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Critical condition

Can Obama resuscitate the US ailing healthcare system and what impact will this have on pharma?

Illustration of ObamaOn November 5, 2008, shares in pharma companies such as GlaxoSmithKline, sanofi-aventis and Novartis fell. Investors were reacting to the news that US democratic candidate, Barack Obama, had won the presidential election. Uncertainties about the impact of President Obama's plans for reforming Medicare, the government-administered social insurance programme providing health insurance cover to people aged 65 and over, were undoubtedly among the reasons for investor anxiety. Since the 2006 introduction of Medicare Part D (the federal programme subsidising the cost of prescription drugs), the US government has become the largest purchaser of drugs in the US. As such, any scaling back of that programme, or of drug prices themselves, would have a huge impact on both the US and global pharmaceutical markets.

What are the indications that the new administration could be of benefit to the pharma industry during these difficult times?

President Obama will certainly push for more Americans to be covered by health insurance which, in turn, will increase the unit sales of pharmaceuticals. He will also push for a reduction in drug pricing, so despite the higher volume of sales, there may not be an increase in profit. A number of factors will play an important role in determining the fate of the healthcare system and the pharmaceutical industry in the US over the coming years. These will range from the economic crisis and how the new administration handles any rescue packages, to the notable key appointments of policy advisors and cabinet members, and their specific agendas.

The new administration
Since his historic acceptance speech, President Obama has made a number of key appointments, most notably Rahm Emanuel as his Chief-of-Staff and Tom Daschle as Secretary of Health and Human Services.

Rahm Emanuel has a long history of involvement in healthcare issues. He was elected to congress in 2002, off the back of a campaign that set healthcare affordability and availability as one of his major goals. His father and brother were a paediatrician and an oncologist respectively which, no doubt, sowed the healthcare seed. But more notable was his involvement in the unsuccessful implementation of the Clinton universal healthcare policy when he was Senior Advisor for Policy and Strategy to President Clinton.

Tom Daschle, on the other hand, is a former US senator, who served briefly as the Senate Majority Leader in 2001. Following his election defeat in 2004, Daschle became a senior policy advisor for one of the biggest law firms in America, whose healthcare lobbying clients included pharma companies such as Abbott Laboratories. In February 2008, Daschle published a book entitled Critical: What we can do about the healthcare crisis, in which he proposed the formation of a Federal Health Board to create a public framework for a largely private healthcare delivery system. Daschle was one of six democrat senators to support Clinton's universal healthcare plan to the very end, so his ideas on improving the current system will almost certainly derive from that original proposal.

As well as being the new Secretary of Health and Human Services, President Obama has also appointed Daschle as director of the newly-formed White House Office of Health Reform. This is a strong indication of President Obama's commitment to solving the healthcare crisis.

Shortly after the presidential elections, the Senate Finance Committee, which has jurisdiction over Medicare and Medicaid, chaired by US senator Max Baucus, led a Call to Action for Health Reform in 2009. It also published a paper setting out general proposals for a new system. The committee identified three key issues that need to be addressed in order to achieve the broad aims of healthcare reform, namely access, cost and quality.

Increasing access to health
The US remains the only developed country that does not guarantee healthcare for all. It is estimated that around 46 million Americans are uninsured and a further 25 million are underinsured. Unfortunately, this means that the costs of caring for those without adequate insurance are picked up by those with insurance, as providers charge higher prices to patients with cover to make up for costs incurred by those lacking it. One significant difference in the Baucus plan, when compared with that of the Clinton administration, is that in trying to achieve universal insurance coverage, those patients satisfied with their coverage will be able to keep it instead of being forced to change. The Baucus plan would also ensure that all Americans have access to affordable coverage through the creation of a nationwide pool called the National Health Insurance Exchange and that discrimination by private insurers against pre-existing conditions is prevented. In short, such a plan would increase the number of Americans with access to healthcare. This is an important step for all American citizens and would be a major advantage to the pharmaceutical industry.

Another key objective is to achieve greater efficiency and sustainable financing, particularly considering the US currently spends more than $2 trillion per annum on healthcare; a figure that is projected to rise. Put into context, the US spends twice as much as the UK on healthcare as a proportion of gross domestic product. Pressure in the US is therefore building for the healthcare industry to eliminate excess spending.

