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?

Guest Blog by Tom Norton of NHD Smart Communications. You can reach him at tnorton@nhdcomm.com.

Amidst all the gurgling of oil last week(bad! bad! bad!), a competing thunderstorm of words erupted as Doug Elmendorf, Director of CBO, had the temerity to revisit the real costs of the new HCR law. Addressing something that, for whatever reason, this lifelong Hill bureaucrat  just couldn’t get done about eight weeks ago as the bill was coursing its way through Congress, the leader of the CBO came clean and spoke his mind. (Do remember that Mr. Elmendorf had been unceremoniously called to the White House in July 2009 during the heat of the HCR debate to “get his facts straight”, personally, with President Obama. So maybe this simple, short PP was a little bit of payback?)

Whatever, to his everlasting glory, Mr. Elmendorf screwed up his courage on May 26th and pronounced the following official OMB view on costs associated with the newly passed Obamacare: “Rising health costs will put tremendous pressure on the federal budget during the next few decades and beyond. In CBO’s judgment, the health legislation enacted earlier this year does not substantially diminish that pressure.”  Check it out. The deck’s simplicity and clarity are killer. Put another way,  Mr. Elmendorf felt constrained to suggest that the U.S. cannot spend money it does not have.  Indeed, in a none too subtle fashion, he comes very close to suggesting that Obamacare is an exercise in ‘Mad Hatter’ math (See, in particular, Slide #13).

Peter Orzag, former CBO director, and now Director of the Obama Office of Management and Budget was apparently stunned, as, it seems, was the entire Administration.  The slide deck circulated all over Capitol Hill for one week before Orzag, on June 2nd, issued this tardy retort to Elmendorf’s OMB bombshell: “The Act (Obamacare) has the potential to fundamentally transform our health system into one that delivers better care at lower cost. This potential isn’t fully captured in CBO’s numbers…” Whoa.  Case closed, huh?

Even more surprising is that once this first strafing run by Elmendorf was over, and on the same day that Orzag released his lame response to CBO, none other than the New York Times unloaded with both barrels presenting a front page story suggesting that the much praised and oft referred to Dartmouth Atlas of Health Care, widely quoted during HCR battle as the defining  study that declared that all health care everywhere should cost about the same, and that in particular, ‘cheaper care was better care,’ was, well, skewed…Or so said the NYT.

And once again a shocked Peter Orzag responded lamely, this time to the NYT article, stating, “I do not rely on the Dartmouth Atlas alone to prove that huge savings are possible in HCR.”  Enough said.

So let us review.  In the course of one week, we learned that:

A. The new law that is supposed to cost less and give us more, very likely won’t, courtesy of Mr. Elmendorf.

B. The primary study that led to the widely held view that cheaper care is better care during the HCR debate, is wrong, courtesy of the New York Times.

Leading us where?

Well let’s take the last point, first. In considering what the NYT was up to with their expose of the Dartmouth Atlas, I honestly have no answer. Do you get it? I was personally amazed that the publication went all out in its attack on the Administration and still am befuddled as to exactly what was going on there. If you tell me it was journalistic ‘fairness’ at work, fine. But LOL.

In the case of Elmendorf, however, seems to me that sometimes people just need to make a clean breast of things.*  For the last year, it’s been pretty obvious that his nominally Democratic political future is over. Really, has been since his CBO “scoring” single handedly derailed the entire HCR show for several weeks last summer when he found the Senate’s version of the bill was a trillion dollar, plus, budget buster… So, this spring he knew exactly what he was doing and seems to me, he had just decided he wouldn’t go quietly into the night given what he knew was the fiscal enormity of this new law.  And, as a result, I frankly doubt we’ll be hearing a lot more from Doug Elmendorf at CBO. Too bad.

That’s my Point of View. What do you think?

* ‘Make a clean breast of it’ is a suggestion that the ‘breast’ is the seat of the one’s emotions and secrets; one’s ‘heart’. To disclose this openly was to clean one’s heart of impurity.

This column was originally published on The Norton Point of View on the NHD Smart Communications website, www.nhdcomm.com and is available for download there.  The opinions expressed in the Norton Point of View are solely those of Tom Norton and do not represent the position of NHD Smart Communications and Advanstar Communications.

