You are on page 1of 66

Master’s in Bioscience Enterprise

2009 - 2010

Strategic Implications of US Health Reform on

Pharmaceutical Market Access

Muhammad Bilal Mahmood

June 2010

Master’s in Bioscience Enterprise
2009 - 2010

Strategic Implications of US Health Reform on Pharmaceutical Market Access

Author: Muhammad Bilal Mahmood

King’s College
University of Cambridge

Company Supervisor: Dr. Shrinivas Rao Mukku

Double Helix Consulting

Academic Supervisor: Dr. Ken Seamon

Date of Submission: 3 June 2010

Word count: 9,745

Permission is given for the following people to have access to this dissertation:

Available to all staff and students of the MBE programme YES

Available only after consultation with Student/Company
Available for viewing by persons bound by Confidentiality only

Student’s signature:

Signature on behalf of company: Double Helix Development

London, UK

Non-Confidential Abstract
The recent passage of US Health Reform presents a range of consequences for the
pharmaceutical industry. With broad improvements in patient coverage subsidized at
pharmaceutical cost, it is expected that the Reforms may impact pharmaceuticals
and their ability to achieve market access. The implications of such Reforms are
especially pertinent considering the development, pricing, and patient access stages
of market access affected. This study accordingly sought to more closely review the
Health Reform legislations and assess industry perspectives across multiple market
access stakeholder groups. In turn, it would be inferred that as the industry faces a
net neutral outcome over the long term, short-term implications will present revenues
and losses for various sectors of the market. Pharmaceuticals may face a series of
opportunities to enhance or mitigate their respective outcomes, and should
accordingly approach the effects of US Health Reform to ensure their market access.

The author would like to acknowledge several people for their assistance and
support in pursuing this study on US Health Reform.

Foremost, the author would like to acknowledge his respective advisors for their
much appreciated mentorship. Thanks are due to Dr. Shrinivas Rao Mukku,
Consultant at Double Helix Consulting, for providing strategic direction and guidance
in conducting this study. Cambridge University Supervisor Dr. Ken Seamon is also
acknowledged for his mentorship in focusing this study’s business aspects into an
appropriate dissertation.

Additional thanks are due to those who assisted in the dissertation’s primary
research review. The author would like to acknowledge all those interview
respondents who graciously offered their time and expertise in assessing the Health
Reform legislation, and to those friends and family who provided general support.
The Gates Cambridge Trust is equally acknowledged for awarding its prestigious
scholarship and financially supporting this course of study.

Lastly, a special commendation is in order for President Barack Obama, whose

passage of US Health Reform has accordingly improved the lives of millions, and as
such made this dissertation a pertinent issue to address.

I confirm that the material in this dissertation is not copied, or a paraphrase or
abstract of any published work or material, unless it is clearly identified as such and
a full source reference given. I also confirm that this dissertation is the result of my
own work and includes nothing which is the outcome of work done in collaboration
except where specifically indicated in the text.

I further declare that my dissertation does not exceed the limit of length prescribed in
the Special Regulations of the MPhil examination for which I am a candidate. The
length of my dissertation is 9,745 words.


Muhammad Bilal Mahmood

Table of Contents
Title 1
Non-Confidential Abstract 2
Acknowledgements 3
Declaration 4
Table of Contents 5
Abbreviations 7
Glossary 8
Executive Summary 9

I. Introduction 10
1.1 Policy Implications of US Health Reform 10
1.2 Financial Implications of US Health Reform 11
1.3 Analysis Objectives for Pharmaceutical Market Access 11

II. Analysis Methodology 13

2.1 Secondary Research: Health Reform Review 13
2.1.1 Sources of Health Reform Policy 13
2.1.2 Assessment of Market Access Implications 14
2.2 Primary Research: Industry Perspectives 15
2.2.1 Market Access Stakeholder Groups 15
2.2.2 Interview Questionnaire & Assessment 16

III. Review of US Health Reform Policy 17

3.1 Policy Reforms for Pharmaceutical Development & Services 17
3.1.1 Comparative Effectiveness 18
3.1.2 Biosimilars Approval Pathway 19
3.1.3 Federal Fees 19
3.2 Policy Reforms for Pharmaceutical Reimbursement 20
3.2.1 Medicare Coverage Gap 21
3.2.2 Medicaid Coverage Expansion 22
3.2.3 Free Preventive Coverage 22
3.2.4 Mandated Rebates for Medicare & Medicaid 23

3.2.5 Performance Based Revisions to Medicare 24
3.3 Policy Reforms for Pharmaceutical Patient Access 25
3.3.1 Health Insurance Reform 26
3.3.2 Health Insurance Exchanges 27
3.3.3 Individual Mandates & Patient Subsidies 28

IV. Market Access Implications of US Health Reform 29

4.1 Implications for Pharmaceutical Development & Services 29
4.1.1 Minimal Impact for Comparative Effectiveness 30
4.1.2 Mitigated Outcomes for Biologics 31
4.1.3 Company Losses to Federal Fees 32
4.2 Implications for Pharmaceutical Reimbursement 33
4.2.1 Gains to Closing the Medicare Coverage Gap 34
4.2.2 Mitigated Yields to Medicaid Expansion 36
4.2.3 Minimal Impact to Preventive & Performance Measures 37
4.3 Implications for Pharmaceutical Patient Access 39
4.3.1 Increase in Patient Access to Healthcare 39
4.3.2 Increase in Patient Utilization of Services 40

V. Conclusions & Market Access Recommendations 42

5.1 Overall Implications for Market Access 42
5.2 Strategic Recommendations 44
5.2.1 Strategies for Maintaining Development & Services 45
5.2.2 Strategies for Achieving Reimbursement 46
5.2.3 Strategies for Acquiring Patient Access 48
5.3 Conclusions & Recommendations 49
5.3.1 Major Conclusions 49
5.3.2 Industry Recommendations 50

VI. Bibliography 51

VII. Appendix 55

AHRQ Agency for Healthcare Research and Quality

AMP Average Manufacturing Price

CBO Congressional Budget Office

CDC Center for Disease Control and Prevention

CHIP Children’s Health Insurance Program

CPI Consumer Price Index

FDA Food and Drug Administration

FFS Fee For Service

GDP Gross Domestic Product

HI Health Insurance

HTA Health Technology Assessment

MA Medicare Advantage

NICE National Institute of Clinical Evidence

NIH National Institute of Health

PPACA Patient Protection And Affordable Care Act

QALY Quality Adjusted Life Year

Biologics: a class of complex and innovative drugs, produced through biological
means such as recombinant DNA technology

Biosimilars: non-innovator or generic formulations of biologic drugs, approved after

the reference biologic’s patent expiry for lower-priced competition

Comparative Effectiveness: research that compares the clinical outcomes of two

separate drugs, diagnostics, or therapies

Health Insurance Exchange: a State-run insurance marketplace, from which

individuals and businesses can purchase regulated private health insurance plans

Healthcare & Education Reconciliation Act: a piece of legislation signed into law
March 30, 2010 to bridge the differences between separate Health Reform proposals
passed by the United States Congress

Market Access: the ability of a pharmaceutical company to achieve adequate

pricing, reimbursement, & patient access while distributing its product to the market.

Medicaid: a State-run public health insurance program, monitored by the US

government, to provide coverage for low-income and disabled citizens

Medicare: a government-run public health insurance program that provides

coverage for elderly US citizens above the age of 65

Medicare Advantage: privately-run health insurance programs for the elderly that
are subsidized and regulated by the US government

Medicare Part D: a government regulated prescription drug plan for the elderly,
administered through private health insurance providers

Patient Protection & Affordable Care Act: the Health Reform legislation signed
into law by President Barack Obama on March 23, 2010 to improve healthcare
coverage and regulate the insurance market

Executive Summary
The enactment of US Health Reform spells potential reprecussions for the $300
billion pharmaceutical market. With broad improvements in patient coverage
subsidized at pharmaceutical cost, it is expected that the Reforms may impact
pharmaceuticals and their ability to achieve market access. The respective stages of
development, pricing, and patient access, could even be affected. As such, an in-
depth assessment was warranted to review the relevant policy provisions and
assess those implications for pharmaceutical market access.

A holistic review of the legislation, and an assessment of industry perspectives,

appropriately inferred a range of consequences for different pharmaceutical sectors.
Reforms immediately affecting pharmaceutical development were found to increase
federal fees and biosimilars approvals, leaving mitigated losses to larger firms and
biotech companies. Other provisions for mandated rebates were seen to hurt
pharmaceutical pricing, though companies with heavier investment in public drug
formularies could be expected to recoup the immediate losses through future gains.
Broad provisions for expanded public and private insurance coverage may even
bring in future revenue as millions of formerly-uninsured patients gain access to
healthcare. The balance in short-term costs vs long-term gains would aptly indicate
a net netural otucome for the pharmaceutical industry, over the next 10 years.

This study recommends pharmaceuticals to consequently approach Health Reform

as an opportunity to reduce immediate losses and acquire future revenues. To
mitigate the immediate outcomes, firms may be seen to establish their own biosimilar
divisions and reduce funding for free pharmaceutical assistance programs. Such
strategies may even be complemented by increased revenue acquisition within
government-run insurance plans. And to effectively ensure paitent access, firms
may be pursuing increased public/private collaborations within the private health
insurance marketplace. Such strategies may afford adequate market access for
pharmaceuticals in the coming years, and ensure continued success in a post-Health
Reform market.

I. Introduction
The recent passage of the United States Patient Protection & Affordable Care Act
(PPACA) accordingly presents potential implications for the pharmaceutical industry.
Representing the largest change to the US healthcare system since Medicare was
enacted in 1965, the Health Reform Bill will seek to regulate industry practices
towards improved patient outcomes [1]. Patients may see consequent improvements
in coverage and affordability, while pharmaceuticals may see repercussions to
industry sales and services. In concert, both sets of reforms present political and
financial discussion points with broad market access implications.1

1.1 Policy Implications of US Health Reform

The political implications for market access, in turn, present themselves through
three major policies, namely to expand patient coverage, improve affordability, and
regulate the health insurance market (see Figure 1.1 below).

Figure 1.1 Major Goals of US Health Reform

In due course, those citizens without access to healthcare will now receive increased
federal subsidies to expand their health insurance coverage. To improve
affordability, Health Reform will also enforce coverage mandates to progress risk-
pooling and cost-sharing regimes within the private market [1-2]. And with the
addition of State-run Insurance Exchanges, the uninsured will finally be able to
acquire affordable and regulated insurance plans [1, 3]. These sets of provisions will

Market access, for the purposes of this paper, will be defined as the ability of a pharmaceutical
company to distribute its product to the market with adequate pricing, reimbursement, & patient

collectively expand healthcare access to millions of uninsured Americans, and will
even present repercussions for pharmaceutical firms in the years to come [2].

1.2 Financial Implications of US Health Reform

By consequence, such policy reforms pose pertinent financial implications for the
industry. On the one hand, increasing patient access to healthcare may improve
future industry revenues in the $300 billion US pharmaceutical market [4]. Firms
may experience a rise in sales as patients gain access to pharmaceutical services,
as well as an increase in drug compliance as the market is better covered and
regulated. Conversely, pharmaceuticals could incur immediate costs towards
improving such outcomes. To finance the increased patient access to healthcare,
the industry may face increased fees and mandated rebates on drugs [1]. And in the
process of reforming the health insurance market, public pricing and reimbursement
of drugs may also be affected.

