Regulatory Beat: Pharmaceutical Pricing and Healthcare Access Lead Policy Agenda

Despite enactment of Medicare prescription drug legislation last year, healthcare coverage and cost remain prime concerns for the nation. Proposals to expand medical care for the growing number of uninsured Americans are attracting more attention, along with initiatives to curb the high cost of prescription drugs. Despite protests from manufacturers and FDA, calls for less expensive medicines from Canada persist. However, the agency considers new drug development a better way to improve public access to needed treatments.

The campaign to cover the uninsured has gained impetus from an Institute of Medicine (IOM) report urging policy makers to establish a universal health insurance system by 2010. IOM announced in January that current incremental efforts are failing to reduce the number of uninsured, resulting in inadequate care and catastrophic costs for millions of Americans. Instead of backing specific policy changes, though, the report evaluates all the usual proposals for extending care: a single-payer system, expansion of existing government health programs, increased tax credits for purchasing or providing coverage, and individual and employer coverage mandates.

Rising Expenditures

Total outlays on healthcare products and services hit $1.6 trillion in 2002 — nearly 15% of the nation's total economic output. The main factor behind these outlays is rising hospital bills — although increased expenditures for prescription drugs are the prime culprit in the public's eye, mainly because many people must pay for medicines out of pocket.

Spending on drugs and biotech therapies rose 15.3% from 2001 to 2002, slightly slower than in the previous two years — but still greater than for other healthcare components — according to a Department of Health and Human Services report published in the January/February 2004 issue of Health Affairs. The HHS analysts note that, while demand for pharmaceuticals rose in 2002, it was offset by:

• greater use of preferred drug lists and prior authorization policies for state Medicaid and pharmacy assistance programs
• a drop in new drugs entering the market
• a slight decline in direct-to-consumer advertising
• a rise in generic drug prescribing
• an increase in tiered copayment plans by health plans and payers.

This last trend is important in the political arena. Although only about 10% of US healthcare spending involves prescription drugs, consumers now shoulder a larger share of the bill. Drugs accounted for 23% of what Americans had to pay for healthcare themselves — and for more than half of the total increase in out-of-pocket healthcare spending in 2002.

Modest Bush Proposals

In his January State of the Union speech, President George W. Bush declared the rising cost of healthcare a "critical issue" but offered only a modest program to expand coverage and control healthcare costs. The Bush plan calls for additional tax credits and tax deductions, limits on damage awards in malpractice suits, and computerized healthcare records to reduce medical errors and improve care.

Democratic candidates for the White House back more ambitious plans to expand government programs and to use market incentives to expand coverage for the uninsured. Most Democratic proposals also include measures to control pharmaceutical costs in order to hold down healthcare spending. Their cost-containment proposals include increased regulation of direct-to-consumer advertising, more generic drug prescribing, expanded use of formularies and comparative drug efficacy information, added penalties on companies that overcharge the government, and stronger state drug cost control efforts. The candidates also emphasize the importance of supporting biomedical research, and some have stated that canceling the Bush administration's curbs on stem cell research would be one of their first actions if elected president.

The challengers aim to keep healthcare at the top of the political agenda and also prevent Republicans from taking all the credit for healthcare reform following the adoption of Medicare prescription drug legislation. With elections looming, though, Congress is unlikely to approve any major health initiatives, although legislators will likely hold hearings on proposals for covering the uninsured.

States Seek Imports

As the likelihood of Congressional action is very low, state governments will be pressured to find new ways to hold the line on pharmacy bills for Medicaid and other prescription drug programs. Despite continued opposition from FDA, governors and local officials continue to seek access to lower-cost prescription drugs just over the Canadian border. West Virginia proposes linking up with a wholesaler that would purchase drugs from Canada for distribution to state pharmacies. New Hampshire and Minnesota want state websites to allow residents access to certain Canadian pharmacies. Vermont has asked FDA to approve a program requiring Canadian doctors to review patient medical histories and write prescriptions for drugs purchased from Canadian pharmacies. Illinois proposed a plan to buy Canadian medications for 230,000 state employees and retirees. And Maine seeks FDA support for a program permitting an Indian tribe to import drugs from Canada for distribution to pharmacies in the state.

FDA enforcers maintain that they have authority to halt such import programs, but so far they have only focused on "rogue" Internet operators that openly promote illegal imports and sell controlled substances. Last year, FDA took legal action against CanaRx, and this January it issued a warning letter to Texas-based Expedite Rx and two insurance companies stating that their import programs are illegal.

House and Senate committees are examining proposals to deter illegal drug sales and the distribution of counterfeit products. The legislators have asked the General Accounting Office to examine the role of major credit card companies in facilitating sales of illicit drugs over the Internet. Investigators also are discussing voluntary actions by Federal Express and United Parcel Service that could stem the flow of imports and counterfeit products into the US. And officials have encouraged major Internet portals including Google, Yahoo, and Microsoft's MSN to reject advertising from unlicensed pharmacies. To halt the distribution of counterfeit drugs, the House Energy & Commerce Committee has requested information from several manufacturers — particularly those that have been targeted by bogus operators.

Encouraging New Therapies

Instead of allowing reimport programs that could bring unapproved and counterfeit products into the US, FDA officials believe that reducing the cost of developing new therapies is a better way to improve public health — and ultimately save money. Commissioner Mark McClellan maintains that FDA initiatives will accelerate develop-ment of more new drugs in the future, and several important oncology therapies are on FDA's review agenda for this year. The agency points to a slight uptick in the number of new drugs approved for market in 2003, which will speed access to safe and affordable new medicines for all Americans, according to an FDA white paper. The agency also highlights an increase in approval of new molecular entities (NMEs) in 2003, up to 21 from 17 in 2002. The NMEs include some of the 14 priority new drug applications approved last year. FDA also approved 22 biological license applications in 2003, including 5 priority products.

The 2003 report, however, indicates no big jump in new applications or in approval times in recent years. In fact, the 2003 totals remain well below the more than 30 NMEs approved annually in the late 1990s. The relatively thin pool of pending applications and therapies in late development indicates that it may be some time before there is a major increase in important new products coming to market. Unfortunately, Bush administration efforts to reduce the federal budget deficit are squeezing FDA resources needed to maintain an efficient application review system and to provide the scientific expertise vital to making informed regulatory decisions. Manufacturers are pressing for increased FDA appropriations to match rising user fees. In outlining goals for 2004, Carl Feldbaum, president of the Biotechnology Industry Organization, cites the importance of providing resources sufficient to maintain a strong FDA approval process. Feldbaum also calls for changes in tax policy and in FDA's orphan drug tax credit program to help small biotech firms research and develop new therapies.