The health reform proposal unveiled by the White House on Feb. 22, 2010 retains a number of provisions that directly affect drug coverage and industry revenues. The plan highlights that it will close the Medicare drug benefit “doughnut hole” by 2020 to make drugs more affordable to the elderly. Seniors will get some relief this year through a $250 rebate, and coinsurance will phase down over the next decade.

Because broader insurance coverage and gap closure will expand drug sales and industry revenue, the Obama plan also increases a proposed “assessment” on pharma from $23 billion in the Senate bill to $33 billion, starting in 2011 to avoid tax problems. Medical device makers also would have to pay $20 billion in fees over 10 years, starting in 2013.

Similar to previously approved Senate and House bills, the plan retains a boost in Medicaid drug rebates from 15 to 23 percent and authorizes discounts on drugs sold to community hospitals. Drug companies would have to fully disclose financial arrangements with doctors, and pharmacy benefit managers would report rebates and discounts on drugs, along with success in boosting generic drug use.

The proposal also seeks to curb “pay-for-delay” deals between brand and generic drug manufacturers; stipulates that effectiveness research would not influence coverage decisions; and supports establishing a pathway for follow-on biologics.

For these and most of the provisions in the White House announcement, there are few specifics or proposals for implementation.

Many key provisions in enacted Democratic legislation are featured in the plan: an insurance exchange to provide coverage options to the uninsured; tax credits to help individuals and small business pay premiums; curbs on insurance industry discriminatory practices; aid to state Medicaid programs; an individual coverage mandate (with low penalties); and cuts in rates for Medicare Advantage plans.

Most notable politically, there’s no govern-run coverage option. And the plan significantly scales back a proposed tax on high-cost “Cadillac” health plans, making up the lost revenue with a tax hike on high-income individuals. Most notable politically, there’s no govern-run coverage option.

Members of Congress are in for a hard landing when they get back from recess in early September. After four weeks at home in their districts, the debate will heat up again as they resume the arduous process of crafting the biggest piece of President Obama’s domestic agenda. With the president demanding a bill before year’s end, lawmakers cannot show any jet lag in ironing out potentially historic reform with huge implications for the pharmaceutical industry.

Before the break, things got messy. Amid partisan and even intra-party fighting, neither the House nor the Senate managed to finalize a bill, as the White House had hoped. Instead, Democrats and Republicans wrestled over several sticking points that threaten to scuttle the healthcare overhaul, a Democratic ambition as old as FDR. The disagreements include a tax on high-income earners, fines for businesses that don’t insure their workers (except very small companies) and a government insurance plan that would compete with the private sector.

On the Sidelines
Pharma has kept relatively quiet on the public plan option, even as conservatives have vociferously denounced it. Pharmaceutical Research and Manufacturers of America has not spent “a singly penny lobbying against” the measure, Senior Vice President Ken Johnson said. And PhRMA has spent a lot of pennies on Capitol Hill this year – more than $13 million, according to the Center for Responsive Politics (CRP).

Still, Johnson made it clear that he has reservations about the government jumping into the insurance business. “The problem is governments don’t negotiate prices,” he said. “They dictate prices.”

Another issue in Washington – one that has caused rifts within the Democratic majority – is the overall cost of reform, which the Congressional Budget Office has estimated at more than $1 trillion. That is a hard sell in light of the towering national debt, though Democrats say reining in Medicare spending and other measures would offset the cost.

Lawmakers have found common ground on some issues. Both parties support paying doctors and hospitals for treating patients, not merely seeing them, putting the emphasis on quality of care over quantity of procedures. Likewise, the so-called dual mandate that forbids insurers from denying anyone coverage because of pre-existing conditions while requiring almost everyone to purchase insurance has received bipartisan backing.

Most expect Congress will send a bill to the Oval Office sometime this fall. Assuming they can patch up their own differences, Democrats have enough votes to pass the legislation without a single Republican nod in either chamber. Whereas past attempts at health care reform have floundered – most notably Hillary Clinton’s in 1993 – this time seems different. For one thing, old foes of “HillaryCare,” including businesses and drug companies, have endorsed some manifestation of “ObamaCare” while pushing hard to ensure a favorable outcome.

