In determining that the Affordable Care Act (ACA) was constitutional, the Supreme Court last week blew away a cloud of uncertainty that has been hanging over the biopharma industry for the past two years. But other clouds are gathering.
The decision brought blue skies to the health care industry, maintained Jerry Isaacson, head of GlobalData's Healthcare Industry Dynamics analyst team. "A huge influx of people who did not previously have access to health care . . . are sure to require doctor visits and will take more drugs than they otherwise would have," he said.
But Paul Keckley, executive director of the Deloitte Center for Health Solutions, said the influx of new patients won't begin to cover the costs industry will incur as a result of the ACA. When industry was negotiating health reform with the administration, it knew it was giving up more than it would get in return, he told BioWorld Insight.
The idea behind the ACA's individual mandate that requires individuals to purchase health insurance, beginning in 2014, or pay a penalty was to increase revenue and decrease bad debt for all sectors of the health care system.
Will the law do that? "No one knows," Keckley said. "That's the intellectually honest answer." And it's based on Deloitte running various scenario-based models every six months since the passage of the bill.
The fogginess stems from the fact that health care costs have grown slower than anyone had expected. Subsequently, no one knows any more today about the outcomes than they did when the ACA was signed into law March 23, 2010, Keckley said.
As it stands, biopharma's share of the costs of the ACA will far outweigh the expected increase in brand drug sales. Under the health care law, makers of brand drugs could lose $155 billion over the next decade due to higher Part D discounts, increased Medicaid rebates, taxes and competition from biosimilars, according to a report from the PwC Health Research Institute.
Meanwhile, the increased demand from having another 16 million people with medical coverage is expected to be pretty modest – about $15 billion in new revenue over the next 10 years. But there's no guarantee all those people will seek coverage or that every state will opt in to the expanded Medicaid program that extends gov-ernment health benefits to people at 133 percent of the federal poverty level.
The expected impact of the ACA will depend on a drug company's portfolio and customer base. "Drugmakers with biologics-heavy portfolios may experience disproportionately negative impacts because of the introduction of biosimilars" allowed under the ACA, the report said.
It noted that 126 biosimilars already were in development in 2011, even though the FDA had yet to pave the new regulatory path.
Large pharma companies with diverse portfolios stand to lose the equivalent of about 5 percent of their U.S. sales, according to the report, and medium-sized companies with low sales to government health care programs would lose about 1 percent. The winners are large generics companies, which could see a 2 percent increase in sales.
Besides the direct costs incurred under the ACA, drugmakers also face future bottom-line impacts from policies the Independent Payment Advisory Board (IPAB) may make to keep Medicare solvent, as well as comparative-effectiveness research sponsored by the Patient-Centered Outcomes Research Institute (PCORI), Keckley said.
Both independent groups were created under the ACA, and IPAB is perhaps the most controversial provision in the law. As soon as the Supreme Court handed down its decision last week, the Biotechnology Industry Organization and the Pharmaceutical Research and Manufacturers of America pledged their support to efforts to repeal IPAB. (See BioWorld Today, June 29, 2012.)
Earlier this year, the House voted 223-181 to repeal the nonelected board, but the Senate has so far refused to follow suit. (See BioWorld Today, March 26, 2012.)
The impact of the health care law is coming as drugmakers face huge patent cliffs and increased pricing pressures, which Keckley thinks could affect their bottom lines more than the ACA itself. "There's a huge amount of headwinds in the sector," he said.
As a result, he expects biopharma companies will look very different by the end of the decade.