Such reforms have therefore drawn a variety of market access projections. Recent
forecasts by Eli Lilly and BMS have predicted a drop in firm-specific revenues by as
much as 1.6% in 2010 and 3% in 2011 [5-7]. Industry-wide estimates have predicted
a 4-7% loss in revenue over the next couple years, as well as a 5-8% gain in global
sales after 5 years [5, 8]. And considering the US represents over 40% of the global
market, preliminary reports have conferred a range of conflicting 10-year outcomes
from -$112 billion in losses to +$35 billion in profits— leaving the final outcome for
pharmaceutical market access relatively uncertain [4, 8-9].2

1.3 Analysis Objectives for Pharmaceutical Market Access

Appropriately, both the negative and positive financial outcomes of US Health

Reform warrant more in-depth analysis. With negative assessments emphasizing
the increased federal fees and mandated rebates, positive analyses must be
equivalently pursued to understand the true implications of expanding coverage to
the uninsured. It would hence be prudent to more closely define these policies, and
examine the severity of their consequences for market access.

Based on general assumptions, several preliminary reports have cited vastly inconsistent outcomes.
A report from PricewaterhouseCoopers has cited a net $112 billion loss for Pharma as a result of US
Health Reform, over 10 years. By contrast, a separate analysis from the RPM Report believed the
outcome would present a positive $30 billion gain over 10 years. [8-9]

This study will address such concerns through a selected review of the Patient
Protection and Affordable Care Act (PPACA). The forthcoming analysis will offer a
meticulous understanding of the Health Reform legislation and its potential
consequences for industry. Focus will be placed on those measures affecting
industry development, pricing and reimbursement, and patient access in their
relation to market access specifically. In turn, a nuanced explanation for the recent
market downcasts may be offered, as strategic recommendations for approaching
the positive and negative aspects of Reform may also be found.

This paper will accordingly carry on 3 main objectives:

 First, to understand the specific policy proposals of the PPACA Act, as they
pertain to the pharmaceutical industry3
 Second, to assess industry stakeholder perspectives on how US Health
Reform may affect market access for pharmaceuticals
 And finally, to provide strategic recommendations on how pharmaceuticals
can best achieve Market Access after Health Reform

Analyzing these objectives will hopefully prove to be a prudent measure, especially

in understanding the changing interplay between the US healthcare system and the
pharmaceutical industry at large.

The Patient Protection Act contains numerous provisions affecting pharmaceuticals, medical
devices, and small-biotech firms. However, this paper is exclusively focused on assessing the
implications for pharmaceutical access, and hence the other industries will not be assessed.

II. Analysis Methodology
To assess the implications of US Health Reform for pharmaceutical market access,
several stages of analysis were explored. An in-depth review of the healthcare
legislation was warranted to better understand the policy changes specific to
pharmaceuticals. Industry perspectives seemed equally important toward this aim,
thus providing a professional base of expertise to better explain the implications for
market access. Appropriately, a two-tiered research methodology was developed,
based on 1) a secondary research review of the Health Reform Bill, and 2) a primary
research review of industry perceptions.

2.1 Secondary Research: Health Reform Review

The secondary research review consisted of both an extensive literature search as

well as a market access assessment. The literature review was conducted so as to
summarize the appropriate policy provisions within the Health Reform Bill. A strict
assessment procedure was then developed to focus in on those aspects relevant to
market access. The two sets of reviews would in turn provide a platform for
assessing several pieces of Health Reform legislation.

2.1.1 Sources of Health Reform Policy

The principal source for Health Reform policy naturally lay within PPACA itself.
Divided into 10 Titles on topics ranging from insurance reform to incentives for
medical innovation, the Health Reform Bill was sifted through to assess its
considerable volume of provisions. The complete Reform package was
appropriately reviewed over a total of ~2500 pages, including amendments from the
Healthcare and Education Reconciliation Act of 2010.4

To aid in this process, summaries and analysis reports from additional secondary
sources were collected. A terse summary of the Bill was taken from the White
House website, providing an outline to better understand the healthcare legislation.
Section-by-section analyses of the Bill were also read through briefs on the
Democratic Policy Committee of the United States Senate, providing knowledge on
specific topics such as cost-containment and premium affordability. More in-depth
The Healthcare & Education Reconciliation Act was a piece of legislation created to bridge the
different Health Reform proposals passed in the United States Congress. Through the Act only made
some minor amendments to PPACA, its provisions were noted in this paper and included for analysis.

analyses were reviewed through the Kaiser Family Foundation that had posted
detailed summaries on the costs, financing, and revenue provisions of the Bill. All
together, the sets of secondary sources were utilized to summarize the Bill for the
forthcoming analysis.

2.1.2 Assessment of Market Access Implications

After the Health Reform policies were collected and summarized, an assessment
procedure was developed to identify those measures specific to pharmaceuticals.
Towards this aim, the Bill’s provisions were re-organized into clusters fitting the
different stages of pharmaceutical market access (see Figure 2.1 below).

Figure 2.1 Stages of Pharmaceutical Market Access

The respective stages of Development & Services, Pricing & Reimbursement, and
Patient Access were chosen for their significance to Health Reform. Within these
stages, policies were grouped into the relevant clusters, including:

 Cluster 1 – Development & Services reforms affecting industry pipelines,

taxes, and drug approvals.
 Cluster 2 – Pricing & Reimbursement reforms affecting the public and private
coverage for prescription drugs.
 Cluster 3 – Patient Access reforms affecting patient affordability, choice, and
access to pharmaceutical services.

Re-organizing the Bill into these 3 clusters permitted for an easier assessment of
Health Reform provisions. The respective policies could now be scrutinized against
their respective stage of market access, and assessed based on equivalent
quantitative and qualitative measures. Quantitative analysis was conducted in due
course, using the aforementioned secondary sources’ estimates for specific costs
and revenues. Qualitative analysis then concluded the review process with specific

assessments of pharmaceutical outcomes, complemented by personal scrutiny and
industry perspectives as well.

2.2 Primary Research: Industry Perspectives

The industry perspectives were sought to assist in critiquing the implications of

PPACA. Such professional insight was deemed necessary considering the
complicated and legal nature of the Bill, and hence a series of informational
interviews were used to gather industry expertise over specific market access

2.2.1 Market Access Stakeholder Groups

In gathering the industry perspectives, 15 informational interviews were conducted

across 4 market access stakeholder groups in the healthcare sector (see Figure 2.2

Figure 2.2 Market Access Stakeholder Groups

Each stakeholder group, including Pharma, Payers, Physicians, and Patients, was
interviewed for their respective expertise on a particular stage of market access.
From the Pharma sector, management and policy directors were targeted for their
insight into market access R&D timelines. Regional managers and clinical directors
were explicitly sought out for their perspective on Payers and Reimbursement

The 4 stakeholder groups were identified through the assistance of the pricing and reimbursement
division within Double Helix Development, a London based market access consultancy firm.

policies. Lastly, Physician and Patient groups within the hospital and advocacy
establishments were interviewed for their respective expertise in Patient Access.6

2.2.2 Interview Questionnaire & Assessment

To prepare for the interviews, two sets of documents were compiled. A 3-page
summary of the Health Reform Bill was first drafted based on data collected from the
secondary research review [see Summary in Appendix]. The summary was then
distributed to respondents before the interview, providing a brief background on
those sets of policies relevant to market access. Next, a questionnaire was created
to properly assess interview respondents’ quantitative and qualitative appraisals of
the Health Reform Bill [see Questionnaire in Appendix].

The drafted questionnaire was then used to consult the respective stakeholder
groups over 10 sets of major policy changes, in 30-minute phone interviews.7 For
each of the policy provisions, interview respondents were asked to rate whether they
felt the policy had a positive, negative, or no impact to market access. Their
answers were graded on a scale of -2 to 2, with a score of:

 -2 = a Strong Negative Impact

 -1 = a Moderate Negative Impact
 0 = No Impact
 1 = a Moderate Positive Impact
 2 = a Strong Positive Impact.

Respondents were subsequently asked to explain the reasoning behind their

respective quantitative answers, and state whether they felt pharmaceuticals were
preparing appropriately. If they responded in kind, interviewees were asked what
strategies they might recommend for pharmaceuticals to meet the challenges of the
respective policy changes. The combined sets of questions were then used as a
basis for assessing the different implications of US Health Reform.

Of the 15 conducted interviews, seven were from the pharmaceutical sector, four were from the
payers sphere, and four were taken from patients and physicians groups.
The 10 sets of policies were chosen from within PPACA for their relevance to pharmaceutical and/or
market access. For a full list of the assessed provisions, see Section 3 below.

III. Review of US Health Reform Policy
The completed primary and secondary research reviews provided insight into a key
set of provisions within the Health Reform legislation. Of those provisions relevant to
market access, it was apparent that 10 sets of major policy reforms needed detail.
These reforms were appropriately fitted using the described methodologies in
Section 2.1.2, and grouped into clusters associated with the Development, Pricing &
Reimbursement, and Patient Access stages of market access. The following
analysis will therefore explain the provisions within each cluster, describe any
associated costs, and define their effective dates of implementation.

3.1 Policy Reforms for Pharmaceutical Development & Services

The first cluster of reviewed reforms involved those policies targeting pharmaceutical
pipelines or services. Such policies were deemed important considering their
potential to impact medical research priorities and funding for future development
projects. Three major policy provisions were hence included, principally those with
implications for comparative effectiveness, biosimilars approval, and federal fees on
the pharmaceutical industry (see Figure 3.1 below).

Figure 3.1 Health Reform Provisions Affecting Development & Services

3.1.1 Comparative Effectiveness

Of those policies affecting pharmaceutical development, the creation of a “Patient-

Centered Outcomes Research Institute” was found to be relevant [1]. Operating
within the US Agency for Healthcare & Research Quality (AHRQ), the $500 million
Institute was mandated under PPACA to act as an independent research center for
the assessment of comparative clinical effectiveness [2, 10].8 The non-profit Institute
will accordingly fund meta-analyses and independent clinical trials of existing drugs
and diagnostics. The collected data will then be provided to the public within 90
days of availability, so as to support public awareness of which medical therapies are
more effective, and assist healthcare providers in guiding medical research priorities
and coverage decisions (see Figure 3.2 below) [10].

Figure 3.2 Dissemination of Comparative Effectiveness Research

Within this broad framework, PPACA has also placed several limitations on the
Institute. No cost-effective calculations, such as QALYs for instance, will be
permitted in the Institute’s assessment procedures [11]. These assessments will also
not be allowed for use in explicitly denying or rationing care under Medicare or
Medicaid, or to inhibit FDA approvals. The Institute’s findings will only be permitted
to serve as an input, amongst many, in informing coverage decisions; they cannot
serve as the sole reason for denying patient access to services [10, 11].

The Institute may thus play a limited role in indirectly affecting coverage decisions,
though this role is restricted to informing the public of comparative clinical outcomes
and not in explicitly mandating drug coverage or approval decisions.

The $500 million budget estimates are based on the Institute’s maximum available funding, at 5
years post-PPACA enactment [10].

3.1.2 Biosimilars Approval Pathway

A measure found to actually impact approval pathways was the passage of

biosimilars legislation [1]. Effective immediately, the specific provisions have created
an FDA approval process for companies to produce generic or biosimilar versions of
biologic drugs [2].9 Firms can henceforth submit for a biological license application
(BLA) to gain market approval after a brand-name biologic has passed its patent
expiry [12]. Once submitted, the company will be required to provide analytical and
clinical data proving similarity in safety, potency, and mode of action to a reference
biologic. The first biosimilar to pass the approval process and prove
interchangeability with a reference biologic will be granted 1 year of data exclusivity.

