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Bio Technology : July 2009
AusBioFEATURE US$2b was allocated for establishment of an Office of the National Coordinator of Healthcare Information Technology. Of particular relevance to therapeutic product developers was the allocation of US$1.1b for comparative effectiveness research. The break down here was US$400m allocated to the Secretary of the Department of Health and Human Services, US$400m to the NIH and US$300m to the Agency for Healthcare Research and Quality (AHRQ). Is this a ‘nice’ acronym that drug development companies will have to get used to? Obama has also met with industry leaders at a White House healthcare forum. The outcome – industry agreed to reduce costs and save $2 trillion over ten years. One of Obama’s major election platforms is to provide insurance coverage for as many as 50m people that fall outside public and private schemes. He has committed US$60b but is US$90b short in funding a governmentbacked plan. He could tap US$250b that employers pay in health insurance premiums, which are tax deductible. However, this was a measure he rejected in debates with his election opponent John McCain. It may be that a cap on deductions is introduced. Alternative revenue measures include increasing taxes on cigarettes and tobacco. Research cited in the New England Journal of Medicine (23 Oct 2008) that savings from investments in public health education (based on product taxes) could redirect US$493b, investments in health IT US$88b and comparative effectiveness initiatives another $368b. The most vexing question for the US healthcare system is who would run this new health insurance offering? Would it be a mandated to a new government-run health insurer, or would private companies be offered the job, so long as they expanded coverage and reduced their costs? A new public plan would attract far more than the current number of uninsured and might absorb as a many as 130m according to some estimates. On the flip side, physicians might oppose the scheme, if as is touted by some commentators it generates a 15%–20% drop in physicians’ income. At present US Medicare pays 25–30% less than private plans. And note that 60% of US medicos are self employed. Will this drop in income stimulate consolidation into larger practices? Not all are convinced about an increased reach of government in healthcare coverage. The main counterargument is that private plans drive innovation in healthcare delivery through the use of performance-based agreements. Dr Scott Gottlieb, formerly with the Centers for Medicare and Medicaid Services said: “Medicare provides all the wrong incentives. Its charge-based system pays doctors more for delivering more care, meaning incomes rise as medical problems persist and decline when illness resolves.” Yet a motivating factor for Obama is that the US spends twice as much per person on healthcare than is spent in similar Western countries. Stanford’s Professor Victor Fuchs, writing in the NEJM in October 2008, said: “Administrative costs are undoubtedly too high, and insurance companies taking excess profits and executives with high salaries are frequently blamed. But they are only are small part of the story. The biggest part consists of payments to tens-of-thousands of telephone operators, claim payers, insurance salespersons, actuaries, benefit managers, consultants and other low and middle-income workers.” Since 1999, US consumer prices have increased 34%, wages 39% but health insurance premiums by 119%. So what are the main challenges or threats to drug sales in the US, which account for 40% of global prescription drug sales? The establishment of a pricing authority that does not allow price negotiation is one threat, but there are no clear signs of this emerging at present. However, the establishment of comparative effectiveness body that becomes an instrument in price setting is much more likely. The establishment of a pathway for biogenerics continues to be a topic that won’t go away. In mid-year 2008, the US Congressional Budget Office estimated abbreviated regulatory procedures for biologics could save US$25b in national spending from 2009 to 2018. Changes in the wings in the US will mean that margins and profits from sales of drugs in the US will suffer. But globally, earnings could be compensated positively by strength in emerging markets. However, expect return-on-investment hurdles to increase, which may lead to a decrease in investment or more likely a redirection of investment towards technologies and products that offer productivity benefits to those who pay the healthcare bills. Why Obama Will Succeed With Reform Some might say President Obama’s reforms won’t get through, the more so because President Clinton failed. Obama has taken a different tack to Clinton and is using a principles approach as opposed to a detailed plan (Clinton’s ran to 1,342 pages). Obama is also using Congress to draft laws so is working in a cooperative rather than adversarial fashion. And if the Democrats get a 60th senate seat courtesy of Al Franken’s challenge in Minnesota, then Obama and the Democrats will in a supremely powerful position. The Democrats sense that the timing for any changes is at its best right now, especially as rising unemployment sees more people lose private health insurance. But the clincher is Obama himself, who said while campaigning: “Like too many Americans, I watched my mother argue with insurance companies while she was in bed dying of cancer; that should not happen.” Volume 19 • Number 2 • July 2009 Australasian BioTechnology 17