Biotech Manufacturers Face New Political Landscape

The slow pace of economic recovery and continued high unemployment were the top issues fueling the Republican landslide in last month's Congressional and state elections. In addition, fear and confusion over President Barack Obama's healthcare reform plan ignited a "throw-the-bums-out" attitude across the nation that eroded the Democratic majority on Capitol Hill.

Jill Wechsler

With new leaders controlling the House of Representatives, and Democrats holding a narrower majority in the Senate, Republicans will be looking to deliver on promises to cut government spending and to repeal or revise Obamacare. That will not be an easy task, as many provisions of the Affordable Care Act (ACA) are highly popular, such as tax credits for small businesses, closing the Medicare drug benefit doughnut hole, and requiring insurers to cover patients with pre-existing conditions. There's strong support for approving biosimilars that will be more affordable for patients, a provision championed by consumers and biotech manufacturers alike.

To satisfy candidates who successfully ran against Obamacare, the new House leaders are gearing up for a vote to repeal health reform early next year. But this will largely be a symbolic gesture because it's unlikely to pass the Senate or override Obama's veto. Insurers and biopharmaceutical companies want to extend coverage to the 30 million uninsured, and the individual mandate is key to preventing consumers from waiting until they are sick to purchase health insurance. The worst-case scenario for biopharmaceutical manufacturers is that the promised expansion in healthcare coverage evaporates, leaving companies with added fees and rebates, and considerable uncertainty about reimbursement for new therapies that are costly to develop.

CUTS AND REVISIONS

Instead of wholesale repeal, the new Congress will be looking to challenge specific provisions in the ACA. Medical product makers and insurers would like to roll back the billions in added taxes designed to cover expanded coverage, but that will be costly to the government. One piece of low-hanging fruit is a cumbersome tax-reporting provision that requires businesses to file 1099 forms with the IRS for payments worth more than $600 during the year. Small business is livid over the policy, and even Obama says it should be modified.

A prime target for biopharmaceutical companies is to eliminate or modify the Independent Payment Advisory Board (IPAB), which has broad powers to set payment policy for Medicare and recommend changes in private-sector payment systems. Doctors and other providers are leery of IPAB's authority to implement rate cuts, and manufacturers fear the Board will propose lower acquisition costs of drugs—particularly high-cost therapies—without weighing how these treatments can help lower healthcare costs overall. Congress is supposed to start funding IPAB in 2012 so it can be up and running in 2014, but that may not happen.

A main Republican strategy is to starve the implementation of IPAB and other new programs they don't like. House Republicans plan to block appropriations needed by the Department of Health and Human Services (HHS), the Internal Revenue Service, and other agencies to establish new ACA initiatives. This strategy is part of the plan of Rep. John Boehner (R-OH) presumptive House speaker, to make hefty reductions in federal non-defense discretionary spending.

Cutting the federal budget will not be any easier for Republicans than for Democrats, particularly because Congress first has to deal with some high-cost issues. Medicare fees for physicians will drop by 30% on January 1, 2011, unless legislators extend that deadline for another year, a move calculated to cost about $275 billion. And Bush-era tax breaks, which Republicans champion, also expire Dec. 31 unless renewed or extended before then.

Big curbs on government spending could create problems for biotech companies. Reducing federal outlays to 2008 spending levels, as Boehner proposes, would be devastating to the National Institutes of Health (NIH), the US Food and Drug Administration (FDA), and various health and social programs. NIH would lose about $3 billion, almost 10% of its current budget, and new FDA initiatives would fall by the wayside.

At the same time, Republicans may be more responsive to industry concerns about what they deem excessive regulation and supportive of negotiations to renew prescription drug user fees, a top priority for the Biotechnology Industry Organization (BIO) in the coming year. Republicans are less likely to worry about user fees making FDA too dependent on industry, but to cut the budget, they may want to tap manufacturer fees to cover more FDA activities than has been the rule.

MORE OVERSIGHT

The Republican takeover of the House puts them in charge of the key committees with oversight of health and biomedical programs, and the new leaders plan to be much less friendly to the Obama administration health officials who run them. The new leaders of the House Energy and Commerce Committee are eager to grill HHS Secretary Kathleen Sebelius and her top aides on healthcare reform cost estimates and the effect of specific new policies on employer coverage, premiums, and benefits. The panel also plans hearings on FDA policies and what new initiatives should be added on to user fee renewal legislation.

Rep. Darrell Issa (R-CA) is in line to chair the House Oversight and Government Reform Committee, where he will be able to issue subpoenas to access desired government documents. At hearings this fall on the FDA's handling of Johnson & Johnson's recall of faulty over-the-counter medicines, Issa criticized the FDA for taking too long to shut down the noncompliant J&J plant and for withholding information sought by committee investigators.

Although Democrats retained control of the Senate, there will be changes in key health-related committees. Sen. Orrin Hatch (R-UT) will be the top ranking Republican on the Senate Finance committee, where he will continue to play a lead role in revising healthcare and crafting relevant pharmaceutical regulatory policies. He replaces Sen. Charles Grassley (R-IA), removing a long-time critic of pharma and the FDA from that position. The Senate Health, Education, Labor, and Pensions (HELP) committee lost two long-term members because of retirement: Chris Dodd (D-CT) and Judd Gregg (R-NH). Chairman Tom Harkin (D-IA) and Mike Enzi (R-WY) will be lead players in crafting FDA user fee renewal legislation.

TAKING IT TO COURT

With Congress unlikely to repeal the ACA, opponents of the law are looking to the courts to do the job; several states are challenging as unconstitutional the main tenet of health reform—the individual mandate for purchasing insurance. A case filed in Virginia challenges the individual mandate directly, while a group of 20 states have filed a case in Florida that opposes the federal government expansion of Medicaid, as well as the individual mandate and insurance market reforms. The federal judges hearing these cases decided recently that the issues deserve further consideration, even though another federal judge dismissed a similar case in Michigan in October 2010. With the more conservative jurists in the south likely to disagree, the issue most likely will end up before the Supreme Court in another year or two—but before the individual mandate is scheduled to go into effect in 2014. All sides—including insurers and payers—agree that without a requirement that everyone obtain healthcare coverage, insurance market reform may be unsustainable.

All of these developments create uncertainty about the prospects of reimbursement for new biomedical therapies, which discourages outside investment in sciences, noted Mark Heesen of the National Venture Capital Association at the October Mid-Atlantic BIO meeting. He and others will be looking to see if Republican leaders are more supportive of policies likely to stimulate small business growth and to address the effect of government regulation on emerging companies.

Jill Wechsler is BioPharm International's Washington editor, Chevy Chase, MD, 301.656.4634, jwechsler@advanstar.com