Impact of Healthcare Reform on Lifecycle Management of Healthcare Products – Paying for Reform

 Between now and 2019, healthcare reform will cost taxpayers approximately $938 billion.  This is based on the latest estimates from the Congressional Budget Office.  The major funding sources for healthcare reform are displayed below.

 Some of these funding sources, although not the largest sources, will have an impact on healthcare manufacturers.  The funding sources of most concern to healthcare manufacturers include:

•  Raising Medicaid basic rebates for branded pharmaceuticals from 15.1% to 23.1%.  As an aside, the 8% increase in rebates will be completely transferred to the Centers for Medicare and Medicaid Services (CMS).  This exacerbates the budget impact of healthcare reform at the state level.
• Medicaid rebates on managed Medicaid volumes – The rebates available to Medicaid fee-for-service plans will be extended to managed Medicaid plans.  This will reduce the cost under the pharmacy benefit.
  
• Reduction in Medicare reimbursement – Restructure payments to Medicare Advantage plans by setting payments to different percentages of Medicare fee-for-service (FFS) rates, with higher payments for areas with low FFS rates and lower payments (95% of FFS) for areas with high FFS rates.

  The healthcare reform act establishes an independent Payment Advisory Board comprised of 15 members.  The Board will submit legislative proposals containing recommendations to reduce the per capita rate of growth in Medicare spending if spending exceeds a target growth rate.  

  Beginning April 2013, require the Chief Actuary of CMS to project whether Medicare per capita spending exceeds the average of CPI-U and CPI-M, based on a five year period ending that year. If so, beginning January 15, 2014, the Board will submit recommendations to achieve reductions in Medicare spending. Beginning January 2018, the target is modified such that the board submits recommendations if Medicare per capita spending exceeds GDP per capita plus one percent.

  PPACCA will reduce Medicare payments that would otherwise be made to hospitals by specified percentages to account for excess (preventable) hospital readmissions.

• Eliminate CPI reset for new formulations – Under current law, price increases of existing formulations cannot exceed the consumer price index without a penalty.  However, launching new formulations allowed drug companies to reset the base price for comparison.  However, PPACCA eliminates that loophole.  Launching a new formulation does not reset base for comparing price increases to CPI.
  
• 50% discount in Part D gap for branded drugs – Beginning on January 1, 2011, drug manufacturers will cover 50% of the negotiated rate for brand pharmaceuticals when a Medicare Part D beneficiary is within the donut hole.  Medicare beneficiaries will pay the discounted price at the pharmacy and manufacturers will reimburse the retail pharmacies for the difference.
• Excise tax on “Cadillac” plans – Insurers would pay an excise tax of 40% of annual premium cost when annual premiums are greater than $10,200 for individuals or $27,500 for families.  It is likely that some or all of the cost of the excise tax would trickle down to consumers.

Funding healthcare reform will affect healthcare manufacturers and how they market their products.  For example, the increase in rebates, elimination of the CPI pricing reset, 50% discount in Part D gap for branded drugs, reduction in Medicare reimbursement and the excise tax on “Cadillac” plans will increase downward pricing pressures.  Increasing rebates, eliminating the CPI price reset and the 50% discount in Part D gap for branded drugs will directly reduce the net revenue that drug manufacturers realize. 

The excise tax on “Cadillac” plans will increase the cost of coverage for beneficiaries.  This could lead to a reduction in consumers’ availability of resources available for co-pays and deductibles.  This, in turn, could lead to a reduction in utilization of drugs and medical devices and diagnostic imaging procedure and, therefore, lead to downward pricing pressure.

The reduction in Medicare reimbursement will reduce the incentive for physicians to prescribe or order products and provide services.  Physicians also might reduce their volume of Medicare patients.  This could lead to downward pricing pressure for healthcare products and services as well as a potential reduction in utilization.

The reduction in financial resources could encourage Medicare plans to increase the use of specialty pharmacies rather than allowing buy-and-bill for high-cost therapies.

Advertisement