Additional legislation within the Health Reform Bill, however, describes measures for
brand-name biologics as well [1]. PPACA has awarded pharmaceutical companies
12 years of data exclusivity on brand-name biologics from their date of approval—
limiting generics companies from accessing the manufacturer’s clinical test data for
some time [12]. And with an extra 6 months of exclusivity for products with a
completed set of pediatric studies, both sets of reforms effectively protect biologics
development from generics entry for over a decade after initial market approval.10

3.1.3 Federal Fees

The third reform implicated in affecting pharmaceutical development was a set of

defined federal fees [1]. Starting January 1, 2011, PPACA will impose $27 billion in
federal fees on the entire pharmaceutical industry, over 10 years. Annual industry
are estimated at [2, 13]:

 $2.5 billion during 2011

 $2.8 billion per year, from 2012 – 2013
 $3.0 billion per year, from 2014 – 2016
 $4.0 billion during 2017
 $4.1 billion during 2018
 and $2.8 billion per year, from 2019 – onward

Prior to PPACA’s enactment, generic versions of biologics were not permitted on the market.
This 12-year exclusivity is retroactive, meaning biologics that came on the market 10 years ago
may have their test data accessed within 2 or more years [1]. 

The annual fees will be accordingly distributed between all pharmaceuticals
companies with more than $5 million in sales [1, 14].11 Each company’s annual fee
will be allocated by the Federal Fee Schedule described in Figure 3.3 below, and by
amounts proportional to their industry market share— presenting possible
implications for pharmaceutical bottom lines and development strategies.

Figure 3.3 Federal Fee Schedule for Pharmaceutical Companies

3.2 Policy Reforms for Pharmaceutical Reimbursement

The second cluster of market access reforms identified under PPACA included those
policies affecting pricing and reimbursement. These policies varied in their direct
application to pharmaceuticals, as some were found to have expansionary
implications while others had a potentially contractional impact. Of those policies
improving access to pharmaceuticals, a set of provisions were reviewed with
consequences for prescription drug reimbursement within Medicare and Medicaid,
as well as coverage of preventive services within public and private programs.
Policies found to have potential negative consequences for pharmaceutical pricing
included those affecting industry rebates for Medicare and Medicaid, as well as
performance-based revisions to public insurance funding. The five sets of policy
reforms will in turn provide an adequate base from which to assess the implications
for pharmaceutical reimbursement (see Figure 3.4 on the next page).

Market shares are to be determined according to the calculations outlined in Figure 3.4 above.
Specifically, company market shares will be set as a certain percentage of their annual drug sales
over the entire industry’s annual drug sales [1].

Figure 3.4 Health Reform Provisions Affecting Pricing & Reimbursement

3.2.1 Medicare Coverage Gap

Of the five policies affecting pharmaceutical reimbursement, the closure of the

Medicare Part D Coverage Gap was found to be principally significant [1]. Through
PPACA, Medicare Part D will now remove all its limits on prescription drug coverage,
and effectively reimburse the elderly with 75% co-insurance across the board [15].
Hence, whereas patients formerly faced a Coverage Gap of $3,500, receiving no co-

insurance for prescription drug expenditures of $2,700 - $6,100, they will now only
be required to pay 25% out-of-pocket [15-16].12

To appropriately finance this $3400 Coverage Gap, a gradual series of rebates and
discounts will be offered to qualifying patients. In 2010, the federal government will
provide Medicare beneficiaries in the Coverage Gap with a $250 rebate for
prescription drug coverage [2]. In 2011, the pharmaceutical industry will be required
to offer a 50% discount on all patient expenditures within the Gap as well (see
Section 3.2.4 for more details). The government will provide the remaining 25% in
federal subsidies starting in 2013, steadily closing the Coverage Gap to 75% co-
insurance by 2020, and thus increasing reimbursement for prescription drug
medications under Medicare Part D.

3.2.2 Medicaid Coverage Expansion

Another measure found within PPACA to potentially impact pharmaceutical

reimbursement was the broad expansion of Medicaid coverage [1]. Starting January
1, 2014, Health Reform will increase Medicaid and CHIP funding by over $370
billion, in effect providing coverage to all patients below 133% of the Federal Poverty
Level (FPL) [2, 17]. This will improve coverage to the destitute, as well as the
formerly uninsured women, children, and adults under the age of 65 who qualify for
Medicaid. Qualifying patients will appropriately gain access to benchmark benefit
packages that provide essential health benefits, including coverage for
pharmaceutical services.

3.2.3 Free Preventive Coverage

Indirect uptake of pharmaceutical services may also be affected through the

provision for preventive services reimbursement [1]. As stated, Health Reform will
mandate all insurance plans to eliminate patient deductible, co-pay, and cost-sharing
payments for preventive services [2]. Such provisions, in turn, have the potential to
affect chronic disease diagnosis and, effectively, pharmaceutical sales over the long
term. Free preventive coverage will thus be mandated under new private health

Before the passage of Health Reform, 3 payment tiers existed within the Medicare Part D program.
After an initial $270 deductible, patients would only pay 25% co-insurance on drug expenditures
below $2700. For payments above $2700 and below $6,100, patients were forced to pay completely
out-of-pocket. For catastrophic expenditures above $6,100, however, patients would only pay a 5%
co-insurance fee [15].

insurance plans six months after enactment, and under Medicare and Medicaid after
January 1, 2011 [2]. By 2018, all existing health plans are expected to offer free
coverage for a series of preventive services (see Figure 3.5 below) [2, 18-20].

Figure 3.5 Covered Preventive Services13 [18-20]

Services covered under PPACA will accordingly include those screenings,

medications, and vaccinations recommended by the CDC and AHRQ’s Preventive
Services Task Force [18]. Clinical indications specifically affected may include:
breast cancer, cervical cancer, and gonorrhea screenings for women; sickle cell and
visual impairment testing for children; and HIV, type II diabetes, and lipid disorder
screening for adults [19]. Covered preventive medications will also be appropriated
for breast cancer therapy, folic acid supplementation, and Aspirin usage in
cardiovascular treatment [20]. Covered vaccinations will be approved for indications
such as Hepatitis B, HPV, and Tetanus [19]. All such preventive services with Grade
“A” or “B” recommendations will be afforded free coverage, the full list of which can
be found on the AHRQ’s Preventive Services Task Force website.

3.2.4 Mandated Rebates for Medicare & Medicaid

Aside from such provisions that may expand patient reimbursement however,
several policy reforms were also implicated in affecting the pricing of drugs. As
previously mentioned in Section 3.2.1, pharmaceuticals will have to provide a 50%
discount on all brand-name drugs purchased in the Medicare Part D Coverage Gap
[15]. Implemented beginning January 1, 2011, the measure is designed to improve

The provided list is not meant to be comprehensive survey of all covered preventive services. It
contains only a selection of such services, a full list of which can be found on the AHRQ website.

patient coverage and compliance, and is estimated by the CBO to cover over $30
billion in Medicare drug costs over 10 years [21].14

Even more, pharmaceuticals may face similar cuts under Medicaid coverage as well.
PPACA is requiring all pharmaceuticals to immediately increase rebates on brand-
name drugs purchased in Medicaid and Medicaid Managed Care programs [1].
Rebates on clotting-factor and pediatric-use drugs will accordingly increase from
15.1% to 17.1% of the drug’s average manufacturing price (AMP) [2, 22]. Non-
innovator and multiple-source drugs will comparatively face an increase in mandated
rebates, rising from 11% to 13% of the AMP. All other drug classes will face an
increase in rebates from 15.1% to 23.1% on the drug’s AMP— presenting a total of
$38 billion in pharmaceutical rebates, over 10 years [2, 22-24].

3.2.5 Performance-Based Revisions to Medicare

Potentially negative implications also arise through PPACA’s performance-based

revisions to public reimbursement models. These reforms are designated within
different spheres of Medicare to improve efficiency, though as a result may
necessitate cost-cutting measures with potential implications for pharmaceutical
market access (see Figure 3.6 below) [1, 24].

Figure 3.6 Estimated Cuts to Medicare Programs

The first such reform will be implemented in January 1, 2011, wherein Medicare
Advantage (MA) payments to private health insurance plans will be revised [2].
Payment regimes will be restructured such that MA payments are comparable to
As explained in Section 3.2.1, the discounts will decrease patient-facing cost-sharing within the
Coverage Gap, and accordingly increase compliance of expensive therapies.

average Medicare fee-for-service levels. The following year, performance-based
incentives will be awarded to 4 or 5 star MA plans, with such plans receiving [25]:

 1.5% in bonus payments, in 2012

 3% in bonus payments, in 2013
 and 5% in bonus payments, from 2014 – onward

Lower-performing plans that spend less than 85% of collected patient premiums on
clinical services will, by contrast, face partial remittance payments beginning in 2014.
Overall, it is estimated that these measures will reduce waste within the Medicare
program by 14%, but as a result may also cut $203 billion in MA payments over 10
years, and possibly impact pharmaceutical coverage as well [24, 26].

Similarly, hospitals that provide pharmaceutical services may face a series of

performance-based cuts. Beginning October 1, 2012, PPACA will reduce federal
Medicare reimbursement to hospitals with excesses in preventable hospital re-
admissions [2]. In 2015, hospitals carrying a significant number of patients with
hospital-acquired conditions will also face a 1% decrease in Medicare payments. In
total, the measures will cut ~$9 billion in Medicare payments to poor-performing
hospitals [24].

The last measure found to possibly enforce cuts on reimbursement was the creation
of an Independent Payment Advisory Board within Medicare [1]. The Board, as
described by PPACA, will serve to assess Medicare spending and appropriately
reduce it if need be. Starting in April 2013, the Board will begin to review Medicare
expenditure against indexed CPI figures, and if expenditures are seen as exceeding
CPI levels, the Board will propose a series of Medicare spending cuts by January 15,
2014 [2]. A similar process would then be renewed in 2018 against average GDP
figures as well. In total, CBO estimates place the Advisory Board as effectively
reducing Medicare levels by ~$13 billion from 2015 to 2019, and presenting possible
cuts to healthcare and pharmaceutical reimbursement under public programs [24].

3.3 Policy Reforms for Pharmaceutical Patient Access

With pricing & reimbursement schemes covered, the last cluster of market access
reforms to be reviewed were those with implications for patient access to services.

Such reforms included those affecting health insurance regulations through private
and State markets, as well as mandates on individuals and businesses to purchase
coverage. The set of policies would in turn be seen to have likely implications for
pharmaceuticals, presenting possible effects to market access through
improvements in patient access to services (see Figure 3.7 below).

Figure 3.7 Health Reform Provisions Affecting Patient Access

3.3.1 Health Insurance Reform

At the forefront, the immediate implications for patient access to healthcare were
found in the form of increased health insurance regulations. PPACA will effectively
place new restrictions on private health insurance companies to mandate coverage
for patients under a variety of circumstances [1].

After September 23, 2010, insurance companies will consequently no longer be
allowed to drop policyholders when they get sick [2, 26]. Insurance providers will
also be prohibited from denying coverage to children due to a pre-existing condition,
and will actually be mandated to cover dependant children on their parent’s
insurance plans until the age of 26. By January 1, 2014, the prohibition on pre-
existing condition clauses will be extended to adult coverage, and additional limits on
individual and family deductible payments will be enforced in the small-group market
as well [2].

All of these reforms thus restrict insurance market abuses, as well as potentially
improve patient access to healthcare. Though not necessarily increasing the
number of insured, the provisions will improve coverage for a sizeable portion of
patients and necessitate impacts on healthcare/pharmaceutical utilization.

3.3.2 Health Insurance Exchanges

A reform designed to conceivably increase the number of insured patients was

instead found in the provision for Health Insurance Exchanges. The Exchanges, or
regulated insurance marketplaces for individuals and businesses to purchase
healthcare, will be founded under PPACA in two stages [1].

