Current Healthcare Policy and its Potential Impact on Government Programs

By: Chris Cobourn, VP of Regulatory Compliance
chriscobourn@cis-partners.com

Change is coming to the healthcare industry in the United States, and it appears very likely that it will impact the way we view Federal and State Programs. There will be a change in the way we view the Government as a customer, as well as how we view the business and financial impact of this growing customer base.

Let’s look at three key converging factors:

1) Increased Need - the socio-economic factor: An aging baby boomer population will soon become Medicare eligible. Economic issues, such as the rising unemployment rate, will cause an increase in Medicaid eligibility (this includes the crisis of the Dual Eligibles, 8 million people in 2007, who are both Medicare and Medicaid eligible, and represented $239 Billion in healthcare spending in 2008).

2) Financial Crisis: A Financial crisis at the Federal and State level presents a challenge of how to fund existing programs, let alone plan for the expanded need.

3) Political Traction: With the Democratic party controlling both the executive branch and legislative branch of the Federal Government, and with their public advocacy of healthcare reform, it is certain that some, or many, budget and legislative initiatives will take place.

The discussion is evolving daily, and will surely evolve dramatically over the next few months, and Senators Baucus and Kennedy reiterated these issues in a letter to the President on April 20, in which they committed to “moving health reform legislation in the Senate this year, and announced that their committees will mark-up comprehensive health care reform legislation in early June.” (1)

Keep in mind, as well, the important factor of Senator Arlen Specter moving to the Democratic Party. His shift, combined with the potential of Al Franken taking the Senate seat for Minnesota, and with the two independent senators voting with the Democrats, you have the potential of a Filibuster-proof Senate.

So, what does this have to do with Federal Programs as we understand them today?

First:

Let’s look at the President’s proposed budget, which includes a $633.8 Billion Health Care Reserve Fund and a $316 Billion dollar “Financing Component,” to finance part of the reserve fund. When you look at the details of the Financing Component in the budget, it looks like a lot of it will impact Pharma, including:

• Increasing the minimum Medicaid prescription drug rebate from 15.1 to 22.1 percent of the Average Manufacturer Price, and applying it to new drug formulations,
• Allowing states to collect rebates from Medicaid Managed Care plans,
• Reducing drug prices, establishing a pathway for FDA approval of generic biologics, preventing drug companies from blocking generic drugs from consumers,
• Strengthening Program Integrity by adding dedicated resources to CMS to improve oversight and program integrity.

Second:

Look at the legislation currently on the House and Senate Floor, keeping in mind that much of it represents legislation from prior sessions that never came to a vote, and are now in a potentially Filibuster-proof and reform-minded Congress. This includes over 15 pieces of legislation, covering areas such as:

• Expanded SCHIP participation (passed),
• Extending Medicaid Rebates to Medicaid Managed Care,
• Government negotiation of Medicare Part D Rebates and Government sponsored Medicare Part D plans,
• Increased use of Generics,
• Broadening and enhancing the 340B Program, with expanded eligibility and enhanced administrative components,
• Drug importation,
• Requirements that manufacturers participate in State programs.

In Summary:

This is a business issue as much as it is a compliance and operational issue. 50% of Americans are expected to receive benefits through publicly funded programs by 2016. The Government may soon represent one of your largest customers, and the legislative action that is on the floor now may very well impact some of the price points of that customer base.

The tone of an administration that includes Nancy-Ann DeParle, Counselor to the President and Director of the White House Office of Health Reform, seems to be that Healthcare Reform, this time around, will be a more collaborative and cooperative process. What this means to me is that the concept of Universal Health Care is on hold over the short term. What is practical and realistic over the next few years will be to take incremental steps, through budget and legislative action, to change the eligibility and financing components of our current programs.

It is important that manufacturers have the ability to step back and look at how these pending changes may impact their products and their customers. The changes will impact branded, generic, and biotech companies very differently. Legislative changes in the programs over the next year or two may impact your business model over the next five to ten years. These changes, combined with the consideration that the government may eventually become a larger (if not your predominant) customer, makes this a topic well worth watching.

Concurrent to these changes is the message coming from the OIG and the States of an increased need to audit and monitor fraud and abuse. This translates to another key financing consideration, as the Federal government is seeing a 17 to 1 return on investment on their audit and investigative activity, and is continuing to pursue a collaborative process between the OIG, the DOJ and the States. (2)

The question, ultimately, is not whether there will be key changes to the Federal and State programs, it is whether we can be prepared for the inevitable changes and manage them from both a business and a compliance perspective.


Sources:
1. http://kennedy.senate.gov/newsroom/press_release.cfm?id=1D9CB1D9-42F6-4FA0-81A8-00F645381877

2. http://oig.hhs.gov/testimony/docs/2009/4-22-09HomelandSecurity.pdf
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