With some provisions of the Patient Protection and Affordable Care Act (PPACA) already enacted, and more legislation ready to deploy come October 1st (namely the launch of health insurance marketplaces), now is the time to learn about how healthcare reform is going to affect the healthcare space.  Created by President Obama in efforts to stabilize costs in an increasingly unsustainable environment, the PPACA threatens to drastically alter not only the affordability of healthcare in the United States, but also the profitability of the pharmaceutical industry in general. Coverage expansion, one of the most impactful parts of the PPACA, may seem like an automatic win for pharmaceutical manufacturers as millions of previously uninsured Americans will be pushed to gain coverage, but the actual impact is less obvious, depending on the types of coverage the currently uninsured seek as well as the therapeutic areas covered by the manufacturer.

The Individual Mandate goes into effect January 1st, 2014, and will require virtually every American to seek some kind of coverage or pay a tax penalty. There are currently around 49 million uninsured people in the United States. Those that were previously eligible for insurance but chose to remain uninsured will be subject to the welcome mat effect, where increased publicity around coverage expansion, the requirement for coverage details on tax documents, and the tax penalty will motivate some of them to enroll. We expect at least 20 million of them to gain eligibility for new coverage options and enroll over the next 4 years with the implementation of the PPACA.

Medicaid Expansion, the controversial mandate that required all states to increase Medicaid income eligibility to 138% of the Federal Poverty Level (FPL) or risk losing federal Medicaid funding, was ruled upon by the Supreme Court of the United States in 2012 as unconstitutional, giving states the choice to either opt-in or opt-out of expanding Medicaid. Some states, like Wisconsin, Indiana, and Ohio, plan to use the proposed Medicaid funding to expand coverage to individuals through alternate expansion programs, utilizing either private payers or state run health plans. For those states that are choosing to participate, coverage will mainly be expanded to childless adults who did not previously qualify for Medicaid, although parents in some state will see increased eligibility as well.

Health Insurance Marketplaces, sometimes also referred to as ‘Health Exchanges’, will go live in every state on October 1st and begin enrolling individuals and small businesses into qualified health plans. Each state is required to have a marketplace, which can either be run by the state, the federal government, or as a partnership between the two. The marketplaces will be in charge of ensuring that high quality health plans offered by commercial payers are eligible as options to the public. These plans must cover 10 Essential Health Benefits mandated by the PPACA, as well as offer varying degrees of patient cost-sharing, designated by different metal band levels (from bronze, 60% cost sharing to platinum, 90% cost sharing). Because the marketplaces are supposed to allow people to compare affordable plans to pick which plan best suits their needs, tax premiums and subsidies will be available exclusively through marketplaces to those whose incomes fall between 100% and 400% FPL.

The Small-Business Health Options Program (SHOP), also open for enrollment on October 1st 2013, will be a marketplace where employers with 50 or fewer employees will be able to purchase affordable health coverage for their employees. Employers will be able to control the coverage they offer, compare health plans online, and some employers may qualify for a tax credit worth up to 50% of their premium costs. Starting in 2016, SHOP will become available to employers with up to 100 FTEs.

The PPACA will also provide benefits to some previously existing programs, like extended funding for the Children’s Health Insurance Program (CHIP) and the closing of the Medicare Part D ‘Donut Hole’.
With all of these changes being implemented to provide health coverage to millions of Americans, it is easy to assume that the impact on pharmaceutical manufacturers is going to be positive. However, the reality is more complex – impact may vary depending on how unknowns regarding new programs will be worked out, and the therapeutic areas of focus of the manufacturers.

Understanding the impact on Pharmaceutical Manufacturers requires a detailed analysis by therapeutic area.

For example, a chronic condition like diabetes, which affects over 12% of the US population, was previously expected to double in size by 2030. However, with increased coverage of preventive care like free diabetes screenings for high risk individuals, this number may be reduced.  Funding of $10 million for the National Diabetes Prevention program received from the Prevention and Public Health Fund is also expected to contribute to the early diagnosis and treatment of diabetes. Questions that manufacturers should be asking include, with such an increasing focus on improving quality of care and early diagnosis and treatment, how well does our diabetic portfolio meet the evolving needs of the customer? How will the 2.3% medical device tax affect the profitability of an industry that has been heavily reliant on insulin pens? As the diabetic market becomes increasingly entrenched with competitors and healthcare reform pressures providers to improve patient compliance as a cost-cutting measure, will doctors and patients steer away from options that put compliance at risk and lean towards equally efficacious oral products that improve the patient journey? Healthcare reform may help to increase the number of diagnosed diabetes patients, but increasing focus on early diagnosis and disease prevention will change how diabetes manufacturers will be able to best serve this patient population.

Cancer has very different dynamics from those of diabetes. A good portion of low-income cancer patients have already been receiving treatment through co-pay card or free drug patient assistance programs, which are funded by manufacturers. As more of these patients qualify for coverage and no longer require assistance, manufacturers may benefit from the opportunity to redirect funding to other areas.
Another objective for the healthcare reform is shifting the focus from quantity to quality when it comes to provider care. This shift, coupled with the increasing importance of business-oriented stakeholders in hospital and health systems, has led to strict measures meant to both improve quality and drive down costs, one of them being treatment guidelines. These aim to reduce the practice of using third- and fourth-line therapies in last ditch efforts to extend a life. Therefore, the importance of real world outcomes data comparing efficacy with other drugs in the same disease state are now more important than ever. 

As more providers consolidate in a movement towards Accountable Care Organizations, patient centered medical homes, and integrated hospital systems, it is more and more likely that a central governing body will be necessary to make decisions from not just a clinical perspective, but also from a business perspective. Providers in these types of consolidated entities will be incentivized to meet both cost and quality metrics. Manufacturers need to be cognizant that as the PPACA unfolds, their customers are no longer solely interested in the safety and efficacy aspects of a product, but are also now growing increasingly cost-aware.  One example of a manufacturer responding to these needs is Sanofi, who decided to offer discounts of up to 50% on the drug Zaltrap after realizing that important providers like Memorial Sloan-Kettering Cancer Center refused to use it, arguing that the drug showed no increase in efficacy over alternative treatments, yet was being offered at double the price.

The unknowns on the reform are still major and require close monitoring 

There are still many unknowns that come with the PPACA – participation in the health insurance marketplaces among different groups being one of them. Recently, a study showed that only 19% of uninsured young adults were aware of health insurance marketplaces. Without healthy young adults participating in the exchanges to offset the risk of older, affordable premiums offered in the health insurance marketplaces will not be sustainable. 

Another unknown is with the large number of payer regulations mandating increased coverage of certain benefits, will payers shift this increased cost to patients through a rise in premiums? If so, will the rise be significant enough to bar certain people from gaining coverage? And if the PPACA is successful in drastically increasing coverage, will providers be able to handle the sudden increased demand for healthcare? The healthcare space is going through a time of rapid change. Despite uncertainties, manufacturers need to closely monitor those changes and evolve along with the market proactively, or risk falling behind and playing catch-up for the next several years.

Special thanks to Aymeric Ange, Lee Lehman-Becker, Kristin Talsky and Andrew McCourt for their contributions in delivering this blog post.