The first stage will involve the creation of a $5 billion Temporary High-Risk Insurance
Pool, 90 days after the passage of Health Reform [2]. The Pool will seek to provide
coverage for uninsured patients with pre-existing conditions, at affordable rates.
Cost-sharing within the Pool will be limited to $5,950 out-of-pocket for individuals,
and $11,900 per family.

By January 1, 2014, the temporary program will be effectively replaced by a set of

established Health Insurance Exchanges [2]. In contrast to the High Risk Pools,
individual States will regulate the federally funded Exchanges for the purpose of
enforcing insurance reforms described in Section 3.3.1 [27].15 Such regulations will
in theory improve transparency and competition between private insurers selling on
the Exchange, and possibly create more affordable plans for purchase. Uninsured
individuals and small businesses could thus purchase plans from the Exchanges for

While the Health Insurance Exchanges will operate under their respective State’s authority, they
will still receive federal funding to enforce federally mandated regulations on insurance practices,
premium rates, and transparency measures [1].

potentially better cost-sharing schemes, and effectively provide a separate
marketplace for patients to access healthcare services (see Figure 3.8 below) [2].

Figure 3.8 Patient Access Through Health Insurance Exchanges

3.3.3 Individual Mandates & Patient Subsidies

The final assessed reforms impacting patient access were thus found in a series of
mandates and subsidies on patient coverage. These provisions would effectively
command all US citizens to acquire health insurance from January 1, 2014 onward
[2, 26]. In theory, requiring all individuals to purchase coverage would increase the
number of people in the insurance pool, improve risk-pooling, and hence reduce
cost-sharing for all patients.16 Tax penalties will be accordingly distributed to those
who do not purchase health insurance, in amounts ranging from $95 in 2014 to $695
in 2016 [2].

To assist those who still cannot purchase health insurance or qualify for
Medicare/Medicaid, PPACA will also institute ~$466 billion in federal subsidies and
tax-credits to purchase insurance on the Exchange [2, 24]. Distributed at the same
time the mandates are enforced, the subsidies will limit co-insurance to [2]:

 6% for patients at 100-150% of the FPL

 15% for patients at 150-200% of the FPL
 27% for patients at 200-250% of the FPL
 and 30% for patients at 250-400% of the FPL

Tax credits will be distributed to working families in a similar tiered fashion to limit
patient premiums in the Exchanges [2]. Combined, the patient subsidies, tax credits,
and mandates will increase the number of insured patients under State-regulated
Exchanges, and potentiate the impact for overall market access to pharmaceuticals.
Theoretically, an insurance mandate would force healthy people to purchase insurance coverage,
thereby decreasing the risk of the insurance pool and reducing risk-adjusted premium costs.

IV. Market Access Implications of US Health Reform
With the Patient Protection & Affordable Care Act appropriately summarized, the
potential consequences for market access are more evident. Policies concerning
pharmaceutical development may be seen as reforming comparative effectiveness
research and federal fees, leaving possible implications for industry market shares
and bottom lines. Other measures, such as Medicare/Medicaid expansions and
pharmaceutical rebate increases, may be found to affect pricing and reimbursement
regimes. Mandates on individual coverage and Health Insurance Exchanges may
even be implicated in increasing patient access to pharmaceutical services. In turn, it
can be seen that pharmaceuticals face a series of reforms with both positive and
negative implications— effects that could either benefit or hurt pharmaceuticals

To better understand this dynamic, the respective policy provisions of PPACA were
assessed in further detail below. Using the informational interviews described in
Section 2.2, industry perspectives from various stages of market access were
measured against the reviewed reforms [see Interview Responses in Appendix].
Insight from pharma, payers, patients, and physicians were used to assess the
consequences for industry revenues, costs, and profit margins. Overall implications
affecting pharmaceutical development, reimbursement, and patient access were
then finally defined, so as to ascertain the complete effects of US Health Reform on
pharmaceutical market access.

4.1 Implications for Pharmaceutical Development & Services

The first set of policies impacting pharmaceutical development were found to

possess moderate outcomes for market access. Analysis of industry perspectives
generally showed that the implications for development and services, while negative,
was still far better than the perceived expectations [28]. The exclusion of explicit
cost-effectiveness measures, price controls, and patent limitations was seen as a
mitigating factor to expected negative outcomes. Accordingly, the reforms affecting
comparative effectiveness, biosimilars, and federal fees only presented a moderately
negative impact to pharmaceuticals (see Figure 4.1 on the next page).

Figure 4.1 Industry Perceptions of Pharmaceutical Development & Services

4.1.1 Minimal Impact for Comparative Effectiveness

With respect to the issue of comparative effectiveness, the establishment of a

Patient-Centered Outcomes Research Institute presented a measured response.
Interviewees declared that as such an Institute may indirectly affect patient
decisions, less effective therapies could face reductions in sales volume as the
public becomes more aware of comparative clinical outcomes.17

These reductions, however, can be considered miniscule at best. Rough calculations

predict the Institute will cause a $600 million reduction in pharmaceutical sales over
10 years— hardly an issue compared to the yearly $300 billion pharmaceutical
intake [4, 29-30].18 The 12 interviewees who responded in the neutral to moderately
negative region (see P1 in Figure 4.1 above) explained that such a reduced impact
was due in part to the Institute’s limited scope. Though less effective therapies may
indeed face comparatively adverse outcomes, the Institute’s prohibition on cost-
effective measures and restrictions on mandating coverage significantly limit any

As explained in Section 3.1.1, the Institute still cannot mandate coverage for a specific therapy
over another. It can only influence drug sales outcomes by disseminating comparative effectiveness
data to healthcare providers, who would in turn use it to guide (not mandate) their coverage decisions.
Cost estimates are based on former comparative effectiveness studies. Using 2007 CBO
estimates for a similar $600 million program, it was predicted that the Institute would reduce overall
healthcare spending by $6 billion over 10 years, and hence reduce overall drug sales by $600 million
(assuming prescription drugs make up 10% of total healthcare expenditure) [29-30].

such losses [9]. Additional budget limitations of $500 million over 5 years were also
seen as constraining the Institute’s impact to market access [8]. Interviewed Pharma
executives noted that comparative studies require at least 5 years of market data to
be useful, and hence any potential impact to pipeline or marketed drugs was muted
to years after market-approval. Firms may thus experience little overall impact to
their drug approval processes or bottom lines as a direct consequence to the
Comparative Effectiveness Institute.

4.1.2 Mitigated Outcomes for Biologics

Provisions for biosimilars presented more compelling consequences for

pharmaceutical market access. Industry assessments broadly indicated that the
entry of biosimilars into the market will negatively affect brand-name manufacturers
with investments in biologics, such as Amgen and Wyeth [31-32]. Pharma estimates
place the loss to industry at as much as $25 billion over 10 years— a significant
outcome considering annual biologics sales total $75 billion a year [33].

Interview respondents largely concurred with the revenue estimates, but also
clarified that the potential loss could have been far worse (see Figure 4.2 below).

Figure 4.2 Mitigating Factors to Biologics Losses

All 13 respondents who indicated either a moderately positive or negative response

(see P2 in Figure 4.1) explained that the data exclusivity afforded to biologics was
actually a mitigating factor.19 In comparison to the 5 years normally granted to
drugs, the 12 years of exclusivity awarded to biologics was seen as inhibiting
generics access to clinical data and frustrating their ability to prove medicinal
similarity [12, 34]. Reference biologics with longer patent lives such as Neulasta and
Though all thirteen respondents acknowledged the moderate negative outcomes of the legislation,
five responses were designated as “moderate positive” because of their over-emphasis on the
benefits to pharmaceutical companies.

Remicade will consequently enjoy an extended grace period before follow-on
versions can be made, though soon-to-expire biologics including Enbrel and
Neumega could still be affected in the short term [32]. Even so, stringent exclusivity
and FDA approval pathways effectively diminish any real biosimilars threat upon
market entry. Clinical Directors from the Payers sector estimated that the higher
manufacturing costs associated with complex biologics limit the ability to prove
medicinal similarity, and thus leave biosimilars with only a 20-30% reduction in
competitive pricing as opposed to a 70-80% discount afforded to small-molecule
generics [34]. Generic biosimilars may in turn only take 10-20% of the biologics
market in 10 years time— implicating the $25 billion in reduced revenue as more of a
mitigated, rather than an absolute, loss to the pharmaceutical sector [34].

4.1.3 Company Losses to Federal Fees

More unwelcome costs to the pharmaceutical sector may be apparent through the
provisions for incurred federal fees [1]. As aforementioned, the entire industry will
face an increasing set of federal fees from $2.5 billion in 2011 to $4.1 billion in 2018.
These fees will be divided between individual firms by their respective market share,
in turn determined by the Federal Fee Schedule described in Section 3.1.3, and
calculated further in Figure 4.3 below.20

Figure 4.3 Federal Fees by Company Market Share, 2011-2019 [1]

Calculated market shares were determined using the Fee Schedule in Section 3.1.3. Assuming a
$300B pharmaceutical market, a company with $5M in sales would accordingly be fined over 10% of
their annual sales to contribute roughly $0.05B x 0.10 / $300B = 0.000017% of the annual fees.
Larger firms with > $400M in sales would be fined over 100% of their income, and thus pay at least
$0.4B x 1 / $300B = 0.13% of the annual fees. [1]

Smaller companies with $5 - $125 million in sales will thus contribute between
0.00017% - 0.0042% of the annual industry fees, based on their calculated market
shares. Larger firms with > $400 million in sales will represent at least 0.13% of the
industry market shares, and incur a proportional amount to the annual industry fees
as well. Over a 10-year period, it is estimated that the entire industry will hence face
$27 billion in potential losses [2].

The interviewed response to such figures was naturally quite negative. Twelve
respondents indicated moderate to strong negative outcomes from the provision,
believing the fees would hurt industry bottom lines (see P3 in Figure 4.1). Pharma
executives were particularly worried, as the smaller profits could necessitate
economized re-investment in R&D and shrink clinical development pipelines for
reduced market access. Health Policy professionals explained that such outcomes
would still be at a moderated level, however, considering the company fees are to be
allocated by respective market shares. Early stage companies with < $5 million in
sales, or start-ups operating at a loss, will be appropriately spared from the fees as
they are allocated proportional to company sales revenue. Larger firms that bear the
brunt of the tax, sharing at minimum 0.13% of the industry fees, may even recoup
their losses through dominant pricing positions. Hence, though the overall $27 billion
fee to industry may be respectably significant, individual market access implications
will vary by company size and positioning.

4.2 Implications for Pharmaceutical Reimbursement

Policies affecting pricing and reimbursement were seen as having even more
profound implications for market access. In contrast to the nuanced responses
described in Section 4.1, industry assessments of Medicare and Medicaid coverage
were comparatively stronger and more concrete. Specific policies improving
coverage were met with blanket approval, while those mandating rebates were
perceived as hurting pharmaceuticals. And though respondents were relatively split
on which improvements would outweigh the negatives, preliminary analysis would
seem to indicate a generally positive effect for industry (see Figure 4.4 on the next

Figure 4.4 Industry Perceptions of Pharmaceutical Reimbursement

4.2.1 Gains To Closing The Medicare Coverage Gap

Particularly positive results for market access were predicted to follow closure of the
Medicare Part D Coverage Gap. As outlined in Section 3.2.1, Health Reform will  
gradually subsidize prescription drug coverage for those Medicare Part D patients
who hit the Coverage Gap from 2010 onwards [15, 35]. Instead of paying completely
out-of-pocket on expenditures of $2,700 - $6,100, these patients will now only pay
1/4 of the cost— effectively reducing the $3,100 gap in co-insurance coverage to
~25% by 2019 [15-16].

