Healthcare Reform Proposals Challenge Manufacturers

Published on: 
Pharmaceutical Technology, Pharmaceutical Technology-06-02-2008, Volume 32, Issue 6

Comparative-effectiveness analysis aims to promote appropriate pharmaceutical spending.

As the presidential election campaign moves toward its final stage, healthcare reform remains a high-profile issue. Efforts to expand coverage for the uninsured include proposals to curb outlays for prescription drugs by expanding access to generic products and to low-cost medicines from abroad. The reformers also support comparative-effectiveness analysis to identify therapies and treatments that have sufficiently great value to warrant high price tags. Drug manufacturers, however, worry that this development will foster inappropriate controls on drug coverage and demands for costly additional research.

Jill Wechsler

These issues are playing a leading role in the national health-reform debate as polls continue to rank access to care a prime domestic policy issue for Americans. The worsening economy has underscored the link between rising healthcare costs and the erosion of US jobs, as corporate leaders point to costly health benefits as a factor undermining their global competitiveness. Concern about access to care is no longer limited to the poor; middle-class consumers fear losing their jobs and insurance.

Democratic and Republican candidates have rolled out health-reform plans that promise to cover the uninsured and retain choice in coverage and benefits. The main Democratic strategy is to expand Medicaid and the State Children's Health Insurance Program (SCHIP) to cover more kids and low-income adults. Senators Hillary Clinton (D-NY) and Barack Obama (D-IL) also propose tax breaks and other incentives to help individuals obtain health insurance; the goal is universal coverage, whether mandated or phased-in.

Interestingly enough, Sen. John McCain (R-AZ), the presumptive Republican candidate, backs radical change that would shift from an employer-based health-coverage system to one that relies on individuals to obtain insurance through the market. McCain proposes to end tax advantages for employer health benefits. The resulting savings would support tax credits and subsidies (for the low-income and disabled) to expand access to affordable insurance, including high-deductible plans. The GOP leader also backs "means-testing" for Medicare and wants to scale back the Medicare drug benefit to reduce government subsidies for "the Warren Buffets of the world."

Jason Reed/Getty Images

Elusive savings

Reform will be costly whether it involves expanded government programs or larger tax breaks. Broader Medicaid and SCHIP programs plus large tax credits or deductions will cost US taxpayers some $150–200 billion per year, according to a PricewaterhouseCoopers report on the candidates' health-reform proposals.

To obtain needed funds, the contenders seek large savings by adopting electronic medical records, encouraging prevention, and better coordinating care for high-cost patients with chronic conditions. White House hopefuls also talk of improving the healthcare system by boosting government support for biomedical research, curbing obesity and smoking, and reducing healthcare disparities.


Unfortunately, most of their proposals are unlikely to support even modest health reform. Electronic medical records can eliminate errors and increase efficiency, but will be costly to establish in the short run. Chronic care coordination and disease management may improve the quality of treatment, but will generate costs as well as savings. Consumer-directed health plans may be a useful coverage option but will not likely reduce the cost of individual coverage.

Consequently, political leaders are highlighting strategies that reduce outlays for prescription drugs. Obama promises to provide Americans with access to the "exact same drugs in Europe and Canada," where pharmaceutical companies sell them at half the US price. He plans to save as much as $30 billion by repealing the ban on government price negotiations for drugs purchased by Medicare, a policy he described in ads during the heated Pennsylvania primary campaign as a Congressional payoff to Big Pharma. Obama also wants to increase the use of generic drugs by government health programs and "prohibit big-name drug companies from keeping generics out of the market."

Similarly, Clinton promises to hold down fast-rising drug prices by removing barriers to generic competition, allowing Medicare to negotiate lower drug prices, and boosting oversight of drug advertising, "marketing excesses," and inappropriate financial relationships with providers. She wants to increase funding for the US Food and Drug Administration's Office of Generic Drugs to speed new generics to market and to create a pathway for biogeneric competition. This pathway would end "the monopoly currently enjoyed by large biopharmaceutical companies" and save $5–7 billion each year, according to Clinton.

Though Democrats have long touted such tactics to curb drug prices, it's surprising to hear similar antipharma rhetoric from McCain. He regards efforts to promote generic competition and to permit drug reimporting as compatible with his free-market approach to healthcare reform. McCain wants to develop "routes for safe, cheaper generic versions of drugs and biologic pharmaceuticals" and "safety protocols that permit reimportation to keep competition vigorous."

Comparing effectiveness

A related strategy is to steer healthcare spending to medical treatments and products that demonstrate effectiveness. Mounting evidence shows that medical treatment varies considerably across the nation, resulting in wasted resources and ineffective care that can harm patients. As US healthcare spending continues to soar, and quality pales in comparison to other industrialized nations, support has grown for establishing an entity to independently analyze the quality and effectiveness of healthcare products and procedures. Comparative-effectiveness (CE) research promises to provide information that will help patients and their doctors choose the most appropriate care options, which ideally will include high-cost treatments that have data indicating higher benefits.

CE research has broad support from healthcare experts. The Medicare Payment Advisory Commission recommended in its June 2007 annual report that Congress establish an independent entity to sponsor "credible research on comparative effectiveness of healthcare services." In a January 2008 study, an Institute of Medicine (IOM) committee recommended establishing a national CE research program with "sufficient resources, authority, and capacity" to develop research standards and processes. The IOM Roundtable on Evidence-Based Medicine provides a forum for ongoing discussion of ways to improve and use medical evidence.

