Pharma and Healthcare Reform, Part 2

In May, I wrote about Ian Morrison's predictions that some version of healthcare reform would be better for the industry than no healthcare reform. A lot has happened since then, including two bills, the Senate Finance Committee's proposal led by Senator Max Baucus (D-MT), and the deal that PhRMA struck with the White House in June to contribute $80 billion over 10 years toward the cost of reform.

Laura Bush

Even as things continue to evolve, the June deal looks pretty darn good. So good, in fact, that I have begun to think my earlier fears that healthcare reform might hurt the drug industry were rather naïve.

Through the arrangement, pharma companies would help pay for the cost of healthcare reform by providing a 50% discount for brand-name prescription drugs in the Medicare coverage gap (the so-called "doughnut hole"). In exchange, there would be no drug reimportation or price negotiations on drugs sold to people covered by Medicare. And according to various recent estimates, the additional sales that the industry may gain through healthcare reform, primarily through expanded coverage, could be significant, and far outweigh any sacrifices.

According to a new report in The Pink Sheet, for example, expanded coverage could bring drugmakers approximately $115 billion in additional revenue over 10 years. This number has been extrapolated from the proposed 15–20% fees on the industry's increased business—fees that are included in the industry's $80 billion contribution. (Senate Finance Committee staffers have estimated pharma's fees at $23 billion, which is 20% of $115 billion). Subtract the $80 billion in costs savings that PhRMA promised the White House, and the industry nets $35 billion.

Of course, not everyone agrees with such estimates. But it seems clear that insuring the roughly 46 million Americans who are now uninsured will increase drug sales.

It's also true that other plans to add new pharma industry fees are afloat, like the one proposed by Senator Bill Nelson (D-FL). Nelson's amendment to the Senate bill would extract about $100 million more from manufacturers over 10 years, by recovering profits the industry gained following the 2003 Medicare drug legislation. Under that legislation, older Americans who had received prescription benefits under Medicaid were shifted into the new Medicare coverage, where the government paid higher prices, because the Medicare plan did not include discounts that were part of the Medicaid plan. In the latest development, the Senate Finance Committee narrowly voted against Nelson's proposal. But even if it were to pass, it is useful to remember that such fees would basically reverse recent gains, rather than be truly new cuts into industry profits.

In a July interview on National Public Radio, PhRMA President and CEO Billy Tauzin opined that healthcare reform is not only a moral imperative but an economic one. "The studies we have indicate that if we do nothing now, this country is going to get sicker and poorer and less competitive in the world," he said.

I couldn't agree more. So although major elements of reform remain to be hammered out, I am no longer worried about whether the pharma industry, or innovation, will suffer as a result. In that same NPR interview, Tauzin himself indicated his confidence. "We'll do OK," he says.

So now I'll go back to worrying about the American people, particularly the uninsured and the underinsured, who desperately need reform. I hope we all do OK.

Laura Bush is the editor in chief of BioPharm International , lbush@advanstar.com