PharmExec Blog

Governor Howard Dean: Financing the Future of US Drug Innovation

Will it be More Good Pills — Or that Porsche?

The Obama Administration’s signal achievement to date — passage of comprehensive health reform legislation — continues to inspire confusion and contradictions across the political spectrum. Despite its scope, the bill is dismissed by many Democrats for what it does not do, while the GOP references “Obamacare” as a decisive step toward the apocalypse of socialized medicine. Howard Dean, 2008 presidential candidate, former Vermont governor and chair of the Democratic National Committee [DNC], added some additional twists to the reform debate in a talk to senior pharma executives hosted by the Gerson Lehrman Group [GLG] in New York last Thursday.

Dean, now of counsel to the law firm McKenna Long & Aldridge, dismissed Obama ‘s position that the 2010 reform would “bend” the cost curve. Why? Because little has been done to change the economic incentive of providers to charge by procedure rather than on the basis of a full episode of care. Fee-for-service remains the payment bedrock of the US system. Until it changes, costs will continue to rise.

Dean reiterated his view that Obamacare will accelerate a transition away from the current employer-based approach to financing health care. “There is a negative incentive in the law for small business to continue providing health benefits to workers,” Dean said. “I expect that once the state insurance exchanges are up and running small businesses will opt to pay the penalty for not providing coverage and simply give workers a bonus or subsidy of a few hundred dollars to help them purchase insurance under the individual mandate.” Conversely, the largest employers are likely to keep to the status quo as they prefer to control their exposure to insurance costs. Hence, like so much of the reform package, the outcome is a mixed bag: there will be less diversity, flexibility and choice in the system as the government role increases, but US industry will be more competitive in global markets due to having to shoulder less of the burden of covering workers for essential health care services.

Perhaps due to his new role as an adviser toMcKenna’s biotech clients, Dean professed some views that are anathema to his own party caucus. These included support for the 12-year period of data exclusivity agreed by the Administration, PhRMA and BIO to advance the registration of follow-on biologics. Dean predicted that despite some backtracking from congressional Democrats to push the protection period down to seven years, the pledge will be kept – at 12 years. Next, while noting the financial impact of malpractice on providers has been overstated, Dean said he parts with his caucus by supporting tort reform, the centerpiece of which should be allowance for arbitration panels as an alternative to the constitutional right of victims to trial.

Finally, Dean pushed for actions to raise the “certainty index” for investors in big pharma and biotech. This includes mediating more directly between the FDA and Congress, the agency’s most hostile stakeholder. “Pressures from Congress against the FDA have created an overly politicized decision-making chain on the licensing of new therapies, to the detriment of the industry’s long-term future in the US,“ Dean said. Other actions he suggested industry pursue focused squarely on educating around the following issues: that medicines actually save money, when assessed in comparison to most other health interventions; explaining how the average price tag of financing a clinical trial has doubled over the past five years; drug companies, not academia or the NIH, do the heavy lifting in bringing new treatments to market; that manufacturing the next generation of large biologics is complex, risky and expensive; and why tax incentives in the US emphasize less productive short-term objectives rather than the long-term payout responsive to biotech’s development cycle of more than a decade. That education should begin with Congress, which is “increasingly anti-science and ignorant about what is needed to seed drug innovation.”

Dean flipped a question illustrative of one of the biggest challenges to implementing health reform: how strictly should evidence be applied to drive decisions on access to the most costly new medicines? The power given in countries like the UK to formal cost-effectiveness evaluation in deciding who gets a new drug is “unlikely to find a receptive audience here,” Dean said in response to a question from J&J. “Action to force suppliers to bear some or all of the risk in meeting the cost of a new treatment is a drag on innovation too. “But is it worth paying $100,000 or more for a new drug that will extend the life of a cancer patient for a few months? This is a societal debate that must involve more players than industry and the insurers.”

However, Dean admitted that politicians like him are unlikely to initiate that discussion, even if as a result some drug investors might find a better place for their money by purchasing a new Porsche.

And the verdict on the staying power of health reform? To Dean it has everything to do with employment. “If the jobless rate falls below eight per cent by early 2012, Obama gets his second term and the reform law is here to stay.”

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One Comment

  1. Roy B
    Posted May 2, 2011 at 2:59 pm | Permalink

    I would like to Blast the Dems, but this is not the forum. Whether extending a cancer patient’s life for a few more months is worth a $100,000, is a question to ask the Pt & their loved ones. The whole idea of end-of-life care has huge conflicting issues. What is the quality of life for those remaining months? Who wants to extend the life? Is it the Pt, family, doctors? The best solution to the issue sometimes could come down to if they had to pay cash, would they want to do it? It is truly unfair that my son’s generation is going to need to cover the monsters we are creating. CHOSE WISELY!

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