Not surprisingly, the presidential candidates have jumped on the CE bandwagon. McCain says that publicizing information about treatment options and developing national standards for measuring and recording outcomes can address the rapidly rising cost of US healthcare. Clinton wants to establish an independent "best practices" institute to provide better information about what works in healthcare and "how treatments compare to one another." She believes that such research is needed to address the huge growth in prescription-drug use. Obama wants CE research on which drugs, devices, and procedures are the best for individual patients as one way to reduce the "considerable waste in our healthcare system."

Enthusiasm for CE research is boosting support in Congress to establish a quasigovernmental CE research organization. Senate Finance Committee Chairman Max Baucus (D-MT) is looking to authorize such an entity as part of must-pass Medicare legislation needed to block a cut in payments to physicians that otherwise would occur this summer.

One benefit of a federal CE research organization would be to reduce duplicative analysis by insurers and private groups developing their own CE data. Oregon's Drug Effectiveness Review Project (DERP) assesses clinical-trial data about drug therapeutic groups to inform coverage decisions by managed-care plans and state Medicaid programs. Consumer's Union uses the DERP assessments for its BestBuyDrugs program, which considers drug cost along with effectiveness factors. Major insurers such as UnitedHealthcare, Kaiser Permanente, WellPoint, and BlueCross BlueShield have programs to evaluate new technology and health services. Unfortunately, many of these assessments are hard to compare because they are based on differing methods and standards.

Some CE advocates talk about building on the CE program at the Agency for Health Research and Quality (AHRQ), which has expanded its research portfolio in this area during the last five years to support coverage and treatment decisions for Medicare and other government health programs. But the current thinking is that an independent research entity will be immune from political control and direct government oversight. A Congressional backlash against health-technology assessment in the 1980s eliminated Congress's Office of Technology Assessment and nearly defunded the predecessor to AHRQ.

The envisioned CE operation would accept funding from private organizations as well as the federal government. This arrangement is an important consideration for raising the $200 million or so needed to start such an operation. Any legislation adopted this year, however, is likely to establish only a "placeholder" to launch a CE program and not provide much more than the paltry $15 million that currently supports the AHRQ program.

Insurers and payers point out that the US is virtually alone among developed nations in its lack of an entity that compares the effectiveness and value of new drugs, devices, and medical procedures. They and other CE enthusiasts see a model for an expanded CE research program in the United Kingdom's National Institute for Health and Clinical Excellence (NICE), which reviews clinical and outcomes data to evaluate new medical technologies. NICE's cost-effectiveness assessments help national health officials establish clinical guidelines and make coverage decisions. But NICE analyses often take more than a year and can delay patient access to new treatments.

Industry concerns

Experiences such as these raise concerns among medical-product manufacturers that CE analysis could be manipulated to favor a cost-cutting agenda, as opposed to promoting high-quality care, and could block rapid acceptance of new treatments. A key contributor to the CE clamor is the emergence of new biotechnology therapies and medical diagnostics that could improve public health and save lives but are fairly expensive.

Pharmaceutical companies acknowledge that objective CE research could increase safe drug use. At the same time, industry leaders maintain that payers should cover all medicines that FDA deems safe and effective, and disregard costs in effectiveness calculations. Additional research requirements for sponsors, moreover, could be costly: prospective studies cost hundreds of millions of dollars and are vastly different from relatively low-cost retrospective data reviews. A white paper issued by the Biotechnology Industry Organization last year questions whether CE research methods are sufficiently developed to deal with the complexities of biotechnological therapies and the wide variation in individual response.

At an April briefing in Washington sponsored by the Alliance for Health Reform, David Nexon, senior vice-president of the medical-device association AdvaMed, raised concerns that CE research might be used to support a "cheapest is best" approach. CE studies are "rarely definitive slam dunks," he said, noting that one treatment often works better for certain patients than another one.

But the prospect that more effective (and limited) use of medical technology could save billions is too attractive for payers and insurers to ignore. "It makes no sense to us" to establish best treatment processes and then ignore that information when making determinations about coverage, said Karen Ignagni, president of America's Health Insurance Plans, which represents insurers and health plans. While CE analysis might not lead an insurer to deny coverage, a health plan might put a more costly drug without a clear advantage in a higher formulary tier, Ignagni noted. "But taking cost out of the equation is putting your head in the sand," Ignagni observed.

Refining the process

Pharmaceutical manufacturers want policymakers to examine several other strategies for reining in healthcare costs, including initiatives to reduce medical errors, curb hospital-acquired infections, adopt value-based purchasing, and create information-technology systems. Industry leaders also want a seat at the table in setting research priorities, standards, and methods. The National Pharmaceutical Council is positioning itself to represent pharmaceutical interests in the debate with its expanded focus on how to use evidence-based analysis to make drug-coverage decisions.

Drugmakers are leery of a multibillion-dollar agency sponsoring comparative studies that Medicare and other payers would use to make product-coverage and reimbursement decisions. And added study requirements could erect higher hurdles to marketing new drugs. Yet the comparative-research approach may be preferable to price controls in the guise of government negotiations for the Medicare drug benefit, coverage denials, and limits on access to new technologies.

In Washington This Month

  • Presidential candidates urge cuts in drug spending to finance expanded healthcare.

  • Democrats and Republicans support increased generic drug competition and drug reimporting.

  • Advocates argue that a comparative-effectiveness research organization will promote more appropriate care.

Jill Wechsler is Pharmaceutical Technology's Washington editor, 7715 Rocton Ave., Chevy Chase, MD 20815, tel. 301.656.4634,