Peril and promise of healthcare reform

December 21, 2009 – 2:50 pm by Steven Niles

Healthcare reform has taken a major step forward as the Democratic caucus voted to curtail debate on the bill. The final vote on the Senate’s version of healthcare reform could come by Christmas, at which point the Senate must then draft a compromise with the House, which approved its own bill Nov. 7.

As we don’t yet know what that final compromise will look like, it remains unclear precisely how healthcare reform will affect the pharmaceutical industry. What is clear, however, is change is coming to the landscape in which pharmaceutical companies must operate, a landscape defined by the myriad challenges that pharmaceutical executives are struggling to resolve. These challenges include a drop in R&D productivity; a new, vocal group of stakeholders who are driving change; and the promise of high-quality, accessible products and treatments.

Whatever form healthcare reform takes, it will force most midsize and big pharma companies to modify their long-term strategy, says Gary Gabrielsen, VP, business development, Astellas Pharma US Inc.

“Whether it’s good or bad, it’s inevitable healthcare reform is going to occur to some extent,” Mr. Gabrielsen says. “We just have to make sure that we, as an industry, are flexible and can adjust with whatever the outcome is.”

As the government looks to control healthcare costs, increased importance will be placed on preventative medicine. Mr. Gabrielsen believes that preventative medicine will continue to be a focus for the industry and presents a major opportunity.

“It’s certainly more cost effective to utilize a pharmaceutical product effectively and safely than it is to not use it or use it incorrectly and wind up with increased morbidity and mortality and increased hospitalization,” Mr Gabrielsen says. “While many products are focused on symptom management, more are focused on disease management and modification, which really is preventative medicine.”

Healthcare reform will spur a fairly substantial change in how a new commercial model is defined in the marketplace, according to Terry Hisey, vice chairman, U.S. life sciences leader, Deloitte LLP. The inevitable changes in reimbursement and insurance companies will affect the way the industry engages with private payers and government.

Funding for healthcare reform will likely result in a higher tax burden for pharmaceutical manufacturers, according to Michael Swanick, global pharmaceutical and life sciences tax leader, PricewaterhouseCoopers. “Somehow this healthcare reform has to be funded,” Mr. Swanick says. “So you see the administration and the government, particularly in this country, looking to raise revenue and drive up taxes, and we think that trend could continue. We’ve got a request for more coverage and better quality coverage in this sector. Those things come with a cost, and nobody wants to pay for it. We’ve got a nation that doesn’t want to have their taxes increase. That seems like you’re going to find yourself migrating toward the corporate taxes.”

John Doyle, practice leader, managed markets, Quintiles Consulting, suggests the industry sharpen its focus on three platforms: expand access, focus stakeholders on value, and catalyze health information technology.

“These three platforms have the potential to propel and transform the biopharmaceutical companies into a leaner, more innovative industry,” Mr. Doyle says.

Similar to when the Medicare Part D benefit went into effect in 2006, the anticipated extension of healthcare insurance to an additional 45 million people in the United States will represent an expanded customer pool for biopharma companies. Mr. Doyle believes that these new patients will amplify the economic pressure on public and private payers, who in turn will scrutinize budgets in the hope of controlling costs.

“Drugs will of course be caught in the cross-hairs, but this time the second paradigm shift to healthcare value will change the nature of the economic exercise,” Mr. Doyle says.

Unlike Medicare and Medicaid, which added primarily older and less healthy new participants to the system, the version of healthcare reform now making its way through Congress will add millions of participants from every social and demographic segment. Kelly Andrews, director, strategic marketing, MicroMass Communications, says this will present a host of new opportunities for savvy marketers.

“With a huge population of younger citizens insured, pharma’s traditional ways of reaching primarily older audiences will need to be adapted to reach a more diverse audience,” Ms. Andrews says. “Many in this younger group shun traditional media channels and approaches, making it necessary to meet them where they are with messages that reflect the reality of their experiences.”

Because younger audiences have a different relationship with the healthcare system in general, and with physicians in particular, pharmaceutical marketers will also need to employ different educational approaches to get them actively involved in their healthcare. According to Ms. Andrews, all of these changes will necessitate a change in how healthcare communications are conceived and executed.

The influx of previously uncovered patients into the healthcare system will also bring certain challenges to marketers in terms of the nature of the patient pool. “In many cases, such as with inner-city poor, there’s ethnicity and language issues that would have to be dealt with and overcome,” says Matt Giegerich, president & CEO of CommonHealth.

Having millions of previously uninsured Americans eligible for reimbursement of medical and pharmaceutical care will increase the demand for prescription products, but will also likely be accompanied by strong influences to restrict branded prescription drug use in favor of generics for patients in government-backed plans.