As it often does, pharma might come away a winner. The dual mandate would force tens of millions of now uninsured Americans to buy coverage. This is not just good news for insurance companies, as the deluge of new customers would surely increase prescription drug sales. A motion to subsidize health plan purchases in insurance exchanges, regulated markets meant to control costs, might also strengthen pharma’s revenues by broadening coverage.

Watching the Proposals
But there are also proposals coming out of Capitol Hill that have the industry wary. One, being considered by the Senate, would have drug companies partially refund the government for certain medications provided under Medicare. PhRMA opposes the rebates, or “price controls,” which Johnson said were “the quickest way to choke off innovation in America.”

Another is a push to rely on comparative-effectiveness research to single out the best treatments for patients. Critics call CER intrusive, saying it sticks Uncle Sam between doctor and patient. It might also shrink the drug market by crowning certain medications king over others.

The top concern for the biotech industry is keeping biosimilars off pharmacy shelves for as long as possible. The Biotechnology Industry Organization, which, according to CRP, has lobbied Congress to the tune of $3.7 million this year, wants a 12- to 14-year window of exclusivity for innovation drugs. While allowing biosimilars into the market earlier might lower health care costs for consumers, it could also discourage companies from creating new drugs, a prohibitively expensive undertaking. Lowering costs would be “a good public policy result,” said BIO general counsel Tom Dilenge. “But you have to make sure you don’t disincentivize the investment in future innovation.”

That BIO will get what it wants, however, is not a forgone conclusion, according to Dilenge. The AARP wants generics to hit shelves earlier so its members get cheaper drugs sooner, and it has spent $9.4 million in lobbying this year to try to make that happen. It’s a shortsighted goal, in Dilenge’s opinion. “They don’t seem to be too concerned with the next cycle of innovation,” he said.

How health care reform – should it pass – will affect pharmaceutical representatives is hard to say with so much still up in the air. If the government requires the estimated 45 million people now without insurance to purchase coverage, it could mean a lot more business. On the other hand, earlier introduction of generics, Medicare rebates and an emphasis on CER could stifle pharma, limiting sales and employment opportunities. In Dilenge’s words, “It really is a jobs issue at the end of the day.”

Lawmakers have two weeks of vacation left. They should enjoy it. Fall won’t be easy.

PhRMA chief Billy Tauzin so far shows no sign of waving the white flag in response to an accusatory missive from House Minority Leader Rep. John Boehner bludgeoning his former Republican colleague for leading the drug industry’s support of President Obama’s healthcare reform effort. Pointedly CC’d to pharma CEOs – Tauzin’s employers—and simultaneously released to the media on Monday, Boehner’s attempted takedown of Tauzin predictably made big news across the media spectrum, being widely quoted in the political blogosphere and on cable news shows.

In an abrupt and dismissive tone, Boehner disses President Obama as a “schoolyard bully,” accuses the trade group chief of “helping [Obama] steal others’ money as the price of protecting your own” and “[choosing] to accommodate a Washington takeover of healthcare at the expense of the American people in hopes of securing favorable treatment and future profits,” More importantly, the letter insinuates that Tauzin is a dupe because “[the deal] has now gone sour.” And that both Tauzin and his pharma CEOs are politically naïve to expect that “appeasement” of the Administration would produce a concrete deal amenable to liberals in Congress.

Dupe or not, Tauzin and PhRMA are refusing, for now, to budge from their seat at the pro-reform table. The industry trade group posted on Tuesday a “Statement on Commitment to Health Reform,” reaffirming its position in support of universal coverage and bipartisan reform legislation.

And in an email to Pharm Exec, PhRMA senior VP Ken Johnson took the high road: “Emotions are running high on both sides of this important issue and we’re not going to fan the flames. We believe we’re doing what’s best for patients and America. When people go into the emergency room, they don’t sign in as a Republican or Democrat. They’re sick and they need help. Our goal is to make certain that everyone in America has access to that critically important help.”
Johnson said Tauzin would have no comment.

The general outline of the deal struck between PhRMA and the White House has been clear since President Obama first announced it almost two months ago. The industry promised, in a series of meetings with Senate Finance Committee Chairman Max Baucus, to forego $80 billion in potential profits from drug purchases over ten years (about half via a 50 percent cut in brand-name drugs for seniors stuck in the “doughnut hole” of Medicare Part D coverage gap). PhRMA would also bankroll as much as $150 million in pro-reform advertising.