Industry response to the policy was accordingly favorable (see P1 in Figure 4.4
above). Fourteen respondents heralded the increase in coverage as a positive
measure to improve patient drug compliance amongst the elderly [35]. As
pharmaceutical reports cited a 20% drop in drug compliance as patients reach the

Coverage Gap, Payers and Physicians predicted a comparable percentage increase
in patient drug utilization as coverage is improved (see Figure 4.5 below) [35].

Figure 4.5 Expected Rise In Coverage Gap Drug Compliance, 2010-2019 [35]

With the consequent improvements in reimbursement effectively boosting market
access for Medicare-specific indications, PPIs and anti-diabetics such as Previcaid
and Avandia may benefit considerably through increased sales (see Figure 4.5
above). Even less price-sensitive treatments such as statins and angiotensin
receptors may see a slight upsurge in compliance. Rough calculations accordingly
predict an overall sales gain of ~$38 billion for the industry by 2019 [35-36].21

Additional assessments even predict a net profitable outcome for the industry.
Though pharmaceuticals will have to enforce 50% discounts on prescription drugs to
actually improve patient utilization, 8 respondents pointed out that the associated
costs may be moderated by the resultant gains (see P5 in Figure 4.4) [15]. As
Pharma will only have to pay $30 billion in discounts to improve drug utilization by
$38 billion, the industry may effectively stand to gain a net $8 billion in improved
market access through the closure of the Medicare Part D Coverage Gap [21].

Revenues were estimated over a set of assumptions. Given a 10-year Medicare Part D budget of
$730 billion, it was assumed that $190 billion would be spent in the Coverage Gap (as ~26% of
enrollees hit the Coverage Gap every year). Factoring in the 20% reduced revenue from patient non-
compliance, it was estimated that closing the Gap would bring in $38 billion over 10 years. [35-36]

4.2.2 Mitigated Yields To Medicaid Expansion

Reforms to the Medicaid reimbursement structure present equally important

implications for market access. Bearing in mind Medicaid will be expanded to all
those below 133% of the FPL, the pharmaceutical industry may increase its sales as
16 million people gain coverage from 2014-2019 (see Figure 4.6 below) [2, 24]. 22

Figure 4.6 Medicaid Patients Covered Under Health Reform, 2010-2019 [24]

Interviewed Pharma executives explain this 16 million boon to industry as a
consequence of increased patient coverage necessitating increased access to
services. As the formerly uninsured gain insurance, patients will face co-insurance
regimes to reduce their out-of-pocket expenditures while increasing their
pharmaceutical uptake. Companies with heavy investment in anti-psychotic and
cholesterol-lowering drugs such as Zyprexa and Pravachol, would respectively stand
to gain the most as Medicaid’s low-income and disabled populations gain access to
such services. Other companies unfamiliar with the Medicaid formularies may stand
to benefit less from the increase in coverage, though preliminary calculations still
predict a $40.9 billion increase in overall industry revenues as Medicaid expands
over 10 years [24, 37].23

Due to the structuring of other Medicaid reforms, some patients will actually lose coverage from
2011-2013 (as can be seen in Figure 4.6 above). However after 2014, these losses in the patient
pool should be recovered as Medicaid is expanded to all patients below 133% FPL.
The $40.9 billion in gained revenue was calculated by multiplying the number of Medicaid
beneficiaries who gained and lost coverage from 2010 - 2019 (as seen in Figure 4.6 above) by the
avg $489/person drug expenditure (given ~8% of the $6,120/person Medicaid expenditure is reported
to be spent on drugs). [24, 37]

Though presenting a favorable outcome as such, these gains must again be
measured against their immediate losses. Respondents asserted that an immediate
increase in Medicaid rebates from 15.1% - 23.1% would add a negative outcome to
the Medicaid expansions (see P5 in Figure 4.4). And unlike the discounts described
in Section 4.2.1, many respondents felt Pharma would not be able to recoup their
losses. Pharma consultants explained that as the rebates were structured to reduce
the federal budget, not patient-facing costs, there would be no resultant patient-
facing discounts to improve pharmaceutical uptake as there was with the Medicare.24
Furthermore, as the anti-psychotics and statins covered by Medicaid tend to be in
price-elastic markets, companies will find it difficult to directly compensate for the
rebates through traditional price hikes in the private market. Medium to large size
firms with heavy dependence on such plans would accordingly be impacted the most
as the rebates detract from current revenue [8]. This would in turn explain the
immediate market downcasts reported by Eli Lilly and BMS as mentioned in Section
1.2, and also account for the associated $38 billion in costs reported in Section 3.2.4
[7, 24]. Hence in comparing this to the $40.9 billion in gained Medicaid revenue, it
would seem the immediately enforced rebates leave the pharmaceutical industry
with only a mitigated yield to later Medicaid expansions.

4.2.3 Minimal Impact To Preventive & Performance Based Measures

The remaining policy reforms to pricing and reimbursement present measurably less
significance for market access, with on overall neutral response from industry.

With regards to preventive services, respondents believed the elimination of co-pays

and co-insurance would present only a neutral to moderate outcome (see P3 in
Figure 4.4) [2]. Interviewees explained that as brand-name manufacturers wouldn’t
be directly covered, any potential impact to access was to come through indirect
utilization following covered preventive screenings (see Section 3.2.3 for list of
covered services) [18-20].25 Vaccine manufacturers such as Merck and GSK could
possibly benefit more with their direct investments in covered Hepatitis B and HPV
Due to the structuring of Medicaid, the rebates will not actually result in any patient-facing
discounts. The rebates are designed to increase revenue for the government, not savings for the
consumer. Hence with patient-facing costs essentially staying the same, the rebates will not increase
patient utilization (any increase in Medicaid drug use will come from the coverage expansion to 133%
FPL, not from the rebates)
Contrary to popular belief, preventive measures rarely leads to lifestyle changes. Interviewed
Pharma consultants explained that increased diagnosis more often results in more medication use.

vaccines. Even still, any such benefit would only be experienced in the long term.
Interviewed Pharma consultants placed the increase in utilization at least 10 years
down the road, considering existing health plans won’t necessarily ensure coverage
till 2018. And factoring in the time needed for preventive measures to actually
impact patient decisions, the effective impact may be modest at best.

Similarly, the performance-based provisions affecting Medicare coverage presented

overall neutral results. Though such measures were found to cut over $225 billion
through Medicare Advantage and an Independent Payment Advisory Board,
respondents expressed a range of perspectives on their actual implications for
market access (see Figure 4.7 below) [1, 24].

Figure 4.7 Industry Perspectives on Performance-Based Reforms

From a positive perspective, some Patients and Physicians noted that the
performance-based measures might force stricter efficiency standards upon
hospitals and thus improve caretaker performance. Pharmaceuticals may in turn see
better hospital compliance with prescription drug coverage and improve their market
access. On the negative end, however, five respondents cited concern with the
broad authority of the Independent Payment Advisory Board to potentially cut such
prescription drug coverage (see P4 in Figure 4.4). These respondents feared the
Board might institute HTA-like measures to cut Medicare Part D, and consequently
hurt pharmaceutical uptake [38].26 Still, other interviewees were quick

Fun Fact: the Independent Payment Advisory Board is the same controversial measure criticized
by Vice-Presidential candidate Sarah Palin as a “Death Panel”. [38]

to clarify that as the Board’s actual authority is to be defined in 2014, Pharma has
much time to lobby and plan against such measures. The seven majority
respondents (see P4 in Figure 4.4) hence contended that any potential cuts to lower-
performing plans would simply be balanced by the bonuses to better ones, leaving
performance-based policy reforms with a net neutral outcome for market access.

4.3 Implications for Pharmaceutical Patient Access

The last set of assessed reforms present more compelling outcomes for market
access. These reforms include HI Exchanges as well as Insurance Mandates—
provisions largely welcomed by the industry as a means to both increase patient
access as well as patient utilization of services (see Figure 4.8 below) [1-2].

Figure 4.8 Industry Perceptions of Pharmaceutical Patient Access

4.3.1 Increase in Patient Access to Healthcare

With respect to increasing patient access to services, all 15 respondents saw the
individual mandates as a positive measure to force patient coverage and boost
enrollment in the private market (see Figure 4.8 above). As mentioned in Section
3.3, patients will receive over $340 billion in federal subsidies and tax credits to
assist in purchasing private health insurance plans. The newly insured patients
would in turn gain the option of purchasing access to coverage through State-
regulated marketplaces, wherein patients can enter a diverse pool of patients from
2014 onward (see Figure 4.9 on the next page) [24].

Figure 4.9 Impact Of US Health Reform On The Private Market, 2010-2019 [24]

Within this regulated pool, respondents noted that insurance reforms described in
Section 3.3.1 would be enforced to prohibit pre-existing condition clauses, and thus
allow patients with recurrent sicknesses to more easily access healthcare. Adding in
other formerly uninsured patients now mandated to purchase coverage, the total
inflow of patients was estimated at 24 million lives over 10 years (see Figure 4.9
above) [24]. And balancing this respective increase against the 8 million who may
lose insurance in the non-State regulated market, it is estimated that the State-
regulated Exchanges will absorb a net 16 million people by 2019 [24].

4.3.2 Increase in Patient Utilization of Services

This influx of people into the Exchanges in turn presents important outcomes for
insurance-pooling and consequent drug utilization. Pharma executives explained
that as a portion of the formerly uninsured are postulated to be younger than the
average populace,27 their addition into the Health Insurance Exchange will decrease
overall risk, improve risk-pooling, and thus reduce risk-adjusted heath insurance
premiums. Premium affordability may equivalently improve as insurance reforms
mentioned in Section 3.3.1 are enforced to expand transparency and competition
within the market. CBO estimates appropriately place the average premium

Interviewed Pharma executives called these formerly uninsured people “Young Invincibles,” as
many of them do not purchase health insurance because they believe they don’t need it.

reduction at ~$700-1000/person within the Exchange, assuming 70% actuarially fair
pricing [39]. Industry estimates even register a 10% increase in pharmaceutical
utilization as such co-insurance and cost-sharing regimes are improved [40].

Accordingly, pharmaceutical utilization in the Exchanges was seen as benefiting a

range of companies involved. Though no particular class of drugs stands to benefit
exclusively within the Exchange, the influx of younger members and patients with
pre-existing conditions will bring in a patient population that spends less on overall
healthcare but much more on percentage drug expenditure [41]. These factors
considered, rough estimates place the overall pharmaceutical uptake in the
Exchange at ~$42 billion over 10 years; presenting a significant boost to patient
access to healthcare and market access overall [24, 41].28

The $42 billion in gained revenue was calculated by multiplying the number of people who gained
and lost coverage in the private market from 2010 - 2019 (as seen in Figure 4.9) by an avg
$475/person drug expenditure (calculated from reports that patients in the 18-44 age group spent
~17.6% of their $2,700/person healthcare expenditure on drugs). [24, 41]

V. Conclusions & Market Access Recommendations
Overall, it would seem that the Exchanges, in combination with the aforementioned
Reforms, spell a varying range of implications for different stages of market access.

5.1 Overall Implications for Market Access

As previously discussed, measures impacting the market acces stages of

development and services present a neutral to moderate outcome at best, especially
considering the mitigated potential of such provisions to actually affect industry
pipelines or market share. Reforms affecting reimbursement and access may be
seen with more significance, as increased coverage through public and private
programs will provide over 32 million new patients with access to pharmaceutical
services [24]. Industry response is even enthused by the latter outcome, predicting
moderate to strong implications for overall sales volume as Medicaid, Medicare, and
the State Exchanges are expanded (see E2 and E3 in Figure 5.1 below). Indeed,
interviewed respondents cited improvements in industry sales by as much as 7-15%
over the long run (as described in Sections 4.2.1 - 4.2.2 and Sections 4.3.1-4.3.2).