“Payers will successfully use prior authorizations, step edits, increased co-pay amounts, and other techniques to convert branded prescriptions to generics, and physicians, pharmacists, patients, and caregivers will become increasingly more aware of the specific costs of different prescription medications,” says Jay Bolling, president, Roska Healthcare Advertising. “The need for pharmaceutical companies to show a distinct ‘value’ of every branded prescription will increase, and the need for ‘added-value’ services, resources, and support will be critical components of the 2010 marketing mix. The availability of patient support programs, co-pay discounts, easy access to disease/product information (e.g., mobile delivery) and disease management tools/resources will also make it more and more important to differentiate prescription brands and justify the additional patient investment versus lower-priced alternatives.”

Lynn O’Connor Vos, CEO of ghg, acknowledges that healthcare reform will bring pressures for more generic usage, but she believes that there are also people who are appropriate for branded products who have not been treated before or been treated intermittently. “With them actually having access to coverage, it can only benefit us,” Ms. O’Connor Vos says. “That being said, the industry will change, and as it changes it will still be a great business. It just won’t be the same model we had before.”

As the healthcare debate progresses, Mark Armstrong, partner with Epstein Becker Green, notes three key areas to watch for activity. “I would not be surprised if there were some discounts that were given during the coverage gap or the donut hole in Medicare Part D,” Mr. Armstrong says. “I wouldn’t be surprised if there were some increased rebates that were directed toward the Medicaid program, both for the brand name drugs and the generic drugs. And there may be provisions that would pass giving the government greater enforcement opportunities in fraud, waste, and abuse as it pertains to healthcare providers, including pharmaceutical manufacturers.”

Clearly, drug prices are not the only target when it comes to lowering costs. The Obama administration is already making efforts to seek other cost reductions in healthcare, and those efforts will accelerate in 2010, according to Jay Carter, senior VP, director of client services, AbelsonTaylor Inc.

“Recent discussions about the need for mammography and pap smears are just the opening salvos in a debate about how much healthcare Americans need to consume,” Mr. Carter says. “The debate will be heated, politically charged, and arduous. In the end, cost reductions will be achieved at the expense of some patients who will get less care than they do today.”

Not everyone is as negative. Ms. O’Connor Vos notes that healthcare reform is starting to take the shape of health insurance reform. “If the Obama administration had started out describing it that way, it probably wouldn’t have had such huge public backlash,” she says. “But without really knowing exactly what’s going to happen or if it’s going to fully go through, being the ultimate optimist and bullish on the fact that healthcare is always going to be a great business, I’ve got to believe that the influx of patients who haven’t been insured will benefit the industry.”

Mr. Doyle believes that instead of a simple analysis of price, putting the focus on value may bring a new era of value-based coverage and reimbursement. “Similar to the European Union, a wave of new evidence requirements for market access will originate in the public sector and cascade to the private sector,” Mr. Doyle says.

According to Mr. Doyle, the expected investment in health information technology that will likely come from healthcare reform will expand the collection, analysis, reporting, and, ultimately, the harmonization of patient-level data.

“These data can be used to evaluate patient populations to optimize the risk-benefit and cost-benefit profile of biopharmaceutical products – in essence, allow patients to receive a medicine that has the greatest benefit and value,” Mr. Doyle says. “As companies adapt this downstream target earlier in drug development, they will improve their efficiency and effectiveness of their business model.”

The healthcare reform debate has revealed interesting shifts in the allies of the pharmaceutical industry. According to Roderick Cavin, managing director, Health Strategies Group, commercial payers are becoming important not only for drug product access, but also as partners in the development of market-based solutions to healthcare delivery at a time when government-based solutions are gaining more visibility.

“At the same time, the gap is widening between the goals of the pharmaceutical industry and the physician community,” Mr. Roderick says. “This is evidenced by the decline in physician influence in drug treatment decisions and the competition for healthcare dollars playing out in Medicare and Medicaid debates about physician fee schedules and drug pricing. The challenge for the pharmaceutical industry is how to partner with commercial payers on healthcare delivery changes – and thereby avoid draconian government solutions – while retaining physician support, which is essential to drug market growth.”

Although predicting how healthcare reform will affect people, the industry, and marketers is a difficult task, one thing is clear. The issue is a major topic of discussion across the social media universe.

“Blogs and micromedia, things such as Twitter, tend to show the most activity with posts and replies – with the mainstream media sites providing only a fraction of the ongoing conversation,” says Ken Johns, senior VP, strategy and planning, Brunner, a full-service advertising agency. “While it might be a while before the impact of the reform on the country and the industry is known, the impact in the social media space is fairly large right now and something to keep an eye on.”

Tags: healthcare reform