Heaping praise on the industry, Obama called the concession a “major step forward.” What he failed to do was to disclose that this was, predictably enough, a quid pro quo.

When details of the deal began to leak out (most accurately in a July 22 New York Times piece by business reporter Duff Wilson), Tauzin’s apparent coup immediately began gathering a dust cloud of controversy.

According to Tauzin, the Obama administration gave assurances that in exchange for offering up to $80 billion in potential profits over 10 years, any final reform would leave untouched two Bush-era artifacts dear to pharma’s pocketbook: the noninterference clause in Medicare Part D, preventing the government from negotiating drug prices, and federal legislation prohibiting drug reimportation from Canada and elsewhere. (The latter assurance, Tauzin said, was offered at a July 7 meeting with Obama’s chief of staff, Rahm Emanuel, Sen. Baucus, and the CEOs of Pfizer, Merck, Abbott, AstraZeneca, and Amgen.)

Rep. Henry Waxman (D-CA) and other influential progressive House Democrats weren’t quiet about their intention to ignore any agreement to which they had not been privy. Waxman singled out the noninterference clause as a deal-breaker. As the left wing of the party pushed back, the Obama administration beat a hasty retreat, tripping over its own conflicting versions of the unwritten agreement.

Tauzin, meanwhile, went on the offensive, loudly broadcasting the specifics of the agreement. “We were assured: ‘We need somebody to come in first. If you come in first, you will have a rock-solid deal,’ ” Tauzin told The New York Times on August 6. “Who is ever going to go into a deal with the White House again if they don’t keep their word? You are just going to duke it out instead.”

The political stakes within PhRMA may be just as important as the larger prognosis for reform.  Tauzin’s carefully laid plan, starting soon after he took over the industry group in 2005, has been to “liberate” Big Pharma from its anti-government, GOP-backing traditions. A different, more frank way of communicating is at the heart of his strategy; PhRMA today emphasizes what the industry is FOR, rather than what it is against. Being first among healthcare industries to step up to the pro-reform table marks the culmination of Tauzin’s unabashedly pragmatic pharma policy makeover. It might be seen as a setback for industry traditionalists, who are skeptical of both the Administration outreach effort and the internally generated forecasts that indicate drugmakers will benefit from the expanded ranks of covered patients anticipated under the reform legislation.

The fate of healthcare reform is, at this point, anybody’s guess. But it’s likely that Tauzin’s own fate as head of PhRMA is hitched to that star, falling or not. As Boehner’s letter makes clear, the Republicans, reportedly fuming over PhRMA’s palling around with liberal groups like SEIU and Families USA to promote “Obamacare,” are seizing their opportunity to drive a wedge between Tauzin and his CEO backers.

Boehner’s office did not return calls for comment.

Abbott’s CEO Miles White, a stalwart Republican, had no comment when Pharm Exec contacted the firm.

Meanwhile, the trade group’s pricey promotion of healthcare reform continues apace as part of an initiative PhRMA is pursuing with other groups outside its traditional circle of friends. The most widely broadcast spot is a re-do of the infamous “Harry and Louise” ads that are believed to have played a key role in turning public opinion against the Clinton administration’s efforts to reform healthcare in 1994. This summer, an older, and presumably wiser, Harry and Louise smile on reform: “We need good coverage people can afford,” says one ad. “A little more cooperation, a little less politics, and we can get the job done this time.” That smile already seems out of date.

Far be it from me to politicize this blog, but I have great trouble understanding how anyone can brand a system based on the principles of providing healthcare for all as ‘evil’. 

The UK NHS has many flaws. It is over-stretched, weary, beleaguered, underfunded, occasionally incompetent, occasionally misguided, in parts outmoded, over-managed and often frustrating. But it is not evil, in any sense of that rather incendiary word.

I have had occasion to need the NHS a few times in my life. Sometimes I had to sit in a waiting room longer than I would have liked. Sometimes I felt that I was getting a little less than the 100% attention I thought I deserved. But if I ever felt like complaining, I just reminded myself that I could be in the US and not have health insurance, “so thank God for the NHS.”

Barack Obama said recently: “Every time we come close to passing health insurance reform, the special interests fight back with everything they’ve got… They use their political allies to scare and mislead the American people… we can’t let them do it again. Not this time. Not now.”

