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Price controls threaten industry profits and promotional spend

Written by: | JKamp@wileyrein.com | Dated: Friday, June 9th, 2017

 

With all the noise in Washington these days, it’s sometimes important to cut through the clutter and pay attention to what matters to you and your business.

Whatever comes out of Congress on the “repeal and replace” of the Affordable Care Act (ACA or Obamacare) matters because it will affect the bottom line of the life sciences industry as well as all of its industry partners.

Look more carefully at the American Health Care Act (AHCA) legislation that passed the House by a narrow margin and is now being debated in the Senate. Call it Trump/Ryan/McConnellcare if you will, but note that none of the major life sciences trade associations, PhRMA most notably, is highly visible in the policy debates.

While PhRMA was front and center in the development of the Affordable Care Act, believing then that cooperation better served than opposition, the strategy is different now. There are good reasons for that. Consider just a few of them, off the top.

1. ACA coverage created tens of millions of new U.S. customers (comparable to the entire population of Canada), while AHCA risks up to 23 million insured.

2. ACA increased the Medicaid rebates (discounts) from 15 percent to 23 percent; Under AHCA, discounts would stay while the number of insured would likely drop.

3. AHCA risks improved insurance coverage, including:
• Coverage of pre-existing conditions
• Removal of the lifetime spending caps
• Possible co-pay reform
• Possible end of the drug cost  “donut hole.”

Indeed, one of the positive items in the House version of AHCA for biopharma may be lost in the Senate version, i.e., the deletion of the one percent “market share fee” paid as part of the ACA.

But, far and away the most important concession PhRMA got from the Obama White House and the Congress in the ACA was the promise to not cap prices on federal drug purchases, the gateway to federal price controls. More customers and retention of price flexibility led to the grand bargain.

All of this is at risk in the new realities playing out in the Congress and the Trump administration in Washington today. Indeed, virtually every speaker at the recent Coalition for Healthcare Communication Rising Leaders Conference on Healthcare Policy in D.C. addressed price pressures, from the opening by meeting chair Jon Bigelow, President of Thayer Pond Solutions, to yours truly near the closing.

Although none would discount the possibility of some controls, the most startling prediction came from Kate Rawson, senior editor at Prevision Policy and the RPM Report.

Rawson reviewed both the difficulty of passing AHCA in the House as well as the difficulties of passing a similar bill in the Senate that would in turn survive a House-Senate Conference committee. She then outlined the many Democratic as well as Republican efforts to reduce drug prices.

Rawson concluded that it may be easier for Congress to pass some sort of bipartisan price control legislation than to garner agreement on a Republican repeal of ObamaCare.

Given that many major medicine companies increased profits last year mainly by increasing prices, a price cap could be a major hit to biopharma. And, need I caution you, if biopharma profits decrease, expect promotional spend to follow.

If Rawson’s premonition seems farfetched, consider the “transparency” bill introduced the same day by Rep. Jan Schakowsky (D-Ill.) and Senators Tammy Baldwin (D-Wisc.) and John McCain (R-Ariz.). The press release said the FAIR Drug Pricing Act “takes the first step in addressing skyrocketing prescription drug prices by requiring transparency for pharmaceutical corporations that plan to increase drug prices.”

No later than 30 days prior to instituting price increases of at least 10 percent over a year (or 25 percent over three years), drug sponsors would have to notify HHS and submit a report detailing expenses for that drug including production costs, research and development, and marketing and ad spending.

Clearly, few, if any, companies would breach the percent minimums, making the so-called transparency bill a price control bill in disguise.

One can wonder, however, if such a bill would seriously reduce drug marketing.

As Jon Bigelow suggests, “regulators and legislators are most focused on two situations. One involves financial players who acquire older products and impose unconscionable price increases, the second concerns innovative drugs for diseases with few existing therapies, where the patient population may be small, the per-patient price is often high, and despite a clear value proposition there is a short-term financial burden to the healthcare system.”

Bigelow also notes that “the financial players do minimal marketing, while marketing for innovative drugs in rare diseases is targeted but remains crucial to building awareness. Thus, I think the most likely near-term efforts to control drug prices will have much less impact on overall spending for healthcare advertising and communications than other measures being considered in Washington.”

So, while the debates on healthcare rage in Washington, the stakes may be closer to home for healthcare marketers than they may first seem.

Stay tuned. 

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