The dust has partly settled since President Obama signed the “Health Care and Education Affordability Reconciliation Act of 2010.” By now, analysts have had a chance to examine the act’s details and get a sense of what practical effects the legislation will have. So what will healthcare reform mean for pharmaceutical manufacturers?
First, the Act will mean an increase in drugmakers’ sales, according to a PriceWaterhouseCoopers (PWC) report. About 32 million additional people will be insured by 2019, and about half of them will be covered by Medicaid. The insured are more likely to fill prescriptions, so this is to the industry’s benefit. But the Act will also raise the rebates required of branded-drug manufacturers from 15.1% to 23.1%. Will this hurt drugmakers? Probably not. “The impact of an increase in the Medicaid rebate rate may be less extensive than believed as rebates currently in place already exceed this rate,” says the PWC report.
Previously, pharmaceutical companies often lost sales when beneficiaries entered the doughnut hole in Medicare coverage. But the Act contains several provisions to help patients move through the hole quickly. As of the Act’s signing, the government will pay a $250 rebate to each patient in the hole. By 2011, manufacturers will have to provide 50% discounts on branded drugs to patients in the doughnut hole. Although this might sound bad, the PWC report notes that drugmakers already provide discounts on prescriptions filled in the coverage gap. So this part of the Act might not affect drugmakers much, except perhaps by boosting sales.
On the other hand, the Act requires each pharmaceutical manufacturer to pay a fee based on its share of total branded-drug sales to government programs. Executives told of this detail might have responded, “I knew there was a down side.” Not so fast. The Act divides sales amounts into five ranges and taxes each range at a different percentage. A company with $300 million in sales would pay nothing on its first $5 million, 10% on sales between $5 and $125 million, 40% on sales between $125 million and $225 million, and 75% on sales between $225 million and $300 million. “Given the fixed dollar amount, over time, the impact diminishes relative to pharmaceutical sales,” said the PWC report.
Finally, large biopharmaceutical companies knew right away that healthcare reform would be good for them because the Act gives innovators 12 years of data exclusivity. Many small biopharmaceutical companies and manufacturers of generic biologics likely felt left out when they heard the news, but there’s a silver lining. The Act allocates $1 billion for a two-year temporary tax credit to encourage the development of new therapies. The 50% tax credit will go to companies with 250 employees or fewer, and is intended to help small, undercapitalized biotech companies, according to the PWC report.
At worst, healthcare reform will likely have little effect on drugmakers’ pocketbooks. At best, it will increase their sales without greatly increasing the amount of tax or rebates they pay. Pharmaceutical executives may soon be moved to paraphrase Patrick Henry and say, “If this be socialism, make the most of it.”