Healthcare reform legislation has put intense pressure on medical products manufacturers. What we know about the law has set in motion regulatory changes that already have had far reaching (and costly) impacts. In a nutshell, they include:
• A $2.5B in branded pharmaceuticals excise tax starting in 2011, and increasing to $4.2B in 2018
• 2.3% excise tax on "taxable medical devices" starting in 2013
• Increased access to generics
• 32 million more people gained access to prescription drugs
• Increased transparency around physician payment (each event >$10 or >$100 annually)
• Increased focus on fraud and abuse (compliance program integrity, Anti-kickback Statute, False Claims Act, etc.)
One objective of the legislation that's been generally accepted is that, as a society, we need to achieve better health outcomes at lower cost. How to get there is the subject of great debate. Challengers decry the law and proponents applaud it as the gateway to a single payer system (and therefore the solution to what ails American healthcare). In reality, PPACA is only the tip of the iceberg! The real news is what's less known...
While the drama of legislative reform played out in Washington last year (and is likely to continue with increasing intensity through next year), HHS has been aggressively implementing its own billion-dollar comparative effectiveness research agenda. CER is seen by HHS and CMS as the solution to controlling escalating healthcare costs. This view of CER as the latest magic bullet has been reflected in other legislation, including the American Recovery and Reinvestment Act (2009). CER was also a focus in every draft piece of legislation introduced during the reform debates of 2009. CER is here to stay.
Regardless of the outcome of myriad lawsuits focused on overturning PPACA -- in whole or in part -- the results of CER legislation will almost certainly reshape the opportunity landscape for all players across the industry -- from pharma, device and diagnostics manufacturers to payers and providers (I describe this in my special report). Most fundamentally, the industry needs to realize that comparative effectiveness research is primarily a means to the end of reducing CMS' healthcare expenditures.
Given that pharmaceuticals and medical devices are a very visible portion of those expenditures (though by no means the primary drivers of cost...contrary to the opinions of many weighing in on the debate), they are likely to be among the first targets of CER -- and CER isn't restricted to what products work best... it also includes what treatment protocols work best. The profound impact of this is generally under appreciated by industry leaders. This means that drug and device manufacturers face competition not just from other products in their class, but also from non-interventional approaches (e.g., watchful waiting).
For manufacturers to succeed in this increasingly competitive environment, they will need to find ways to reduce the risk of innovative development efforts -- finding better ways of screening drugs (perhaps through biomarkers), of modeling the durability and performance of devices, and of the interaction of products with the body.
The question is, then, can policymakers -- through cost-effectiveness research -- find the "sweet spot" that encourages increased productivity in the industry? It seems unlikely. The more that cost-containment policy is effective, the more disincentives there are to innovate. More on this next week!
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