers overall healthcare spending, which is known to have taken more than 17% of the national GDP back in 2010. The 2010 Patient Protection and Affordable Care Act, a product of hot debate and compromise, will expectedly3 have a huge impact on the U.S. pharmaceutical industry if completely implemented in the years to come. With numerous challenges that result from somewhat controversial legislation, this impact will clearly have a mixed nature. Provisions that expand Medicare coverage for drugs and give prominence to preventive care will predictably lead to additional sales. At the same time, the mandates for the prevailing use of generic drugs along with more taxes and fees imposed on pharmaceutical companies are likely to offset the positive impact of the increase in prescription drug sales.This report’s pragmatic goal is to identify and analyse in what particular ways the pharmaceutical industry will be affected by the new healthcare reform legislature and qualitatively evaluate the impact of the Affordable Care Act on a variety of aspects within the American pharmaceutical industry. The Overview of U.S. Healthcare Reform The Patient Protection and Affordable Care Act known as “Affordable Care Act” (ACA) started to be implemented soon after it was passed back in March 2010. Some of the first provisions that the U.S. Department of Health and Human Services acted upon were requirements that U.S. insurers provide coverage to adults aged 26 based on family plans and new rules that would guarantee that patients diagnosed with pre-existing conditions or having diseases that are particularly expensive to treat were not left without coverage. Other important provisions which will have been phased in two years include the pivotal requirement that all citizens of the United States carry health insurance. This is supposed to be done through employers, through government-run programs (Medicare, Medicaid, and Veteran’s Administration), or, finally, through a private plan. The enacted legislature brought enormous changes to the health insurance industry. Specifically, insurance companies work under new regulations. One of them is a ban on lifetime or annual caps on coverage. For people who cannot get coverage by any other means, new private plans are to be subsidized. These plans will be marketed via online insurance exchanges that are state-based. Expectedly, most of the 49 million U.S. citizens that were not insured in 2010 will obtain coverage in subsequent years. Specifically, according to the estimates 32 million Americans who were previously uninsured are expected to be enrolled. Plus, 16 million Americans will be included in the Medicaid rolls4.The impact of the healthcare reform on the pharmaceutical industry is conditioned by the following implications: 1) additional 30 million patients carrying insurance and drug coverage; 2) commitment for discounts, fees, and rebates that altogether total more than 100 billion over the period of 10 years5. The U.S. Pharmaceutical Industry Overview The U.S. pharmaceutical sector has been the major worldwide location for drug research, marketing and clinical testing since 1980s. It is now regarded “the pharmacy to the world” – the title once attributed to Switzerland, Germany, and France6. This advantage has been seen as a result of impact of range of factors: American intellectual property legislature, biomedical research funding which is done through the National Institutes of Health, absence of drug price controls by the government, availability of what is known as venture capital, etc. Three major areas that are likely to be most affected by the new law are current drug sales, investments into research and development, as well as attractiveness of the U.S. for new drugs’ clinical testing7. The country has the world’s greatest and least limited pharmaceutical market as soon as the FDA (the Food and Drug Administration) authorizes tested drugs for being marketed. “National Health Expenditure Data” report provides the data that in 2010 overall sales of prescription drugs were more than $250 billion, which equalled 30-35 per cent of the global sales. Although the insurance coverage was more encompassing and the drug consumer population was bigger in Europe, the share in pharmaceutical sales on the global level was 10% less than in the U.S. That was attributed to higher prices on drugs (For sales distribution, see Table 1). Table 1.Global Distribution of Pharmaceutical Sales, Clinial Trials, and Population8. World-leading sales account for the fact that the United States is a leader in the sphere of research and development, too, as well as in clinical trial. In 2010, overall research and development spending exceeded $45 billion. In 2007, over 40% of drugs were discovered by the U.S. based pharmaceutical and biotechnological companies9. Likewise, the United States remains a leader in clinical testing. Despite the predications that running clinical trials will be a prerogative of India, China, etc, the tendency has been that location decisions are based on pharmaceutical consumer preferences rather than patient availability. All in all, the number of trials exceeds 50% of the overall number of trials in the world. Plus, the United States maintain an investment climate which is favourable for new biotechnology companies. Effects of Healthcare Reform on Pharmaceutical Manufacturers While concerns are that the new healthcare reform will lead to major problems in pharmaceutical manufacture and decrease its revenues because of emphasis on pro-generic drugs in the reform, these problems are perceived as short-term. The estimates by the Drug Manufacturers Association allow claiming that by 2015 the number of people covered by health insurance will have increased to such extent that it will impact the pharmaceutical industry in an undeniably positive way. It means that all those impoverished individuals that could not afford using prescription drugs, will predictably get a chance to afford the prescriptions that they actually need, thanks to being insured (See Figure 1). Figure 110 This graph relates the amount of actual income allocated to healthcare in 2009 for those families that make between 100 and 400 percent of the poverty level established by the federal government. This will enable pharmaceutical manufacturers to