Figure 5.1 Industry Perceptions of Market Access

Nevertheless, these positive implications have to also be viewed in light of their

negative costs. Interviewed respondents were careful to note that many of the
improvements in Medicare and Medicaid coverage will require pharmaceuticals to
offer a series of discounts or rebates, effectively hurting their public pricing regimens

(see E1 in Figure 5.1). And though some Pharma and Payers executives foresaw
consequent price hikes in the private market to compensate, a majority of
respondents correctly noted the difficulty in doing so, especially considering the
increased competition and public oversight to follow US Health Reform.

Accordingly, the concert of negative prices with increased sales will leave some
companies to benefit, others to falter, but most to a neutral outcome. Based on
previously cited figures, biologics manufacturers will lose a modest share to
biosimilars that take $25 billion over the next 10 years [33]. Chronic-disease and
mental-health companies will benefit as Medicare and Medicaid drug expenditures
expand $38 - $40.9 billion respectively, though only certain firms will capture
significant profits [24, 35-37]. Companies with heavier investments in Medicare may
gain more considering the reduced $30 billion discounts, while medium to large-size
firms invested in Medicaid may lose under the higher $38 billion rebates [8, 21, 24].
Similar firms will incur $27 billion in federal fees or $0.6 billion in comparative
outcomes, but will still rake in $42 billion in State Exchange revenues to balance
their overall costs [2, 24, 29-30, 41]. Adding in the relatively neutral significance of
preventive performance-based measures, it would seem most of the immediate
costs are actually balanced by their future revenues— leaving the net neutral impact
of US Health Reform on the Pharma Industry at +$0.3 billion (see Figure 5.2 below).

Figure 5.2 Industry Costs and Revenues Under Health Reform, 2010-2019

5.2 Strategic Recommendations

With a budget neutral outcome over the long term, it would seem the pharmaceutical
industry as a whole has little to worry from US Health Reform. In contrast to the
preliminary reports mentioned in Section 1.2, the positive and negative analyses of
this Health Reform study largely seem to cancel one another out. Nevertheless, the
industry should still make sure to pay attention to the range in Health Reform
implications, as specific policies present immediate costs that may only be balanced
by future revenues over the next 10 years (see Figure 5.3 below).

Figure 5.3 Range of Implications for Pharmaceutical Market Access

These implications in turn may benefit different companies in the short and long
term, and if inappropriately approached could leave a market of “Winners & Losers.”
Consequently, it would be prudent for companies to follow a set of recommendations
in approaching the market access outcomes of US Health Reform, and capture or
mitigate any potential revenues or losses.

5.2.1 Strategies for Maintaining Development and Services

To accordingly ensure mitigated losses to market access, a series of strategies are

recommended for pipeline development and services (see Figure 5.4 below).

Figure 5.4 Strategic Recommendations for Pharmaceutical Development

The issue of $27 billion in industry fees should be broadly noted first, though to
varying degrees by different companies. Small to medium size companies should be
comparatively better off as firms with < $125 million in sales will be asked to
contribute only 0 - 0.0042% of the total industry fees (see Section 4.1.3 for details)
[1]. Larger companies with > $400 million in sales will however have to pitch in to at
least 0.13% of the industry fees, and should hence take greater precaution.
Recommended mitigating strategies include broadening the company’s scope or
pursuing additional clinical indications in the global market. This will allow firms with
strong US investment, such as Eli Lilly and BMS, to mitigate the outcome to their
bottom lines [42]. Extreme measures would however not be recommended, as the
impact of such fees may still be mitigated through the revenue gained from future
Medicare and Medicaid expansions (see Section 5.2.2 for more info).

Similarly, preparations for the Comparative Effectiveness Institute should be taken in

moderation. Given the Institute may only reduce sales by ~$600 million over the
next 10 years, the financial impact to each company may be of little note [29-30].
Nevertheless, the use of comparative studies is still recommended, if not because of
the Institute but more so because of the changing competitive landscape. Indirect
implications of Health Insurance Exchanges and increased government oversight will
increase the competition within the private markets, and thus necessitate
comparative effective assessments to guide patient choice. Though the
assessments will not serve as mandates for patient coverage, Payers organizations

may still use them to differentiate between less effective outcomes within
increasingly competitive pools. Pharmaceuticals should hence work with Payers
groups to provide their own comparative research, so as to improve their chances of
making minimum health packages and achieving adequate reimbursement [8].

The issue of biosimilars should take more precedence still, as the new legislations
may cost brand-name manufacturers over $25 billion in biologics revenue over 10
years [33]. Pharma and biotech firms are hence advised to follow a set of
recommendations to mitigate their losses and pursue future assets. Firstly, firms
should leverage the awarded data exclusivity clauses to diversify their product
portfolios with follow-on biologics. As biologics are already more complex and
expensive to manufacture, the extended 12 years in exclusivity should buy time for
biologics manufacturers to establish their own biosimilar divisions and compete on
the generics market. Companies with impending patent expiries such as Amgen and
Wyeth would accordingly be able to mitigate their biologics losses and maintain their
market shares. Firms with later patent expiries, such as Johnson & Johnson, can
further benefit by using the awarded exclusivity to consolidate existing biologics into
additional clinical indications, or to acquire other competitor biologics with later
patent expiries. Such strategies will appreciably impact a firm’s loss to biosimilars
entry, and allow them to maintain an effective hold on 80-90% of the market [34].

5.2.2 Strategies for Achieving Reimbursement

In addition to mitigating such losses, Health Reform also presents opportunities for
expanding industry sales through pricing & reimbursement strategies (Figure 5.5).

Figure 5.5 Strategic Recommendations for Pricing & Reimbursement

The largest sales potential will arise from the closure of the Medicare Part D
Coverage Gap, wherein drug manufacturers will see an overall $38 billion increase in
utilization as $30 billion in patient discounts are enforced over 10 years [21, 35-36].
To appropriately guarantee that the discounts lead to increased utilization,
pharmaceuticals are recommended to work with federal and Medicare formularies to
ensure their discounts are applied to the purchased drugs. Once this is confirmed,
companies such as Novartis and GSK that have increased investments in PPIs, anti-
diabetics, and other Medicare drugs should expect to see improved compliance in
the Coverage Gap (see Section 4.2.1 for list of affected drugs) [35]. These efficient
investment strategies should in turn lead to increased profits, especially over the
mandated discounts.

Likewise, companies seeking to benefit from the expansions in Medicaid coverage

need to both mitigate the impacts of the associated rebates as well as seek the
appropriate investments in Medicaid drugs. To compensate for the $38 billion
increase in rebates, it would be advised for medium to large-size firms to reduce
their funding for pharmaceutical assistance programs that provide free drug
coverage for needy populations [24]. As these low-income and disabled people will
likely gain coverage when Medicaid expands in 2014, the need for such private
programs can be mitigated to cut losses. And as 16 million patients do gain
coverage, companies will see an increase of $40.9 billion in Medicaid anti-psychotic
and chronic medications for further compensation [24, 37]. Companies already
invested in these drugs, such as Eli Lilly and BMS, are recommended to prepare for
the increase in sales accordingly to enhance their chances of capturing future
revenue; though other companies would be advised to not follow suit unless they are
already familiar with the complex and restrictive Medicaid formularies, and are able
to avoid any unnecessary entry costs.

Companies are also advised to not devote too many resources in preparing for the
preventive and performance-based measures outlined in Sections 3.2.3 and 3.2.5.
At best, the institution of free preventive services may benefit vaccine manufacturers
such as Merck and GSK that already invest in the covered Hepatitis B and HPV
vaccines. But as a majority of health insurance plans aren’t expected to approve
coverage until 2018, and the effects of increased utilization aren’t expected till even
later, the effective increase may not necessarily warrant any current preparation.

Similarly, most of the performance-based cuts to public insurance funding should not
warrant much action, considering their likely budget neutral impact to patients and
pharmaceutical access. The only performance-based measure worthy of foresight is
the creation of the Independent Payment Advisory Board. As the Board may have
the authority to possibly cut Medicare drug coverage if need by 2014, it would be
prudent for medium to large-size companies with heavy government sales to closely
follow the policies instituted by the Board as they are formulated over time. Doing so
will mitigate the impact of any potential cuts in public reimbursement, and
strategically position companies to maintain their reimbursed formularies.

5.2.3 Strategies for Acquiring Patient Access

The final set of reforms present recommendations for improving access to patients
through the State-regulated Exchanges (see Figure 5.6 below).

Figure 5.6 Strategic Recommendations for Patient Access

As the Exchanges are expected to bring in roughly 16 million people into the private
health insurance market over 10 years, the $42 billion in potential drug sales is a
promising opportunity for the industry [24, 41]. But as the regulated Exchanges also
present a new and competitive market, companies will have to pursue key public-
private partnerships to ensure their drugs are on the covered formularies. Firms
should thus communicate with public institutions as minimum benefit packages are
being formulated, and accordingly work to ensure that their drugs are reimbursed.
Once drugs are covered, pharmaceutical firms will need to further increase targeted
marketing to a broad array of consumers to ensure proper uptake. The competitive
nature of the Exchange market will thus present greater strategic opportunities for
increased revenue potential, if properly approached.

5.3 Conclusions & Recommendations

In conclusion, it can now be seen that the Patient Protection and Affordable Care Act
presents a series of reforms that affect different aspects of pharmaceutical market
access to varying degrees. Implications for the development and service stages of
market access are neutral to moderately negative, and as such only require short-
term strategies for possible mitigation. Pricing and reimbursement reforms carry
some of the more significant propositions for pharmaceuticals, and thus require
immediate action to mitigate the current costs and acquire future revenues. Lastly,
provisions improving access to services present an equally significant outcome for
market access, as firms seeking to strategically absorb the influx of newly insured
patients stand to improve their market access considerably. Overall, the broad
aspects of reform will be neutral for the industry as a whole, though individual
companies may stand to benefit if guided by the recommended strategies.

5.3.1 Major Conclusions

It follows that the overall conclusions of this study are that:

1. US Health Reform presents 10 major policy reforms for pharmaceutical

market access
2. The relevant policy provisions affect 3 stages of market access, namely
development & services, pricing & reimbursement, and patient access
3. Policies affecting development & services include comparative effectiveness,
biosimilars, and federal fees, and all present mitigated losses to
pharmaceutical companies over the short term
4. Policies impacting pricing & reimbursement present short-term Medicaid
rebates and Medicare discounts, but are balanced by long term gains in
Medicaid and Medicare Part D expansions
5. Provisions increasing patient access though State-regulated Exchanges
provide additional long-term revenue for most pharmaceuticals
6. 10-year forecasts predict a slight reduction in prices, a $120.6 billion increase
in associated costs, a 32 million surge in insured patients, and an associated
$120.9 billion increase in revenues for the pharmaceutical industry
7. Health Reform presents an overall neutral impact to industry at + $0.3 billion,
though individual companies stand to benefit or falter to varying degrees

5.3.2 Industry Recommendations

In turn, recommendations for individual companies indicate that:

1. Medium to large-size firms should broaden their markets and continue to

pursue comparative effectiveness studies, so as to balance the increase in
federal fees in an increasingly competitive market
2. Medium to large-size firms with a high proportion of government sales should
reduce funding for Pharmaceutical Assistance Programs, so as to mitigate
the costs of increased Medicaid rebates
3. Firms with heavy investments in chronic and age-related drugs should
prepare for increased sales within the Medicare Part D Coverage Gap
4. Firms with focus in psychotic and chronic conditions should also prepare for
sales increases in Medicaid, but only if already invested in the program
5. Companies with heavy investments in Medicare should monitor the potential
reimbursement reforms from the Independent Payment Advisory Board
6. All firms should pursue public-private partnerships to ensure coverage in the
State Exchange, and increase targeted advertising to reach new patient and
consumer bases

VI. Bibliography
1. “Patient Protection and Affordable Care Act of 2010.” United States Senate. 111th
Congress, 2nd Session. 5 Jan, 2010.

