How Will Obama Care Affect the Pharmaceutical Industry?
The biggest health care reform act since Medicare was created in 1965 has just been signed by the President– amidst more controversy than any bill passed in the last twenty years. How will this affect the pharmaceutical industry?
This bill is estimated to carry a $940B price tag, but will insure an additional 32M Americans by 2019. However, it does include hefty taxes – over $70B, and HMOs. Insurance companies won’t be able to deny new customers based on pre-existing conditions, and companies with over 200 workers will have to automatically enroll employees in some form of insurance coverage.
Although government subsidies for the uninsured won’t kick in until 2014, costs will be incurred almost immediately, which is why many have opposed this plan. Cuts in Medicare will also be used to partially fund the bill, and this is causing concern in certain quarters as Medicare is considered to be a “sacred cow” to many.
Although many are questioning the effect this will have on the development of new medicines, pharmaceutical companies large and small are expected to be the big winners in the end, as many more people will be insured and able to afford life-saving medications, new treatments, and maintenance medications that would have been simply too expensive for them before this legislation was enacted.
Democratic leaders are claiming that whenever a business sector gains a larger customer base, it wins! Obama Care is no exception to this rule, as many more children and elderly will gain coverage which will increase the number of prescriptions for medicines and other health care services.
The amount of money, time and energy spent by Big Pharma in promoting this bill has left the American public suspicious and a bit cynical about industry intentions. Will this tarnish industry perceptions? Most informed industry observers believe that the industry won’t be in any worse shape than it suffered during the Clinton era when scrutiny was very high, or more recently when the sector came under significant criticism for huge profits during the period of economic corrections
. As pharmaceutical consultant firms point out, patents have expired, and generic availability has increased, meaning the industry has been forced to become more “lean and mean”. in its approach to generating revenues.
This bill hits the industry with over $10B in increased taxes to pay for the expanded insurance coverage promised. This is probably going to offset at least some of the gains made as a result of having a larger available customer base. And it has been argued that more expensive, and controversial treatments that would have led to miracle cures, saved lives and higher profit margins will be slower to reach the market under this plan.
Given the length of time it will take to create insurance coverage for these millions of Americans who stand to benefit under the bill, it will take some time before the expected benefits will accrue. In the meantime, we can expect the pharmaceutical giants to continue their consolidation by purchasing smaller companies, expansion into new and emerging markets, and lobbying for greater protection from cheap, foreign-made “knock-off” drugs that are dangerous to both patients and branded drugs profit margins.
We can also expect the Obama Care controversy to persist long after the ink has dried on the signed legislation, as opponents protest over loss of freedoms, and proponents rejoice at the expansion of coverage. We can only hope that the promised benefits actually happen, and are not watered down by amendments that are almost certain to follow.
Nigel Smart
Nigel Smart is a pharmaceutical consultant and founder of the Pharmaceutical Consulting Blog. |
