Health Care Reform: Patient Protection, Affordable Care Act and Implications for the Life Sciences Industry
Things we are thinking about now
On March 23, 2010, President Obama signed into law the Patient Protection and Affordable Care Act (PPACA). On March 30, 2010, he signed into law the Health Care and Education Reconciliation Act, which made a number of significant changes to the PPACA.
This reform package will likely have some significant impacts on life sciences companies – pharmaceutical, biotech, medical device and diagnostic.
On the one hand, according to CBO estimates, as many as 15-16 million additional people could gain private insurance coverage – and its attending coverage for pharmaceutical, biotech, medical device, and diagnostic products. And, with the closure of the Part D “donut hole” over time, seniors who have slowed or stopped their purchase of drugs once they hit the donut hole may no longer need to do so. On the other hand, the industry will be subject to new taxes, pricing standardization and additional rebates under the Medicaid program, which could expand coverage to another 16 million people. And as it emerges, comparative effectiveness requirements will likely change the approach to identifying, testing and introducing new compounds and molecules, potentially increasing R&D risk and costs and likely requiring companies to adopt new commercialization models as product adoption hurdles are increased.
While the impacts of the PPACA and reconciliation act on life sciences companies appear less significant, and potentially longer-term than the impacts for health plans and providers, the life sciences industry, particularly the big pharma companies, are already facing a significant set of challenges – including patent cliffs, pipeline challenges, shifts away from the Blockbuster model, increasing regulations impacting sales and operating costs and the overhaul of the FDA. These are indeed interesting times.
In our view, life sciences companies should be considering three strategic challenges in the wake of health care reform:
- Implications of Pricing and Reimbursement Changes on Margin
What will that mean for your organization and its ability to invest in R&D over the longer term? What product portfolio or partnership decisions will be needed to enable access to an expanded, largely generics-based market? What operational and structural changes might be necessary to support long-term profitability and success in a lower-margin business?
- Comparative Effectiveness
Although comparative effectiveness will unfold over many years, as you evaluate your product pipeline, do you believe you will be well positioned to compete and succeed in a “value” driven market? What product pipeline decision-making changes will need to occur and at what stages of development? What new data model and analytics requirements will be needed to generate ‘trusted’ comparative information? Do you need to consider different and/or additional R&D investments? What role will M&A play in your future success? Do you believe you are an acquirer? Or an acquiree?
- Realistic Avenues for Growth
What are your primary avenues for growth? Are you positioned to take advantage of them? What are the economics of a comparative effectiveness and biosimilar marketplace? How will your company be positioned to secure market share? Will you be able to achieve future growth with the business and strategy you are using today, or should you consider new and emerging markets (both geographic and product)?
Outside of the changes to Medicaid rebates (which are effective immediately) and the new pharmaceutical manufacturing industry taxes which begin in 2011, many of the more substantive, foundational changes to the industry will unfold over time –particularly as the level of information, data and transparency increases with the adoption of health information technology (a major information asset that life sciences companies can leverage). These changes will require many life sciences organizations to rethink and adapt their strategies and tactics in the near-term. The changes that can truly impact an organization’s post-reform success will take time to adopt and implement. There is time for thoughtful and deliberate action, and that time is now.
Andrew Vaz, Principal
National Practice Leader, Life Sciences
Deloitte Consulting LLP