make up quickly what may have been lost at the beginning. Indeed, according to the latest calculations the growth in drug spending among the newly insured patients will be 125 per cent. 11Therefore, long-term benefits for the pharmaceutical manufacturers are expected. To support the information above, the following calculations based on the specifics of the new reform and its reconsidering the age cohorts are provided. Age along with population and drug sales are three major variables that affect the pharmaceutical market. Table 2 illustrates how the revenues in the pharmaceutical industry will grow based on growth in drug sales and number of consumers. Table 2 American Population and Expenditures on Prescription Drugs12 While it is believed that generally the healthcare reform will increase revenues in pharmaceutical industry, the benefits have not been equal for all manufacturers unless the business plans are considerably restructured and new management techniques implemented. Also, some things seem really controversial. Specifically, the biologic drug manufacturers have been granted 12 years of exclusivity in the market before certain generics are developed; small companies that develop new therapies have been provided with a tax credit that equals 50 per cent of the actual investment; the Cures Acceleration Network has been established to provide funding in grants for drug discovery; 50 per cent discounts for brand-name prescriptions in the Medicare Part D have been required; widespread use is expected of comparative evaluations of the effectiveness of pharmaceutical products13. The revenues brought by sales of prescriptions drugs are expected to be generated by increased sales despite the required discounts for Medicare and Medicaid recipients14. Big pharmaceutical companies are expected not to benefit greatly from the reform. In particular, big pharma publicly agreed to provide $80 billion in taxes to cover the cost of the reform in return for the protections1516(See Table 3). Under the program of cost savings basic for the reform, big pharmaceutical companies that specialize in brand-name drugs will invest considerably less into discovery of drugs. They will restructure workforce and reduce lots of R&D jobs (only in 2010, more than 37, 000 lay-offs were planned17). The marketing strategies will change since the need arises to change sales models. Specifically, less emphasis will be placed on marketing to physicians, but more emphasis will be placed on marketing to private buyers and the public that is more cost-conscious. In particular, the reduced physician access as per the reform means that large pharmas will have to address physician extenders (such as nurse practitioners or physician assistants), pharmacy chains, insurance companies, etc as decision-makers for drug prescription. Finally, the reduced revenues will lead to large companies developing partnerships with smaller firms, especially generic drugs manufacturers. Table 3 New Annual Fees18 Fee Year $2.8 billion in 2012 through 2013 $3 billion in 2014 through 2016 $4 billion in 2017 $4.1 billion in 2018 $2.8 billion in 2019 and after Conclusion In conclusion, just as new healthcare reform expands access to healthcare to more Americans through the expansion of insurance coverage, its significance for millions of American citizens cannot be overestimated. Careful analysis exposes certain controversies and drawbacks of the healthcare reform; however it also allows claiming that the reform has the potential of improving the quality of people’s lives and providing medical care while it is not too late. The pharmaceutical industry emerges as the major player in working for positive change since drug therapy is viewed as the basis for treatment. Under the circumstances of ageing population and prevalence of life-threatening diseases and disabling conditions, the role of the pharmaceutical industry will increase even more. Besides, millions of added patients will contribute to the growth of the pharmaceutical market and industry. The analysis done in this paper allows saying that the impact of healthcare reform on the pharmaceutical industry will be generally positive. The drawbacks of the reform for big pharmas may be handled properly through implementation of wise management strategies and marketing techniques and focusing on new approaches to the pharmaceutical business. In this respect, the chances are that the pharmaceutical industry will increase its revenues and quality considerably in the years to come. Table and Figure Index Table 1. Global Distribution of Pharmaceutical Sales, Clinial Trials, and Population Table 2 American Population and Expenditures on Prescription Drugs Table 3 New Annual Fees Figure 1. Percentage of Annual Income Alloted to Health Insurance Premiums vs. Federal Poverty Level. References 1. Archstone Consulting, “Healthcare Reform and the Pharmaceutical Industry: a Global Discussion”, 2012 2. Daemmrich, A. “Where is the Pharmacy to the World? Pharmaceutical Industry Location and International Regulatory Variation.” in: J.-P. Gaudilliиre and V. Hess (eds.) Ways of Regulating: Therapeutic Agents between Plants, Shops, and Consulting Rooms. (Berlin: MPIWG, 2008), 271-290. 3. Daemmrich, A. “U.S. Healthcare Reform and the Pharmaceutical Industry”, Working Paper (September 14, 2011). Harvard Business School 4. Himmelstein, D. et al, “Medical Bankruptcy in the United States, 2007,” The American Journal of Medicine, 122 (2009), 741-746. 5. IMS Health, www.ims.gov, accessed August 2011; ClinicalTrials.gov (clinical trials data based on reporting to U.S. National Institutes of Health as of July 2011) 6. Sjrsimac, “Percentage of income allotted to pay for health insurance vs. federal poverty level”, 2009, Drug Manufacturers Association 7. Stone, K.“How Are Pharma Companies Preparing for Proposed Changes to U.S. Healthcare?” About.com Pharma (n.d.) 8. Wilper, A. et al, “Health Insurance and Mortality in U.S. Adults,” American Journal of Public Health, 99 (September 17, 2009), 2289-2285. 9. Wokasch, M. “Healthcare Reform Impact on Prescription Drugs”, Pharma Reform, 2010. 10. Wokasch, M. “The Impact of Repealing Healthcare Reform on the Pharmaceutical Industry”, Pharma Reform (January 17th, 2011) 11. Wolters Kluwer Health, Adis R&D Insight Database, August 2011 Read More