The Patient Protection and Affordable Care Act, commonly known as the health care reform law, has both direct and indirect implications for the pharmaceutical industry. Legal challenges and new political leadership may alter the far-sweeping legislation in 2011 and subsequent years.
Different facets of the law will be developed and implemented over the next decade. In 2010 the law:
- Extended the drug rebate to Medicaid managed care plans. The rebate will range from 13 percent to 23.1 percent depending on the type of drug.
- Gave sole-community hospitals, critical access hospitals, some children's hospitals, and other health care institutions entities access to the 340(B) drug discount program.
- Granted biologic drug manufacturers 12 years of market exclusivity before generics can be developed.
- Gave the FDA the authority to approve generic versions of biologic drugs.
- Granted a $250 rebate to Medicare recipients who reached the Part D coverage gap (the "donut hole") in 2010.
- Provided a tax credit, equal to 50 percent of the investment, to small companies (less than 250 employees) engaged in developing new therapies during 2009 and 2010.
- Established a public-private Patient-Centered Outcomes Research Institute tasked with comparing the effectiveness of existing drugs with newer more expensive therapies. Ostensibly, the goal of comparative effectiveness research is to expand coverage based on evidence-based medical research while containing costs, but the law does not mandate Medicare and other agencies to accept the Institute's recommendations.
- Established a Cures Acceleration Network through which the National Institutes of Health can provide $15 million in grants and contracts annually for "revolutionary advances in basic research" to reduce the time between drug discovery and development through expedited grant-making.
The next phase of reform affecting pharmas arrived January 1, 2011,and provides for:
- Further rebates and discounts to eliminate the Medicare Part D coverage gap.
- Expansion of federal subsidies to states for preventative health services, including recommended immunizations.
- A requirement that pharmaceutical manufacturers provide a 50 percent discount on brand-name prescriptions filled in the Medicare Part D coverage gap.
Prescription discounts are expected to have a marked effect on industry profits since the greatest share of prescription drugs go to Medicare and Medicaid recipients. However, the law also expands Medicaid to all low-income individuals under age 65 which increases the likelihood that more prescriptions will be written with the expanded coverage.
Also on January 1, the federal government began phasing in subsidies for generic prescriptions filled in the Medicare Part D coverage gap. Beginning at 25 percent in 2011, the subsidy will rise to 75 percent of the cost of generic medications by 2020.
New Annual Fees
The law imposes new annual taxes on the pharmaceutical manufacturing sector on drugs purchased by Medicare, Medicaid, Department of Veterans Affairs (VA), Department of Defense (DOD) and TRICARE, a pharmacy program for military members and their families. The fee is calculated based on the manufacturer's market share.
The sector will be assessed at the following rates:
- $2.8 billion in 2012 through 2013
- $3 billion in 2014 through 2016
- $4 billion in 2017
- $4.1 billion in 2018
- $2.8 billion in 2019 and after
The fees are part of an agreement negotiated between pharmaceutical industry and government leaders that stipulates the industry will pay $80 billion in fees and rebates as part of the law's implementation. Rather than opposing the legislation, pharmaceutical companies played a key role in shaping its outcome.
Kaiser Family Foundation: Focus on Health Reform, March 26, 2010
Healthcare.gov: Understanding the Affordable Care Act
Health Affairs: Weighing The Impact Of Health Reform July 2010
