The US National Commission on Fiscal Responsibility’s draft report report signals US embrace of a fixed annual global budget for health care spending — experience in other countries suggests this will add to pressure for further cost controls on medicines beyond what is ordered up in Obamacare.
Last week, Erskine Bowles and Alan Simpson, co-chairs for President Obama’s bipartisan National Commission on Fiscal Responsibility—formed as an attempt to create a long-term plan to reduce the national deficit—released their preliminary report. Intended as a model for discussion and a way to test the waters before the full Commission report is due next month, proposes to cut federal spending to an overall target of no more than 20.5 percent of GDP by 2040.
Health outlays are given relatively mild treatment in the report. It proposes no new structural changes to the subsidized Medicare and Medicaid programs, even though most experts agree that a significant overhaul is needed if serious reductions in the deficit are to be achieved. Instead, the chairs rely heavily on existing projections of cost savings as the comprehensive new reform bill is implemented. It also builds on pilot projects linked to cost efficiencies to be drawn from operation of the new health insurance exchanges at the state level that will be introduced in 2013-2014. In essence, the report carefully avoids throwing a new spanner into the machinery of Obamacare.
There are some add ons to reform that did not make it into the legislation approved by Congress in March, including comprehensive medical malpractice reform. Bowles and Simpson also propose a rise in the rebate floor for Medicare Part D — payments are already slated to rise from 15 per cent to more than 20 per cent — as a way to capture additional savings. Many of the estimated 30 million new eligibles for insurance cover expected after 2014 will qualify for Medicaid drug coverage; higher rebates will reduce big pharma’s potential revenue gain from this covered population, undermiining one of its key objectives in reform.
Another significant proposal is to strengthen the role of the new Independent Payment Advisory Board, which in the Obama reform bill has the power to mandate – subject to a congressional option to intervene – reductions in both private and public sector payments for Medicare in line with larger indicators like inflation and GDP growth. Finally, the chairs favor the US joining the rest of the industrialized countries by endorsing an annual global target for total federal healthcare spending after 2020, at no more than GDP plus 1 percent.
Although it is unclear whether these ideas will find their way into law, the direction is clear: health care spending will be subject to formalized cost constraint rather than being left to mediation by market forces. Medicines have never benefited from the reliance on global budgets, because medicines are easy to single out and can be viewed as discretionary commodity purchases, where more of the burden can be shifted to the patient. In other words, global budgets place the industry in the difficult position of being “lender of first resort” when governments start seeking ways to meet their targets, which also are distinguishable by being overly optimistic.
Perhaps the biggest negative of all is the Bowles-Simpson blueprint injects a further note of uncertainty into the long pharma planning cycle. Companies will have to try to factor in the likelihood of the final Commission report advocating something radically new in controlling drug and health care costs, precisely at a time when the GOP Congress is proposing to rollback or repeal major elements of the Obama reform package. A predicatable pathway to a new ideal state of US health care new seems more remote than ever.