2. “Focus on Health Reform: Summary of New Health Reform Law.” Kaiser Family
Foundation. 26 Mar, 2010.

3. Hass, Christopher. “President Obama Reiterates Support for Public Option and
Health Insurance Exchange.” Organizing for America. 3 Jun, 2009.

4. Anderson, Tim, et al. “Assessment of the Opportunities for Pharmaceutical

Manufacturers in Emerging Markets.” Journal of Managed Care Pharmacy. 15:5.
June, 2009. 396-402.

5. Hobson, Katherine. “Pharma Sales Set to Grow 5%-8%; Overhaul Effects

Unclear.” Wall Street Journal. 20 April, 2010.

6. Tirrell, Meg. “Lilly First-Quarter Profit Falls on Heath Overhaul.” Bloomberg

Businessweek. 19 April, 2010.

7. Marcial, Gene. “Inside Wall Street: Even After Health Care Reform, Merck is
Looking Hale.” Daily Finance. 30 April, 2010.

8. “Health Reform: Prospering in a Post-Reform World.” PricewaterhouseCoopers:

Health Research Institute. May, 2010.

9. Baghdadi, Ramsey. “Health Care Reform a Done Deal: Pharma Bets on the Right
Horse.” The RPM Report. 22 Mar, 2010.

10. “Overview of the Patient-Centered Outcomes Research Institute.” Center for
Medical Technology Policy.

11. “Focus on Health Reform: Explaining Health Reform- What is Comparative

Effectiveness Research?” Kaiser Family Foundation. Oct, 2009.

12. “Biologics Price Competition and Innovation Act.” United States Democratic
Policy Committee.

13. “Focus on Health Reform: Health Reform Implementation Timeline.” Kaiser

Family Foundation. 25 Mar, 2010.

14. “The Patient Protection and Affordable Care Act as Passed: Section-by-Section
Analysis.” United States Democratic Policy Committee.

15. “Focus on Health Reform: Explaining Health Reform- Key Changes to the
Medicare Part D Drug Benefit Coverage Gap.” Kaiser Family Foundation. Mar,
16. Joyce, Brian and Lau, Denys. "Medicare Part D Prescription Drug Benefit: An
Update." Buehler Center on Aging, Health & Society Newsletter. 22:2. Winter
17. “Focus on Health Reform: Assessing Congressional Budget Office Estimates of
the Cost and Coverage Implications of Health Reform Proposals.” Kaiser Family
Foundation. Nov, 2009.

18. Walker, Emily. “What’s in the Healthcare Reform Law.” MedPage Today. 1 Apr,
2010. <>

19. “The Guide to Clinical Preventive Services 2009: Recommendations of the US

Preventive Services Task Force.” Agency for Healthcare Research and Quality.
Aug, 2009.

20. “US Preventive Services Task Force.” Agency for Healthcare Research and
Quality.” <>

21. Fram, Alan. “Big Pharma Wins Big with Health Care Reform Bill.” Healthcare-
Now! 29 Mar, 2010. <

22. Hearne, Jean. “CRS Report for Congress: Prescription Drug Coverage Under
Medicaid.” Congressional Research Service. 6 Feb, 2008.

23. “Focus on Health Reform: Explaining Health Care Reform – How Might a Reform
Plan Be Financed?” Kaiser Family Foundation. July, 2009.

24. Elmendorf, Douglas. “CBO Letter to Nancy Pelosi.” Congressional Budget Office.
18, Mar 2010.

25. “Focus on Health Reform: Explaining Health Care Reform – Key Changes in the
Medicare Advantage Program.” Kaiser Family Foundation. May, 2010.

26. “Putting Americans in Control of their Health Care.”


27. “Focus on Health Reform: Explaining Health Care Reform- What are Health
Insurance Exchanges?” Kaiser Family Foundation. May, 2009.

28. Rubenstein, Sarah. “Drug Markers Talk Up Comparative Effectiveness, Sort Of.”
Wall Street Journal. 14 Apr, 2009. <
29. Orszag, Peter. “CBO Letter to Pete Stark.” Congressional Budget Office. 5 Sep,

30. “Prescription Drug Trends.” Kaiser Family Foundation. Sep, 2008. 

31. “Form 10-Q for Amgen Inc: Quarterly Report.” Yahoo Finance. 7 May, 2010.
32. Brower, Amanda. “Biotech Business: ‘Generic’ Biotech Products: Are the
Floodgates Open? At Whose Expense?” Biotechnology Healthcare. Aug, 2006.

33. Edlin, Mari. “Savings from Biosimilars Won’t Compare to Today’s Generics.”
Managed Healthcare Executive. 1 Apr, 2010.
34. Iskowirz, Marc. “Biosimilars Mean Competition, Not Marketing Oblivion, For
Biologic Brands.” Medical Marketing & Media. 23 Mar, 2010.

35. Hoadley, Jack, et al. “The Medicare Part D Coverage Gap: Costs and
Consequences in 2007.” Kaiser Family Foundation. Aug, 2008.

36. “2009 Annual Report of the Boards of Trustees of the Federal Hospital Insurance
and Federal Supplementary Medical Insurance Trust Funds.” Center for Medicare
& Medicaid Services. 12 May, 2009.

37. “2008 Actuarial Report on the Financial Outlook for Medicaid.” Department of
Health & Human Services.” 17 Oct, 2008.

38. Sullivan, Sean. “US Health Care Reform: A Work in Progress.” Eur J Health
Econ. 11. 27 Feb, 2010. 117-118.

39. Gruber, Jonathan. “The House Proposal Lowers Non-Group Premiums.” MIT. 2
Nov, 2009.

40. O’Leary, Kevin. “Summary of the New National Health Reform Law.” IMS
Consulting. 29 Mar, 2010.

41. Alazraki, Melly. “Costs of Prescriptions and Doctor Visits Double in a Decade.”
Daily Finance. 13 Dec, 2009. <

42. Jack, Andrew. “Drugmakers Fear Price of US Health Reform.” Financial Times.
20 May, 2010. <

VII. Appendix
7.1 Interviewee Health Reform Summary

The following Summary of the Health Reform Bill was prepared to provide interview
respondents with adequate background on the legislation before their scheduled
informational interviews.

Policies Directly Affecting Pharmaceuticals

Health Reform Policy Implementation

#1: 12-year data exclusivity afforded to brand-name biologics Immediate, 2010

#2: FDA approval pathway created for biosimilars, with 1-year data Immediate, 2010
exclusivity afforded to first generics company to produce biosimilar

#3: Federal funding approved for the establishment of a non-profit Immediate, 2010
institute assessing comparative/clinical effectiveness of therapies

#4: Pharma must offer a 23.1% rebate (up from 15.1%) on brand- Immediate, 2010
name drugs purchased through Medicaid

#5: Up to $1 billion in 50% federal tax credits to small biotech firms Immediate, 2010

#6: Pharma must offer 50% discount on brand-name drugs January 1, 2011
purchased in the Medicare Part D coverage gap

#7: $27 Billion in Increased Federal Tax Fees on Pharma January 1, 2011

Policies Affecting the Health Insurance (HI) Industry

Health Reform Policy Implementation

#1: Establish process to review/approve HI premium increases in Immediate, 2010

State-run HI Exchanges

#2: Dependant children covered under parent’s HI plan, till age 26 September 23, 2010

#3: Prohibition of denying coverage due to acquired sickness September 23, 2010

#4: Enforcement of Medical Loss Ratios: where HI companies must Phase I: 2010
offer patient rebates, if <85% of premiums spent on clinical services Phase II: January 1, 2011

#5: Prohibition of denying coverage due to pre-existing conditions Phase I: Sep 23, 2010
Phase II: January 1, 2014

#6: Elimination of all co-pays & cost-sharing for preventive services Phase I: Sep 23, 2010
Phase II: January 1, 2018

#7: Required limits on Deductibles set for the small-group market January 1, 2014

#8: $60 Billion in increased federal fees on HI companies January 1, 2014

#9: “Cadillac Tax”: 40% federal excise tax on high-premium plans January 1, 2018

Policies Affecting Hospitals & Physicians

Health Reform Policy Implementation

#1: Establishment of scholarship/grant programs to increase 2010 – 2016

workforce supply of primary care physicians and nurses

#2: Provision of 5-year 10% Bonus payment to primary care physicians Jan 1, 2011 -Dec 31, 2015

#3: Establishment of performance-based Medicare standards for October 1, 2012

hospitals, physicians, and nursing staff pay

#4: $9 Billion reduction in Medicare payments to hospitals with high Phase I: October 1, 2012
hospital-acquired conditions & preventable re-admissions Phase II: 2015

#5: Raise Medicaid primary care physician pay to Medicare levels January 1, 2014

#6: >$100 billion cut (75% reduction) in Disproportionate Share 2014 – onward
Hospital (DSH) Medicare payments to low-income serving hospitals

Policies Affecting Patients & Businesses

Health Reform Policy Implementation

#1: Establishment of a temporary high risk insurance pool for Jun 21, 2010 – Jan 1, 2014
uninsured patients with pre-existing conditions

#2: Provision of $40 billion in HI tax-credits for small-businesses Phase I: 2010 – 2013
Phase II: 2014 – Onward

#3: Creation of Consumer Operated & Oriented Plans (Co-Ops) for July 1, 2013
the provision of non-profit health insurance

#4: Establishment of State-Run Health Insurance Exchanges for the January 1, 2014
uninsured and small business owners

#5: Over $410 billion in refundable tax-credits and cost-sharing January 1, 2014
subsidies to working families and patients

#6: HI Mandate on all US citizens to purchase Health Insurance January 1, 2014

Policies Affecting Medicare & Medicaid

Health Reform Policy Implementation

#1: Closure of the Medicare Part D Coverage Gap, ensuring 25% Immediate 2010 – 2020
patient co-insurance across all Medicare drug expenditures

#2: Reform Medicare Advantage (MA) Plan Structure to enforce Phase I: January 1, 2011
performance-based measures, and cut > $203 billion in MA Phase II: January 1, 2012
payments to private HI companies Phase III: January 1, 2014

#3: Elimination of all co-pays & cost-sharing for preventive services January 1, 2011

#4: Establishment of an Independent Advisory Board to reduce Phase I: April 2013

Medicare spending Phase II: January 15, 2014
Phase III: January 2018

#5: Expansion of Medicaid services to all patients below 133% FPL January 1, 2014

7.2 Interview Questionnaire

The following Questionnaire was used to assess industry perspectives on US Health


The first set of questions covered those policies directly impacting pharmaceutical
costs and access. The second set of questions assessed policies that affect hospital
/ patient access, which in turn may affect pharmaceutical revenues and access. The
last set of questions assessed the interviewee’s general understanding of the
Reform Bill.

Interviewed questions included both qualitative and quantitative discussions.

Quantitative questions were scored on a scale of -2 to 2, where -2 is strong negative,
0 is no impact, and 2 is strong positive perceptions.

