By Douglas Graham
The huge changes implicit in the American Recovery and Reinvestment Act of 2009 (ARRA) have yet to arrive. But come they will, with healthcare one of many target areas. Though a primary component of the healthcare ecosystem, pharma is not specifically addressed by the stimulus. The industry will likely experience ripple effects nevertheless, with multiple impacts on the pharmaceutical marketplace. No one can really know how ARRA will wash out until the money starts to flow, but pharma experts are in a position to offer a bit of informed speculation. Their general consensus? The stimulus has elements and ramifications ultimately beneficial to the pharma industry and marketplace.
President Obama has made healthcare a key platform, officially acknowledging what everyone else has known for decades — the system is in deep trouble. A sizable portion of the population is healthcare-challenged. Too many citizens are either underinsured or possess no medical coverage at all. And the cost of healthcare in general, and pharmaceuticals specifically, is on the rise.
Owing to the gravity of the crisis, a number of provisions within the Obama stimulus package take dead aim at the medical profession and related industries with the goal of extending affordable care to a greater number of people. Though not a direct target, pharma comprises roughly 10% to 12% of a typical healthcare scenario. Given that many, if not all, doctor and/or hospital visits end with a prescription, the indirect effect of ARRA on the pharmaceutical marketplace could prove very significant indeed. And assistance couldn’t have come along at a better time.
“The price of pharmaceuticals has followed the general cost of healthcare through the roof,” explains Katherine Holland, general manager, IBM Global Life Sciences. “This is putting a lot of pressure on consumers. Say, for example, your job provides a health plan in which you pay the plan $10 for Medicine A and $10 more out of pocket. If you get stuck with an alternative drug that turns out more expensive than Medicine A, you might have to shell out 40 bucks of your own money because your plan’s healthcare company has committed to paying only 10. You may conclude that the alternative drug is simply not affordable and fail to refill a prescription for a medication you badly need.”
Transitions Underway
ARRA passage has yet to turn the spigot on funding. But forces in the spirit of the stimulus are in motion, pushing ahead the momentum of change in the form of proposed legislations that expand consumer access to affordable medicine in a global marketplace.
Some European countries impose pharmaceutical price caps, and similar proposals have found their way to the negotiating table on this side of the pond. But according to some critics, price caps could have damaging industry effects in the United States without new revenue influxes to fill the void created by profits lost. Since the lion’s share of U.S. pharmaceutical research is big-profit-dependent, capping, along with all current and proposed drug pricing regulations, would have to be offset by additional business models to avoid quality compromise. Most experts agree the industry will have to find new ways to ensure sufficient cash flow so it does not transform in a destructive way to itself or the patient community.
“If American pharmaceutical providers sell the same number of drugs they sold this year at cheaper prices next year, revenues are going down,” Holland says. “The trouble is that much of big pharma research is funded by the sale of medicine in the U.S. market. The industry will have to respond with cost-cutting measures that make operations more profitable. Nothing new there. Other industries have confronted the very same scenario and emerged stronger. Pharma has never been faced with a major decrease in revenues, but if new, price-limiting government regs come into play, it may soon have to deal with that situation.”
The Greater Pharma Market
Congress is considering several stimulus-related bills with far-reaching pharma market potential. One makes it easier for Americans to purchase more drugs on the Internet from more providers than the law currently allows. Such legislation would have the patient-friendly effect of increasing competition and lowering price, but there’d be a downside — safety would be an issue, owing to the counterfeiting problem afflicting the global pharmaceutical industry.
According to Holland, roughly 10% of the drugs available today are bogus. Not only are these faux meds not the product of the company alleged to make them, many are not comprised of the active ingredients listed on the bottle. Some counterfeits have no medicinal content at all and in fact possess pretty much the same curative power as snake oil. Then, there are those truly dangerous drug forgeries with the potential to make the cure far worse than the disease.
Ironically, it’s through the safety issue the greater pharma market stands to benefit the most. One example is the software providers that build programs for tracking the authenticity of medication from the manufacturer, through the entire supply chain and all the way to the individual pharmacy. Cost cutting within pharma will also create demand for more sophisticated technologies should something like price capping actually come into play. Such systems trim waste and enhance efficiency in supply chain and back office management and streamline the R&D pipeline with modeling and simulation, reducing the false starts so often the bane of pharmaceutical research.
Programs With Promise
Research will turn out to be a very significant beneficiary of the Obama stimulus. One example is Comparative Effectiveness Research (CER), a comparison of the net benefit of two or more types of treatment for the same condition. CER is not solely a contest of drug versus drug. Medications are also evaluated against procedures and procedures against procedures (e.g. Is surgery a better way to treat this variety of cancer than radiation?). While the primary impetus for funding is the desire to improve the quality of patient care, a secondary goal is to stem the unsustainable growth of healthcare costs in the United States. CER seems a very appropriate repository in which to pour money, as it is slated to serve as a best vehicle for achieving both objectives.
“The Obama stimulus very significantly invests in an area for which there’s not been much investment until now,” explains National Pharmaceutical Council Vice President for Clinical and Scientific Affairs Dr. Les Paul. “The CER world got a little money back in 2003 through government funding of $15 million to $30 million. Now we’re talking about a $1 billion. A great deal of federal money has been research-allocated for the purpose of improving the quality of care for Americans and reducing healthcare costs overall.”
The stimulus also targets programs with the greatest potential to improve the quality of primary care and extend it to a greater number of people. One such program is the Patient Centered Medical Home (PCMH), a work-in-progress since the late 1960s. Stated simply, PCMH is about forging tight partnerships between primary physicians, patients, and when desirable, family members. These alliances are supported by up-to-date, electronic record keeping, allowing doctors to track the progress of patients in their care on an ongoing, holistic basis. The PCMH approach takes aim at two primary goals in medicine. One, to manage disease through prevention. Two, to prescribe medication for problems-in-the-making before they can become acute.
Doctors’ unrestricted access to patient information is a PCMH keystone and an aspect of the concept especially relevant to pharma. According to some estimates, roughly 50% of patients on regular medication stop taking their meds after just one year. There are also a significant number of people who fail to fill prescriptions the first time due to their high costs or the perception that the medicine is unnecessary or will prove ineffective. This, in fact, is often a dangerous misperception well-illustrated in the case of hypertension. For many, the condition presents no obvious symptoms, yet untreated, high blood pressure can bring on fatal consequences.
“When the PCMH concept is embraced nationwide, it will have tremendously positive ramifications for both patients and the pharmaceutical industry,” says Edwina Rogers, executive director, Patient Centered Primary Care Collaborative, a Washington-based trade association and foundation for stakeholders in the medical home movement. “A large piece of the home movement is medication management and adherence to recommended pharmaceuticals. A required part of the model ensures prescriptions are filled, with a clinical pharmacist or caseworker monitoring the process. Many Americans who need to be on medication aren’t at the moment, for a variety of reasons. With the home as a delivery and monitoring mechanism, people will get all the pharmaceuticals they require, driving drug sales straight up. Everyone comes out a winner.”