Health Reform: How is Pharma Affected?


Various health reform approaches may affect each pharmaceutical manufacturer differently.

Reforming the health care industry is an increasingly complex challenge due to multiple layers of legislation already in place and the number of different stakeholders in the industry. When approaching reform, both federal and state governments have proposed legislation that would take steps toward a better health care system. Additionally, some pharmaceutical manufacturers have reformed their side of the industry by moving towards increased pricing transparency.

A new report published by The PwC Health Research Institute and the firm’s strategy practice Strategy& examines the potential impact of 3 scenarios: repealing, replacing, or repairing the Affordable Care Act (ACA), and how this would affect patients, providers, payers, and pharmaceutical and life sciences companies.

In an interview with Specialty Pharmacy Times, the report’s authors, Karen Young, US Pharma and Life Sciences leader at PwC, and Karla Anderson, Commercial Pharma and Life Sciences partner at PwC, delve into how pharmaceutical manufacturers may be affected by healthcare reform and how they have already taken initiative to better their industry.

SPT: When approaching health reform, what factors should be considered?

Anderson: Access to affordable care for patients is the most important component that needs to be considered in any health reform legislation. We can’t to go backwards and have more people uninsured than prior to ACA.

Young: It depends on whether you are a provider, payer or manufacturer, since the impact will be different. The industry is already assessing many of the various reform scenarios and planning for change in advance of the legislation. In pharma, there is a great deal of focus on drug pricing and whether that will be an area of reform. A few drug manufacturers have begun to proactively share their drug pricing history, including price increases over the past several months.

SPT: Some pharmaceutical companies have been moving towards transparency without legislation. Do you think this trend will continue?

Anderson: There over 20 states with bills being proposed that would require manufacturers to provide drug pricing transparency. As Karen noted, a few companies have taken the initiative to provide greater transparency related to pricing which includes how they establish a price at launch and how that price changes over time. There are an equal number of companies that have come forward with social contracts, such as Allergan and Novo Nordisk as examples, that have made a commitment to limit the level of annual price increases. The difference is that if laws are passed at the state level, it becomes a mandate to report and all pharmaceutical companies have to comply. In general, companies would prefer to voluntarily share their price increases than having it legislated since the mandatory requirement adds administrative burden and cost to the business.

SPT: What are potential avenues lawmakers may take to address healthcare reform?

Anderson: We have categorized the current federal efforts to address ACA into three potential scenarios, repeal, replace or repair. There is also a good deal of activity at the state level which doesn’t always get the same level of press coverage. At the federal level, in either the replace or repair option, the objective must be to provide as many people as possible access to care through the most affordable model. The challenge is there are many different vantage points that need to be considered in a single piece of legislation.

Young: In our paper, we talk about the three scenarios of repeal, replace, and repair. All 3 are not one-size-fits-all across the healthcare continuum, it depends whether you’re a provider, a payer, or a manufacturer. Within each option, there are changes that are more positive for certain segments than others. This is why it’s not an easy answer to solve for, it is not a one-size-fits-all. Different constituents within the health economy has a different objectives they want to achieve for their business.

SPT: What are the benefits and consequences of repealing, replacing, or repairing the ACA on pharmaceutical companies?

Anderson: If you look at the pharmaceutical and life sciences element of the analysis we conducted, the differences are relatively minor across the three scenarios, which is not the case for providers and payers. There are likely positive tax advantages for manufacturers, if reform takes the path that has been discussed to date. To the degree there are lesser number of insured patients as a result of reform, there would be a negative impact on the manufacturers both in terms of the size of the total addressable market as well as an increased volume of patients eligible to access manufacturers’ patient assistant programs. Over the last several years, the pharmaceutical and life sciences companies have realized the benefit of more people being insured based on ACA.

Young: If you’re a generic pharmaceutical manufacturer versus branded, the impact will be different. That’s where the paper goes into specificity around how generic manufacturers could get hurt by one of these scenarios, while the branded can benefit from one of the others.

Anderson: A theme of what has been proposed to date is that states play a larger role in how healthcare is delivered. In general there’s a desire to incentivize the states to be innovative in their approach to healthcare including controlling costs and positively impacting outcomes. Depending on how the individual states would approach it, it could be positive for pharmaceutical companies if they’re working collaboratively with states and they get preferred access; however, it is not as efficient for the manufacturers to have to work across multiple states on highly varied approaches.

SPT: Which scenario provides an advantage to pharmaceutical manufacturers?

Young: The repair scenario, probably represents the least change for pharma and life sciences companies. The repeal scenario gets rid of the ACA taxes and fees. Certainly, taxes are a drain on any company. Manufacturers could reallocate those dollars somewhere else to benefit their business. The limits on Medicaid expansion would hurt companies that have a larger focus on the Medicaid population. The impact depends on the characteristics of the pharma company — whether you are a specialty pharma company or a large manufacturer heavily populated in the Medicaid space. The replace scenario has Medicaid converting to block grants, funding of high-risk pools, and expanded use of HSAs. Manufacturers with high concentration of business in Medicaid may be disadvantaged to a greater degree. There’s no one best approach for the industry – it really depends on the manufacturers’ target patient population, its drug therapies, and whether it is a brand or generic or mixed portfolio.

Anderson: We’ve made a lot of progress over the last several years in getting people coverage — to the extent that people have insurance to get access to drugs, it’s good for the industry. The scenario that maximizes the number of people that are insured, is a benefit to the industry.

SPT: Which scenario, if any, would improve patient access to medication?

Young: Embedded in all of these scenarios, is a focus on how to get the cost out of the system and specifically what various levers you can pull. All parts of the industry are taking a hard look — whether you’re pharma, a provider, or a payer – to figure out the magic formula to simplify healthcare while focusing on continued innovation, which ultimately drives better outcomes for patients. As manufacturers assess how to better innovate, find faster ways to get products to the market and demonstrate the value within products it will lessen the burden that might be in various avenues from legislation, that’s the ultimate outcome everyone would like to get to.

Anderson: As Karen noted, a focus on healthcare affordability is the ultimate driver of access. If value and efficiencies are driven through the system, it will maximize access to treatment.

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