US Health Bill a ‘double-edged sword’ for pharma sector

1-Apr-2010

Mixed outlook for pharma industry but rising revenues expected from 2015 as volumes increase

The passing of President Obama’s healthcare bill marks the biggest reform of the healthcare sector in the US for around 40 years and gives the pharmaceutical manufacturing sector a little more certainty regarding the future outlook for its business.

Overall, there is a strong belief that the pharmaceutical industry will benefit from the reform, but according to Tijana Ignjatovic, strategic healthcare analyst at Datamonitor, the bill is something of a double-edged sword.

While many factors will determine the financial impact of proposed US healthcare reform on the branded pharmaceutical industry, Datamonitor believes that there are potential short and long-term dangers.

In the short term, it is likely that imposed discounts and rebates, in addition to raised industry fees, will lead to a market dip – and this at a time when the industry is facing patent expiries in 2011 that are set to wipe tens of billions of dollars off annual revenue.

But from 2015 onwards, these negative effects will be offset as revenues begin to rise, driven mainly by the increase in the number of insured people and the resulting increase in drug consumption.

While this will be beneficial in the medium-term greater government participation in provision of healthcare will inevitably ensue, says Datamonitor. In addition, growing cost strain on both public and private payers will lead to increased negative pressures on the pharmaceutical industry in the US, decreasing the overall value growth of the market. It cannot be ruled out, Igniatovic warns, that unfavourable measures such as drug re-importation and Medicare Part D price negotiations may be introduced as healthcare costs start to bite.

Generic providers will also be questioning the benefits of the reform, despite a highly favourable outlook at the beginning of the process and President Obama’s pro-generics stance. Although the promise of higher sales volume from more insured patients and growing cost-containment pressures will be seen as a great positive, the 12 years exclusivity given to branded biologics, which is substantially longer than the usual five years given to small molecule drugs, will be a concern.

With the introduction of a ban on refusal of insurance coverage for pre-existing conditions and removal of annual or lifetime coverage limits, the health insurance industry will be hit hard by reform, with its profitability in jeopardy despite the increase in the number of customers.

Urgent meetings are currently being held by the financial leaders of American healthcare companies, who cannot afford to ignore this revolutionary transformation in the way US citizens receive medical care.

President Obama stated: ‘[It] answers the prayers of every American who has hoped deeply for something to be done about a healthcare system that works for insurance companies, but not for ordinary people.’ But at a time of economic instability there have been vehement campaigns against the bill and healthcare industry leaders are now looking to work together to implement a plan that ensures the successful revenue cycle of their organisations.

Industry leaders have been attending a series of closed door meetings at the CFO Healthcare Summit US 2010 in Arizona to discuss what action needs to be taken and how. A spokesman for the Consortium of Executives said: ‘I think most CFOs feel thrown in at the deep end like never before. It is sink or swim, and we need a consistent approach to tackle these difficulties, so this meeting is a crucial step forward for the American Healthcare industry as a whole.’

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