[Ip-health] reform of US drug pricing

[Michelle Childs]

Democrat reform drive to hit drugmakers

Investors are concerned a new stance on healthcare could curb revenue growt=
h
Friday November 17, 2006
The Guardian

http://www.guardian.co.uk/usa/story/0,,1950298,00.html

The Democrats were still in a buoyant mood as they began electing their
leadership for Congress yesterday, little more than a week after they won
majorities in the House of Representatives and the Senate. But the
pharmaceuticals industry on both sides of the Atlantic was braced for the
fall-out.

The Democrats have given strong indications that they want to reform some
aspects of US healthcare, particularly drugs pricing. The US accounts for
nearly half of the $600bn (=A3318bn) global drugs market, and is of crucial
importance to pharmaceutical companies around the world.

The global drugs industry is under growing pressure as competition,
particularly from generics companies, has increased and research and
development programmes have come up with fewer winning compounds. Analysts
point to a dearth of new medicines coming to market.

The prospect of increasing political pressure in the US was seen by
investors as a new setback for the industry. As a result, the top ten
global drug companies lost about =A333bn off their market value last week a=
s
investors shied away from the sector. AstraZeneca, for example, saw its
shares fall about 7%, whilst GlaxoSmithKline slumped 5%. They have since
recovered a little, but not to the levels seen before the elections.

The Democrats are focusing on the Medicare Prescription Drug, Improvement,
and Modernization Act (MMA), a programme to provide prescription drug
benefits to the elderly and disabled, known as Medicare Part D. Under this
programme, which was set in motion last January, those over 65 or with a
disability have access to a prescription plan that is run by private
health insurance companies, not the government.

This is good news for patients and drug companies. Indeed, the new
programme has brought an estimated 15m new patients who were previously
not covered by a healthcare plan, and who would not have been able to
afford the outpatient drugs they needed. In fact, analysts have estimated
that US drug prescription market sales will increase by about 5 percentage
points or more, thanks to Medicare Part D.

But the move has increased government spending on drugs. In 2005,
Medicare's spending on outpatient drugs contributed about 2% of total drug
spending in the US.

This year, according to Paul Heldman, healthcare policy analyst at
Citigroup, Medicare has funded about 20% of the overall spend. "This will
probably continue to grow as the elderly section of the population
continues to increase."

Currently, private health insurers negotiate directly with drug companies
to settle on the price of a treatment.

But Nancy Pelosi, the new Democrat speaker of the House of
Representatives, has said that within 100 days of her party taking control
of Congress in January, it will introduce legislation to allow the
government to negotiate directly with pharma groups on the price of drugs
under the Medicare programme. This, she argues, will enable the government
to secure lower prices. But by how much remains to be seen.

More importantly, though, it is unlikely that such legislation would be
put into practice in the next few years. Even if it got through the House
of Representatives and the Senate, President Bush holds the ultimate power
of veto.

He has only vetoed one piece of legislation since he came to power in
2001, relating to embryonic stem cell research. But Medicare Part D is one
of his administration's creations, and it is unlikely that he would let a
piece of legislation through that destroys it.

Michael O. Leavitt, the US secretary of health and human services, said in
an interview this week that he saw no prospect of a compromise.
Jon Symonds, AstraZeneca's chief financial officer, also said this week
that he did not expect any change in legislation to materialise until 2009
at the earliest, after the presidential elections.

But drug companies will certainly face increasing scrutiny over pricing.
Mr Ward says: "Now the Democrats are in charge in both houses, they will
have the chairmanship of all committees." This includes the crucial
government reform and energy reform committees.
A Washington consultant said that within the first three months, hearings
would emerge similar to the review of tobacco companies in the 1990s, when
the Democrats were in control and they brought tobacco executives to
testify.
Increased political scrutiny could curtail drugs companies' ability to
raise prices at their current rate, analysts say. There is currently no
regulation limiting the prices that pharma groups can charge for their
medicine in the US, unlike in Europe where regulation is becoming more
stringent.

Most analysts agree that one area likely to change is the Food and Drug
Administration (FDA), the government body responsible for regulating the
drugs that come on to the market.

Analysts also say rules relating to pediatric exclusivity, which gives
companies an extra six months of patent protection against generic
competition if they do extra studies on how their medicine affects
children, could be cut.

The Democrats have been keen to promote generics, which are much cheaper
than their brand-name counterparts. Henry Waxman, a Democrat
representative who will now chair the government reform committee, says:
"I think the question that investors are trying to answer is - is this a
signal of things to come, and is this going to help propel the Democrats
to the White House in 2009?" That would give the drugs industry a lot more
to worry about.



Ben Wallis
Transatlantic Consumer Dialogue Coordinator
Consumers International
24 Highbury Crescent
London N5 1RX
Tel: +44 20 7226 6663 Ext. 218
Fax: +44 20 7354 0607
www.tacd.org

Consumers International is a federation of consumer organisations
dedicated to the protection and promotion of consumers' rights worldwide
through empowering national consumer groups and campaigning at the
international level. It currently represents more than 230 organisations
in 113 countries. For more information, see:
www.consumersinternational.org




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