The Obama Administration’s proposed fiscal budget for 2012 suggested that all bets are off for biopharmaceutical revenue safeguards, but it never had a chance with Congress, as evidenced by a unanimous no-thank-you from the Senate in late May. But that was before debt ceiling talks and the alleged possibility of a default emerged as the driver of the fiscal solvency debate. Now it appears that secret Sunday afternoon meetings at the White House and extraordinary measures on behalf of the Treasury will not be enough to bring the donkeys and elephants together around a grand bargain, or to keep the Federal Government from raising the roof (on the debt ceiling, not in celebration of President Obama’s 50th birthday on August 4) before an August 2 deadline.
If the debt ceiling is raised, which seems likely, and the deficit can (or trillion-gallon drum) gets kicked down the road to the 2012 presidential primary stumping season, the momentum to limit federal spending could bring consequences for Big Pharma beyond state-level legislative acts, like the proposed incentive for generic substitution put forward by Senators Scott Brown (R-MA), Ron Wyden (D-OR) and John McCain (R-AZ).
Cost-cutting measures from the once-dismissed Obama budget, like enforced drug rebates for Medicare/Medicaid dual eligibles and a shortened biologic exclusivity period, are now back on the table, as is the removal of the ban on Centers for Medicare & Medicaid Services (CMS) negotiating drug prices under Medicare Part D, and the tax deduction for pharma advertising, once supported by the GOP. There’s also the question of tax repatriations; the White House signaled in March that it would not support a repatriations tax holiday like the one in 2004, which temporarily cut the corporate tax rate from 35% to 5% on dollars flowing in from overseas.
All of these proposals could do significant damage to industry profits. According to CMS, the U.S. government paid a combined $74.8 billion for prescription drugs under Medicare and Medicaid in 2009, a figure that underscores the importance of government as a pharma customer here in the US.
Meanwhile, European governments are subsumed in their own debt crises, with a major ripple effect possible as Greece, Portugal, Ireland, Spain and now Italy struggle to impose harsh austerity measures. Social outlays are so large a part of the debt problem, that health — and drug — spending must figure as a target. Portugal for example is endorsing cross-national reference pricing based on a benchmark of the three countries with the lowest prices. Can the big markets like France, the UK and Germany be far behind? An even more dramatic scenario is the impact of a possible break in the 17-country Eurozone, which would restore parallel trade as a bona fide commercial strategy for drug distributers throughout the region.
Industry’s response to date has been sporadic, ad hoc, and deeply unpopular as evidenced by the negative reaction in Greece over company decisions to terminate business and withhold access to hospital supplies of vital medicines. Apart from recording revenue losses on their balance sheets, industry needs a rethink; how to remain viable players in health systems that have little choice to shrink to something leaner — and meaner. A stronger value proposition and a refusal to remain a silo purchase is one way to start. What other ways can industry respond to the debt crunch?