Rousing words, and ones that confirmed a widespread image of Obama as a man of conviction, passionately committed to the reform he was elected for. But it looks as if he will struggle to see his vision through. Of course he will, for the very reasons he outlines above.

I would ask those fiercely anti-reform politicians to be careful with the word ‘evil’. If they think that valuing the life and health of the poor as highly as the well off is ‘evil’, then perhaps their concept of good and bad has been skewered somewhere along the line.

Of all the pharma CEOs I’ve met and talked to, I can remember a good few who had their arguments with the UK NHS. But I don’t remember any of them calling it evil.  

Julian Upton

No one was surprised last month when the White House nominated world-famous geneticist Francis Collins for the top job at the National Institutes of Health (NIH). The driving force behind NIH’s Human Genome Project for 15 years, Collins is experienced in managing large research projects and big budgets and in making friends on Capitol Hill.

In the year since he left NIH, he actively supported President Barack Obama’s election campaign and wrote a book on personalized medicine that reflects his belief in the power of molecular biology to shape medicine and the world. Collins has expressed disappointment that important genomic discoveries have not led to new life-saving therapies, and he will want to use his new position to change that.

For pharma, Collins’ offers prospects of increased emphasis at NIH on translational research and more collaboration in developing drugs for orphan and neglected diseases. Comparative effectiveness research, he says, should identify subpopulation responses to treatment and support personalized medicine.

Collins has been highly praised for bringing in the human genome project ahead of schedule and below budget; as NIH director he will need all his administrative skills to manage the vast NIH complex and shape how its disparate institutes dole out more than $25 billion in grants to research organizations and scientists. NIH staffers see him as likely to favor big, high-profile projects over the needs of individual researchers. An evangelical Christian, he also will face pressure to clarify how his personal faith can co-exist with support for evolution and science.

Collins takes over NIH at an enviable time. The agency gained some $10 billion in extra funds through the economic recovery legislation enacted earlier this year, providing a nice addition to the agency’s $30 billion budget. Although Congress is not likely to provide such largesse in the future, some increases are likely.

Spurring Stem Cell Research
A high-profile task for Collins is to implement recently finalized guidelines on human embryonic stem cell research (hESC), which NIH issued just as Collins’ nomination was announced. The new program calls for an NIH panel of scientists, ethicists and advocates to assess that all candidate stem cell lines meet ethical standards for government-funded research:  that they are derived from leftover embryos created by in vitro fertilization, that donors understand their options and consent to research uses, and that there is no compensation to or pressure on donors to do so. NIH will establish a registry of all cell lines deemed eligible for federal funding, with an eye to reducing uncertainty and confusion in the research community.

The new rules were proposed last April after President Obama issued an executive order rescinding Bush administration restrictions on government-funded hESC studies. The new rule promises to vastly expand opportunities for research in this area, despite continued curbs on funding studies that use stem cells created solely for research purposes or cell lines derived through somatic cell nuclear transfer, a technique that many researchers consider highly promising. While life-saving medicines ultimately may emerge, a near-term benefit may be the development of new cellular assays for screening drug candidates and other methods useful in drug development.

Related articles:

• Final U.S. rules out for government stem cell research (ctv.ca)
• Draft of stem cell research guidelines unveiled (cnn.com)
• Did Obama Open the Door to Human Cloning With His Stem Cell Order? (usnews.com)

The mere mention of the term “comparative effectiveness” evokes a host of reactions among pharmaceutical manufacturers: confusion, skepticism, even fear. With President Obama calling for a national agency for comparative effectiveness, no one doubts that it is coming to healthcare—but what will it encompass? How will comparative effectiveness impact access to medications? What can manufacturers do to prepare?

Join us on Thursday, June 25 at 2:00 PM (EDT), as Tommy Bramley, senior director for Xcenda, and Tracy Foster, president for Lash Group, present insights that address:

• An overview of comparative effectiveness and an update of its
  progress at the federal level
• Perspectives about comparative effectiveness from managed
  care stakeholders
• How manufacturers can evaluate their risk and prepare for additional
  requests for comparative analysis data
• What manufacturers can do to ensure continued patient access
  to products
• How manufacturers can validate ongoing clinical and economic
  benefits for their products

Register for this FREE Webcast!