Policies directly affecting Pharmaceuticals

Policy: Health Reform is creating a publicly funded, non-profit Institute Answer

that will disseminate research on comparative/clinical effectiveness
of drugs

Q1: Do you feel this Institute will impact drug sales? Yes / No

Q2: … And on a scale of -2 to 2, how do you expect drug sales to be -2 -1 0 1 2

impacted? Please explain your answer:

Q3: Do you believe Pharma, or your firm, is preparing in any way to Yes / No
accommodate the implications of this Institute? If yes, how so?

Policy: Health Reform is mandating that Pharma provide a 50% Answer

rebate on the AMP of drugs purchased in the Medicare Part D
coverage gap, and a 23.1% rebate (up from 15.1%) on the AMP of
drugs purchased in Medicaid

Q1: Do you feel these rebates will impact Pharma revenue? Yes / No

Q2: … And on a scale of -2 to 2, how do you think the rebates will -2 -1 0 1 2

affect Pharma revenue? Please explain your answer:

Q3: How do you feel Pharma, or your firm, is preparing for this? What Yes / No
strategies /changes do you see them implementing to compensate?

Policy: There will be $27 billion in increased tax fees on the Pharma Answer
industry, over 10 years

Q1: Do you expect these taxes to impact Pharma profits? Yes / No

Q2: … And on a scale of -2 to 2, how do you expect the taxes to -2 -1 0 1 2

impact Pharma profits? Please explain your answer:

Q3: How do you feel Pharma, or your firm, is preparing for this? What
strategies /changes do you see them implementing to compensate?

Policy: There is now an FDA approval pathway set for Biosimilars, with Answer
a 12-year market exclusivity clause awarded for Biologics

Q1: Do you expect this to impact Market Access for Pharmaceutical? Yes / No

Q2: … And on a scale of -2 to 2, how much do expect this to impact -2 -1 0 1 2

Market Access for Pharmaceuticals? Please explain your answer:

Q3: Is Pharma Preparing for Biosimilars? If Yes, how so? Yes / No


Policies affecting Patients / Hospital Access

Question: Many reforms are increasing the # of patients covered Answer

under HI (through no-pre existing condition clauses, etc) and
improving patient access to healthcare (through State Exchanges)

Q1: Do you expect the reforms to impact Pharma Access to patients Yes / No

Q2: … And on a scale of -2 to 2, how do you expect this reform to -2 -1 0 1 2

impact Market Access for Pharma? Please explain your answer:

Q3: Does Pharma expect to gain revenue from these new patients? Yes / No
How so?

If yes, then will this future increase in patients/customers compensate Yes / No

Pharma for its increase in taxes and mandated rebates? Explain:

Q4: Do you believe Pharma, or your firm, is preparing in any way to Yes / No
accommodate the increase in patients? If yes, how so (different
marketing strategies, increasing sales/distribution forces, etc)?

Question: New policies mandate all HI companies, and Answer

Medicare/Medicaid, to eliminate co-pays / co-insurance for
preventive medicines

Q1: Do you expect this to impact Pharma revenues Yes / No

Q2: … And on a scale of -2 to 2, how do you expect free preventive -2 -1 0 1 2

medicine to impact Pharma revenues? Please explain:

Q3: Which Pharma products do you think will be specifically

affected? (vaccines, etc)

Question: There are a series of performance-based revisions to Answer

Medicare funding structures, possibly resulting in over $200 billion in
Medicare Advantage cuts to private HI plans

Q1: Do you expect this to impact Market Access for Pharma Yes / No

Q2: … And on a scale of -2 to 2, how do you expect these cuts to -2 -1 0 1 2

impact Market Access for Pharmaceuticals. Please explain:

Q3: Do you believe Pharma, or your firm, is preparing in any way to Yes / No
accommodate the implications of these cuts? If yes, how so?

Question: Health reform is expected to close the Medicare Donut Answer
Hole over 10 years, lowering patient co-insurance from 100% to 25%
for drug expenditures between $2800 and $4500

Q1: Do you expect this to impact Pharma drug sales Yes / No

Q2: … And on a scale of -2 to 2, how do you expect this Medicare -2 -1 0 1 2

expansion to impact Drug sales. Please explain:

Q3: Do you believe this gain in future access to patients Yes / No

compensates for the immediate 50% drug rebate? Please explain:

Q4: Do you believe Pharma, or your firm, is preparing in any way to Yes / No
accommodate the increase in drug sales (marketing/distribution)? If
yes, how so?

Question: Reform is expected to expand Medicaid services to those Answer

below 133% of FPL, or 16 million people in 10 years

Q1: Do you expect this to impact Pharma drug sales /Access? Yes / No

Q2: … And on a scale of -2 to 2, how do you expect this Medicaid -2 -1 0 1 2

expansion to impact Drug sales. Please explain:

Q4: Do you believe Pharma, or your firm, is preparing in any way to Yes / No
accommodate the increase in drug sales (marketing/distribution)? If
yes, how so?

Overall Discussion Questions

Question: Having discussed the specific implications of Health Answer

Reform, I wanted to ask some closing holistic questions.

#1: On a scale of -2 to 2, what kind of impact do you think Health -2 -1 0 1 2

reform will have, overall, on Pharma drug prices

#2: On a scale of -2 to 2, what kind of impact do you think Health -2 -1 0 1 2

reform will have, overall, on Pharma drug sales

#3: On a scale of -2 to 2, what kind of impact do you think Health -2 -1 0 1 2
reform will have, overall, on Market Access for Pharmaceuticals

Question: To close up, I just wanted to ask some questions to help me Answer
in future interviews

#1: Did you get a chance to read the Summary doc beforehand Yes / No

#2: If so, did you feel the Summary was comprehensive, and/or Yes / No
comparable to your understanding of the Bill

#3: Would you make any additions/corrections to the Summary? Yes / No


#4: Do you have any other comments / suggestions for my interview Yes / No

7.3 Interview Responses

The following tables list the responses offered by interviewed respondents.

Interview Question Number of Interview Responses

Policy Provision Pharma (7 total) Payers (4 total)
Answer Impact Answer Impact
- - - -
Yes No 2 1 0 1 2 Yes No 2 1 0 1 2
Pharma Development
Comparative Effectiveness
1. Impact on Drug Sales 1 4 2 0 0 0 1 2 1 0
2. Is Pharma Preparing? 7 0 4 0

Increased Pharma taxes

1. Impact on Pharma profits 2 5 0 0 0 0 3 1 0 0
2. Is Pharma Preparing? 7 0 3 1

1. Impact on Market Access 0 6 0 1 0 0 2 0 2 0
2. Is Pharma Preparing? 7 0 4 0

Close Medicare Donut Hole
1. Impact on Pharma sales 0 0 0 6 1 0 0 0 1 3
2. Improved sales balance rebates? 4 3 2 2
3. Is pharma preparing? 6 1 4 0

Expand Medicaid
1. Impact on drug sales 0 0 1 5 1 0 0 0 2 2
2. Is Pharma preparing 4 3 4 0

Free Preventive Services

1. Impact on Pharma revenue? 0 1 2 4 0 0 0 2 2 0

Medicare (Advantage) Cuts

1. Impact on market Access? 0 1 5 1 0 0 3 1 0 0
2. Is Pharma prepaing? 2 5 3 1

Medicare/Medicaid Drug Rebate

1. Impact Pharma Profit? 2 4 0 1 0 0 3 0 1 0
2. Is Pharma Preparing? 7 0 4 0

Patient Access
Increase Patients Covered
1. Impact on Market Access? 0 0 0 6 1 0 0 0 1 3
2. HI mandate affect Revenue? 7 0 4 0

3. Will Revenue balance taxes? 5 2 3 1

4. Is Pharma preparing? 4 3 3 1

1. Overall Impact on lower Drug Prices 0 5 2 0 0 0 1 2 1 0
2. Overall Impact on higher Drug Sales 0 0 0 5 2 0 0 0 3 1
3. Overall Impact on improving Market
Access 0 1 0 4 2 0 0 1 0 3

Interview Question Number of Interview Responses
Policy Provision Physicians (3 total) Patients (1 total)
Answer Impact Answer Impact
- - - -
Yes No 2 1 0 1 2 Yes No 2 1 0 1 2
Pharma Development
Comparative Effectiveness
1. Impact on Drug Sales 1 1 1 0 0 0 1 0 0 0
2. Is Pharma Preparing? 3 0 1 0

Increased Pharma taxes

1. Impact on Pharma profits 0 1 2 0 0 1 0 0 0 0
2. Is Pharma Preparing? 2 1 1 0

1. Impact on Market Access 0 0 1 2 0 0 0 1 0 0
2. Is Pharma Preparing? 3 0 0 1

Close Medicare Donut Hole
1. Impact on Pharma sales 0 0 1 2 0 0 0 0 0 1
2. Improved sales balance rebates? 2 1 0 1
3. Is pharma preparing? 2 1 1 0

Expand Medicaid
1. Impact on drug sales 0 0 0 1 2 0 0 0 0 1
2. Is Pharma preparing 3 0 1 0

Free Preventive Services

1. Impact on Pharma revenue? 0 0 1 2 0 0 0 1 0 0

Medicare (Advantage) Cuts

1. Impact on market Access? 1 0 1 1 0 0 0 0 1 0
2. Is Pharma prepaing? 1 2 1 0

Medicare/Medicaid Drug Rebate

1. Impact Pharma Profit? 1 0 2 0 0 0 1 0 0 0
2. Is Pharma Preparing? 3 0 1 0

Patient Access
Increase Patients Covered
1. Impact on Market Access? 0 0 0 1 2 0 0 0 0 1
2. HI mandate affect Revenue? 3 0 1 0
3. Will Revenue balance taxes? 2 1 0 1
4. Is Pharma preparing? 2 1 1 0

1. Overall Impact on lower Drug Prices 0 1 1 1 0 0 1 0 0 0
2. Overall Impact on higher Drug Sales 0 0 0 2 1 0 0 0 0 1
3. Overall Impact on improving Market
Access 0 0 0 1 2 0 0 0 0 1

Interview Question Number of Interview Responses
Policy Provision Total (20)
Answer Impact
- -
Yes No 2 1 0 1 2
Pharma Development
Comparative Effectiveness
1. Impact on Drug Sales 2 7 5 1 0
2. Is Pharma Preparing? 15 0

Increased Pharma taxes

1. Impact on Pharma profits 3 9 3 0 0
2. Is Pharma Preparing? 13 2

1. Impact on Market Access 0 8 2 5 0
2. Is Pharma Preparing? 14 1

Close Medicare Donut Hole
1. Impact on Pharma sales 0 0 1 9 5
2. Improved sales balance rebates? 8 7
3. Is pharma preparing? 13 2

Expand Medicaid
1. Impact on drug sales 0 0 1 8 6
2. Is Pharma preparing 12 3

Free Preventive Services

1. Impact on Pharma revenue? 0 1 6 8 0

Medicare (Advantage) Cuts

1. Impact on market Access? 1 4 7 3 0
2. Is Pharma prepaing? 7 8

Medicare/Medicaid Drug Rebate

1. Impact Pharma Profit? 3 8 2 2 0
2. Is Pharma Preparing? 15

Patient Access
Increase Patients Covered
1. Impact on Market Access? 0 0 0 8 7
2. HI mandate affect Revenue? 15 0
3. Will Revenue balance taxes? 10 5
4. Is Pharma preparing? 10 5

1. Overall Impact on lower Drug Prices 0 8 5 2 0
2. Overall Impact on higher Drug Sales 0 0 0 10 5
3. Overall Impact on improving Market
Access 0 1 1 5 8