In particular, President Obama has set his sights on reducing the cost of drugs, a move that will have a significant impact on pharma. Three critical areas will be targeted to achieve this aim. First, it will be made easier for drugs purchased outside the US to be brought into the country, known as re-importation. There is likely to be huge support in congress for this. Second, the way for generics to get to market following patent expiration of more expensive, branded medicines will be eased, and a regulatory pathway for biosimilars will be constructed. The final target is to allow the government to negotiate drug prices directly, which is likely to cause the greatest fury within pharma. A figure of up to $2,500 per family has been bandied about by the new administration when referring to the projected reductions in healthcare costs. This certainly appears ambitious and would require dramatic changes in the three areas mentioned.

Aside from the healthcare reform issue, there are other aspects of the new administration's economic policy proposals that are of interest to pharma, particularly in the form of promises to:
• Increase federal support for research, technology and innovation for companies and universities
• Invest in the sciences through a doubling of federal funding for basic research
• Deliver electronic medical records for all within the next five years through investment in health IT
• Make the R&D tax credit permanent.

The aim of these proposals would be to ensure America leads the world in creating new, advanced jobs and products by investing in a skilled workforce and technology infrastructure that looks towards the future. Such investments would obviously benefit the R&D pharmaceuticals, but the question remains: will they make up for the decline in profits needed to fund R&D and get new drugs to market?

Fixing the economy
President Obama's healthcare reform proposals contain many features of the original Clinton plans, with the marked difference of not requiring those satisfied with their insurance to change their provider – a massive stumbling block for the universal healthcare plan set out in the 1990s. Tom Daschle, who served on the Senate Finance Committee that led the Call to Action, will be extremely influential as the new democratic administration battles to achieve the much-needed healthcare reform.

As the economic crisis deepens and unemployment grows around the globe, the US will see the numbers of people with adequate healthcare insurance fall. This is because almost half of all Americans have health insurance provided by their employers and it follows that once their employment ends, so too does their healthcare coverage. While those affected can, of course, continue to pay for healthcare insurance themselves, this is a luxury few will be able to afford in the event of unemployment.

Away from all the talk of reform, there is one more challenge in the US that pharma companies will have to deal with this year, and that is the appointment of a new Food and Drug Administration (FDA) commissioner. The FDA has languished under the Bush administration and many in the US are holding their breath to see the direction in which the new commissioner will take it. It is likely that industry will support the appointment of someone like Dr Janet Woodcock, the drugs centre director, as the appointment of a commissioner with a consumer safety background, such as Dr Stephen Nissen, could lead to companies having to put greater effort into proving safety and narrowing valuable patent time.

Healthcare delivery
Irrespective of who won the presidential election in November, both the Republicans and Democrats would have been forced to act on the way that healthcare is delivered in the US. Both the McCain and Obama campaigns favoured wider use of generics and importation, as well as the ability of the government to negotiate drug prices under Medicare Part D. The Democratic victory, however, in the shape of Obama, Emanuel and Daschle, is likely to focus more attention on achieving greater efficiencies in the healthcare system through the curbing of pharmaceutical profits than a Republican win, with John McCain as president, would have done.

Although many believe that healthcare reform will have to take a back seat as President Obama battles the current economic crisis, there are those – including the new Secretary of Health and Human Services – who argue that one cannot happen without the other. A recent document published by the UK Department of Health, called Health is Global, noted: "A healthy population is fundamental to prosperity, security and stability – a cornerstone of economic growth and social development." The same report goes on to say that "poor health does more than damage the economic and political viability of any one country – it is a threat to the economic and political interests of all countries."

Arguments such as these put into context in the US certainly suggest that there will be a dramatic shift in healthcare policy in that country during the first 100 days of the new Obama administration. But whether there will be any money left in the pot is another matter.

If it turns out that the government has to pour all the money for healthcare reform into stabilising the economy, and dependent on the success of those policies, it may be that the only choice is to simply stitch the current health system together and hope to find a longer-term solution in the second year in office, as and when the financial crisis has passed. This would delay any major restructuring until 2010 and enable stakeholders such as the pharma industry, insurance industry and healthcare providers to engage more fully with the new administration in any discussions regarding such change.

A rocky path
On his road to the White House, President Obama made many promises relating to healthcare reforms and the pharmaceutical industry. Now, faced with a totally different economic climate to a year ago, many of those promises may have to be shelved indefinitely. However, during the transition period he has made some key appointments that suggest he is unlikely to want to back down on many of the promises he fought so hard to get on the agenda originally. The coming months will be critical for many. It can only be a good thing that more Americans will have access to the healthcare they require, but the path to achieving that goal is likely to be rocky.

The Author
Victoria White is a senior account executive, healthcare public affairs at Fleishman-Hillard
To comment on this article, email

25th February 2009


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